Technology has ended the need to choose richness or reach as a strategy, which has provided the basis of the success for many online businesses—such as Romania’s eMag and Poland’s Allegro.
Typically, mass market strategies of ‘reach’ were based upon high volumes and low margins, where control of costs was a key basis of business strategy whilst niche strategies of ‘richness’ were typically based upon lower volumes but higher margins.
For example, Unilever is a mass market producer of shampoo brands, whilst The Body Shop was a niche provider, with prices that reflect their respective strategies.
- How some of CEE’s start-ups are using groove-in to create dominant market positions
- How Romania, with little fanfare, became a supply chain star
- ‘In the current environment, we are all global’
Digital networks have connected the whole world and, in so doing, created global marketplaces where the smallest niche can become a viable economic proposition. Thereby, specialist niches can become larger than individual national markets.
In fact, with the only limiting factors upon choice being human curiosity and the law, the whole concept of mass markets is crumbling. Where once consumer goods giants used supermarkets and advertising to not only influence choice but to set the boundaries of choice, the internet allows global reach and a richness defined by consumer interest.
Changing the game
Companies like Amazon and ebay globally and eMag (Romania) and Allegro (Poland) locally have changed the game. Digital search tools, predictive text and centralised distribution enable tech firms to stock a vastly larger range of goods than their bricks and mortar competitors.
Just compare the range of choice in pretty much any major online platform compared to a physical shop. Dominant players can offer an almost limitless range of products. According to Anita Elberse, a professor at Harvard Business School, “Search and recommendation tools can keep a selection’s vastness from overwhelming customers,” whilst products that can be digitised offer the potential of near zero marginal costs of distribution.
For example, Elberse also notes, “Apple’s iTunes Store lists millions of albums and songs; Amazon offers more than 250,000 albums, whereas even the largest off-line music stores typically stock only about 15,000.”
The proliferation of local Central and Eastern European job sites, such as ejobs, bestjobs, praca, pracuj, jenprace, and so on, is very often based upon the same model.
Compare the costs of a platform where candidates upload CV’s, which can then be distributed to clients at almost zero marginal cost, with the costs of many local offices. Then consider where the range of CVs will be greater and easier to access for clients. The challenge for such job sites is to secure customer groove-in.
Economics students, of any age, are usually taught that markets are in equilibrium at something close to perfect competition where there are many buyers and many sellers with good access to information that limits the ability of any one party to control the price.
As new markets develop they are classically taught, in most cases, to progress towards this state of affairs. The trouble with the tech economy is that this is not happening. In fact, quite the reverse seems to be the case.
The long tail
In the long tail model, mass markets are becoming taller and narrower (with fewer competitors taking most of the market) whilst the tail of the graph is significantly longer due to a larger number of players competing for lower volume but high-value products.
As Chris Anderson wrote in his hugely influential 2006 book The Long Tail, “When you can dramatically lower the costs of connecting supply and demand, it changes not just the numbers, but the entire nature of the market.”
Even those that understand the laws of network competition have miscalculated at heavy cost.
Microsoft’s attempt to enter the mobile phone market served only to prove how hard it is to persuade consumers to switch once they are locked into technological and social groove-in.
“Since there can only be a small number of winners in the mass market, choosing not to compete for that space and focusing upon the long tail may be a rational choice for even larger players,” I wrote in a 2019 book, People, Place and Global Order, co-authored by Adam Bronstone.
Hence we see an explosion of interest from Central and Eastern European software firms in producing specialist products and apps.
Whilst this is often driven by a need to move up the value chain from outsourcing models, without a clear understanding of groove-in, richness and reach, the long tail economy and the network dynamics underpinning these trends means most will fail.
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