Traditional industries with long tail effect

The long tail effect in traditional industries may not be significant, but in the innovation of those pioneers, we clearly see the shadow of the long tail.

In April 2006, China Merchants Bank celebrated the issuance of more than 5 million credit cards. Behind this figure, it took China Merchants Bank three years to finally occupy one-third of the domestic credit card market. What is even more surprising is that Ma Weihua, the president of China Merchants Bank, declared that the credit card business of China Merchants Bank has started to make profits, and the profits have "exceeded the international average", which also broke the convention that "it is impossible to make money in the first five years of credit card business".

As the concrete executor of this achievement, Zhong Jiwei, general manager of China Merchants Bank Credit Card Center, attributed this to China Merchants Bank's previous restructuring of the customer structure of credit card business. In this new customer structure, China Merchants Bank has broken the original simplified way of dividing customer groups, but has carried out more detailed hierarchical management of customers according to the product life cycle of cardholders, and issued student cards (youth cards), ordinary cards, gold cards and platinum cards respectively.

In the past, in terms of customer orientation, commercial banks were no different from other traditional businesses, and they also habitually divided customer groups into high and low grades, maintaining the inertia thinking of the "28 rule". The difference between China Merchants Bank's credit cards is to personalize "customers" instead of grouping them. They believe that finding the neglected needs of every customer in the past is undoubtedly a huge long tail market.

The emphasis on "personalization", "customer power" and "small profits and big market" is the basis of the long tail market. Today, the trend of social retailing is becoming more and more obvious, and the "customer power" that has been shouted for countless times has finally begun to appear. The "small profit big market" is not only a rebellion against the commercial norms of the traditional industrial society, but also the first step taken by traditional merchants in the face of the long tail market.

For more traditional enterprises, the understanding of customer power obviously lacks the sensitivity of some Internet companies. But don't worry, this change is coming, not only in the music and digital media industries, but also in the whole traditional business field. Of course, influence does not mean subversion. As early as the "one-card" era, China Merchants Bank was the first domestic banking industry, setting up stalls in the streets, selling products and carrying out three-dimensional market activities, which some commercial banks have not had until now.

The formation of China Merchants Bank's sales culture is actually a microcosm of domestic commercial banks' experience in exploring retail banking. Prior to this, the domestic banking business structure was dominated by traditional corporate business, enterprises and institutions were the main customers of banks, and they were also "big customers" in the usual sense, while a large number of individual users were ignored in the banking industry for a long time.

Since 2004, commercial banks have quietly set off a wave of strategic transformation to retail banks. There are policy factors and market environment behind this, but "the traditional company's business began to grow weakly" is the fundamental motivation.

In this business sector, the competition between banks has been seriously homogenized, and the profit space has gradually shrunk. At the same time, the increasingly mature and diversified capital market makes enterprises with capital needs have a variety of financing channels, including the securities market, in addition to lending to banks, and the bargaining power of corporate customers when dealing with banks is greatly strengthened. It is almost impossible for commercial banks to maintain the trend of high spread of corporate business, so it directly urges commercial banks to turn their attention to intermediate business and retail business with high profit margin and large space. This "neglected long tail" will largely support the future growth space of commercial banks. In this regard, Zhang Yaolin, vice president of Shanghai Pudong Development Bank in charge of personal banking business, also mentioned that the retail trend of commercial banking business is inevitable, and it is time for commercial banks to establish a "retail culture".

In a wider range of industries, this measure of "adjusting the arrangement of tail curves" has also emerged. After the highly competitive head market failed to seek ideal growth opportunities, some enterprises are integrating the long tail market with new arrangements.

Telecom operators including China Mobile and China Unicom have achieved success in telecom value-added services. When the growth of traditional voice services encounters bottlenecks, it is the long tail of value-added services (such as color ring tones) that has supported the rapid development of these operators in the past few years. In this revolution, the marketing mode of telecom operators began to change from "fragmentation" to "platform", and products and services were packaged and integrated into their own telecom business "retail network platform" for sales.

"Banks are no longer the original banks" and "operators are no longer the former operators", and more and more commercial units are beginning to break away from their original role positioning. Behind social retailing, traditional businesses are constantly looking for their own long tail market, and new arrangements are always emerging. At the same time, the importance of "customer power" has also begun to stand out in various industries-whether banks or telecom operators, the quantity and quality of final customers are the basis of the real value of a retail network. Suda Software Company claims that the formation of retail context is the victory of "grassroots". This company, which provides management software for small and medium-sized enterprise customers, has been playing the role of "destroyer" in the enterprise software market since it officially took the "low-end" route.

Prior to this, management software for mid-to-high-end, large and medium-sized enterprises once dominated the market. Large and small manufacturers, including SAP and domestic UFIDA and Kingdee, have been "aristocratizing" their products intentionally or unintentionally and "desperately" drilling into the market of large and medium-sized enterprises for a long time.

As a result, the price of enterprise application software products has been high, and the budget is millions or even tens of millions of yuan. For those small and medium-sized enterprises in need, it is obviously unbearable to bear such a high price, which makes a large number of small enterprises and individual companies become the "long tail" of the management software industry and suffer from the cold shoulder.

In 200 1 year, Cen Anbin, the founder and current chairman of Suda Company, decided to transplant the successful model of American Intuit software company to China market-Intuit was founded in 1984, which is a company dedicated to developing personal financial management and small financial software.

At this time, Suda positioned the market in this "long tail". It launched a variety of products ranging from several hundred yuan to tens of thousands of yuan, which set off a price war in the management software market, greatly lowered the overall price of enterprise application software products, and "forced" many manufacturers to enter this field. In this process, Suda rose rapidly and became one of the main brands of domestic management software.

After finding a "long tail", you will find many "small long tails" hidden behind this "long tail". The previous process may not be difficult, but it is not easy to find the "long tail in the long tail" and turn it into business opportunities.

Suda agrees that there are many long tails in the market. In the past few years, Suda has been focusing on "Suda 3000" products to win the market, but in the process, Suda found that some potential huge customer needs would be inadvertently ignored. For example, the internet application environment of software has created opportunities for some low-end users, who can get software services through ASP for "a few hundred dollars". This seemingly small business hides a wide user base, and the application software market including personal finance and financial management has become a "long tail".

To complete the search for the "long tail in the long tail" is actually to return to the origin of the "long tail", that is, to believe in the decisive power of "customer power", and it is not difficult to find it along this direction.

It's not a rebellion, it's a rebellion.

But "customer power" does not determine whether an enterprise can make a profit. In the retail environment, the issue of transaction cost becomes very important, especially for the long tail market.

Chris Anderson put forward the long tail theory in 2004, which emphasizes finding new profit points from the long tail that is traditionally regarded as unprofitable or difficult to make profits, and the value of the long tail lies in that "as long as the storage and circulation channels are large enough, the market share occupied by products with poor demand or poor sales can match or even be larger than that occupied by a few hot-selling products."

This ambiguous sentence may be more instructive for internet companies, but for traditional businesses, the primary problem is how to reduce fixed costs. In the theoretical state, if the fixed cost can be reduced to a low enough level, the size of supply has nothing to do with the cost of a single product. At this time, products with large quantity and small quantity have the same market development value.

However, under the existing rules of the game in traditional business, this is almost impossible. If traditional merchants want to do business in the "long tail market", they should be guided by the traditional business common sense that "the revenue brought by sales volume is tied up or exceeds the cost". If the number of users in final gathering's "retail network" is still small, they still can't profit from this product.

This is another topic of "economies of scale". In Zhong Jiwei's view, the number of credit cards issued by China Merchants Bank exceeds 5 million, which is the basis of this "law of large numbers". With this "economic scale", China Merchants Bank can carry out hierarchical customer management on this big tree, attach "personalization" to China Merchants Bank's retail network (emphasizing user experience), and face a large number of individual users with diverse needs.

While pursuing "economies of scale", it is also a big problem to shorten the transaction level and reduce the cost of the transaction process. The answer given by Suda Company is to combine software with the Internet. In its Internet strategy similar to ASP mode, the distance between Suda and end users is smaller than that of previous distributors, and the software is provided to users in the form of lease or customer account. For Suda, this process has not only tapped the "long tail" market of individual users, but also greatly reduced transaction costs.

In fact, similar strategies are not uncommon. Shanghai Pudong Development Bank also has a strong Internet color in its personal business. This small and medium-sized joint-stock commercial bank, which started not too early, is closely integrated with its online banking in personal finance, payment and settlement, hoping to gather popularity through the Internet platform and build a strong retail network in the "long tail" market of personal business.

For traditional business, the value of the long tail lies in the reconstruction of the long tail. Reorganization is actually a process of continuously integrating customer value. Before upgrading the mantissa, we need to find new reconstruction techniques and methods.

Finally, it is not difficult to notice that the industries with the most successful long tail effect are Internet, entertainment and media, and the typical characteristics of these industries are informatization and digitalization. Credit cards of banks, networking of software and value-added services of telecommunications are largely the process of information transmission. Does this mean that the long tail theory is more effective in those industries that are very sensitive to digitalization? -Don't believe in the long tail theory.

Since its publication, The Long Tail Theory has been regarded as a Bible to subvert the traditional strategic thinking by the admirers of the emerging Internet and new technologies.

However, the long tail theory is challenged by Anita Elbers, a marketing professor at Harvard Business School: every once in a while, some theories or books come out, forcing us to rethink the way we think we know how society works. The Long Tail in 2006 is one of them. The book believes that the Internet and its seemingly unlimited choices are changing the face of economy and culture.

An article published in Harvard Business Review refuted this and said that any changes in today's society may be completely different from previous types. Chris Anderson, the proponent of the long tail theory and editor of Wired magazine, believes that our cultural and economic focus is shifting rapidly, from a few hot spots (mainstream products and markets) at the head of the demand curve to a large number of niche products at the end of the demand curve. There is a simple reason. The Internet gives consumers unlimited choices and makes everything possible. A record store only has shelf space for a fixed number of records, but for iTunes, as long as the server has enough storage capacity, it can connect millions of songs. Therefore, Anderson believes that products and services for specific small groups can have the same economic appeal as mainstream hotspots. Therefore, business managers must adjust their business plans accordingly. The Long Tail Theory has been regarded as a sacred book by Silicon Valley since it was published two years ago. The long tail theory is often cited to prove that previous business plans have predictable business prospects, because this book clearly proves that the Internet is not just a few popular fields. If anyone disputes this, they will be treated with regret and contempt, just as the latter just admitted that they are still using Kaypro computers.

Now, this situation may be about to change, thanks to an article by Anita Elberse, a marketing professor at Harvard Business School (the article will be published on the Chinese website of Harvard Business Review in August, so stay tuned). Professor Elbers uses strict statistical methods to analyze the data of entertainment and cultural industries, which is no less rigorous than the professionalism of baseball data analysts. After analyzing the data of online video rental and music purchase, Professor Elbers found that consumers' online purchase behavior patterns are basically the same as those of physical stores. The importance of the hot product market has not been weakened at all by the "niche" products. There is evidence that the Internet is actually increasing the status of hot products, rather than shrinking them. Don't throw away those old examples in a hurry!

The long tail theory may be wrong. In this regard, Anderson responded in his blog about the long tail theory that his analysis is contrary to that of Professor Elbers, mostly because they have different definitions of "hot" and "non-hot", or "head" and "tail" mentioned in the long tail theory. In addition, Anderson praised Professor Elbers and said that he welcomed this rigorous test of the long tail theory. In addition to rigorous data analysis, Professor Elbers also reminds readers that a large number of qualitative social studies show that the long tail theory may be wrong in describing the factors that prompt consumers to choose online shopping. According to the long tail theory, readers and movie audiences are eager to get rid of the shackles brought by physical inventory, so that they can linger in thousands of works on the long tail. But Professor Elbers said that research shows that even in cultural consumption, we are often very conformity. We like to experience what others are experiencing, but just what others are experiencing and what we like will make us appreciate. Most of us are far from individualists with completely different cultural tastes, but are very happy to be suggested what we should follow. Elements of consumer behavior. In the process of forming our own taste, do we want unlimited choices, or do we like to follow the likes and dislikes of others?

Readers may remember that when the long tail theory was first published, we expressed doubts about it. In retrospect, the long tail theory seems to follow the routine of many articles in Wired magazine: choose a half-true, half-false, slightly interesting and full of scientific and technological sense, tout it everywhere, and then classify it into a category that can subvert the world. Part of the reason why the long tail theory sells well is as interesting as the theory itself.

First, it flatters its readers, many of whom are in the technology industry, claiming that the Internet is changing everything. In addition, because many scientific and technological elites hold contemptuous views on traditional cultural providers (such as recording studios and film studios), they tend to appreciate all remarks that foresee the erosion of traditional cultural forces.

Blogs also play a special role in promoting the long tail theory, which is not surprising, because the long tail theory claims that even the most humble blog may win a large number of readers. But the sad fact is that the blog field, like other cultural products, is also influenced by the "heat-driven" theory: only a few blogs attract the vast majority of visitors, and many blogs are simply ignored.

The internet is obviously changing people's cultural consumption habits, but these changes do not seem to involve the rapid flattening of the demand curve predicted by the long tail theory. Although brand-new cultural products, such as YouTube videos, are indeed constantly emerging, they seem to have quickly fallen into the old stage of "winner is king" in the pre-Google era. Look, don't throw away those old examples in a hurry! Popular or unpopular?