Long Tail vs 80/20 Rule

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Long Tail vs. 80/20 Rule Two popular marketing principles are at odds -- which principle applies to your product or service? Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, or services in order to create exchanges that result in attention for specific products or services. There are two common principles or rules in marketing. The first is the "80/20 Rule", the other is the "Long Tail Theory", and both appear to be at odds. As a marketer, it is important to focus energy in order to maximize marketing efforts. Determining which principle works best for your business can be a challenge. Marketers work hard to develop strategies and tactics to identify, create, and maintain satisfying relationships with customers that will result in the best value. Understanding the Principles... 80/20 Rule The 80/20 Rule means that 80% of your business or sales will be generated from 20% of your customers. Or in other words. 20% of your efforts or customers are responsible for 80% of your businesses' revenue. This principle was recorded as "vital few and trivial many", meaning that 20 percent is vital (or critical) while 80% is trivial. The principle, of course, can be applied to a number of different things, but it is most often applied to businesses. Long Tail Theory The Long Tail Theory is a concept that somewhat counters the golden 80/20 Rule. The Long Tail Theory is derived from Pareto's thinking that low demand can effectively and collectively make up a market share that exceeds the few of those that are in high demand. What this means is that in aggregate, all the small customers exceed in volume the popular volume. In the Long Tail phenomenon, the trivial in mass out-perform the vital, making the vital insignificant and the insignificant vital. In other words, a large number small customers can potentially out-perform a small number of large customers. Which is true for your business? Determining which principle is in play in a specific business is not difficult -- simply look at the sales numbers and determine where the revenue is coming from: the few, or the many. That said, just because one model is in play, does not mean that it is the best model for your business. It may just mean that you have concentrated your marketing efforts in one area, rather than the other. The old adage about having all the eggs in one basket indicates that perhaps the Long Tail Theory will sustain a businesses stability better than the 80/20 Rule. For example, if you rely on only a handful of customers for the bulk of your business, and something happens to any one of those customers, your business can be significantly impacted. On the other hand, if you rely on a great many customers for the bulk of your business, the loss of any one single customer will likely not impact your business in any significant way. It is also important to keep in mind that the 80/20 Rule is a Golden Business Rule, while the Long Tail Theory is a theory that has been proven in only a handful of businesses (i.e. Amazon, eBay), and as a principle it may not be suited to all types of businesses. By critically evaluating sales figures and understanding these two popular marketing principles, small businesses can experiment and focus their efforts in a manner that makes the most sense.