The Long Tail by Chris Anderson

Author:Chris Anderson [Anderson, Chris]
Language: eng
Format: mobi, epub
Publisher: Hyperion
Published: 2006-07-11T04:00:00+00:00

SHOULD PRICES RISE OR FALL DOWN THE TAIL?

I’m often asked about the effect of the Long Tail on pricing. Should prices go down with demand as you travel down the Tail? Or should they rise, as more specific and narrowly focused goods appeal more strongly to their niche audiences?

The answer is that it depends on the product. One way to look at it is to distinguish between “want” markets and “need” markets, each of which has different implications for pricing.

Need markets are those in which customers know what they’re looking for and just can’t find it anywhere but, say, online. Take, for instance, a relatively hard-to-find nonfiction book on a topic of keen interest to you. When you find it, you’re probably going to be relatively price insensitive. You can see this effect writ large in the discounting policy at Amazon. The online bookseller discounts best-sellers by 30 to 40 percent, gradually reducing the discount until it’s around zero for the books with sales ranks in the hundred thousands.

By comparison, music and other forms of entertainment are typically “want” markets. For the right price, you can be encouraged to try something new, venturing down the Tail with diminished risk of wasting your money. Thus, many music labels have experimented with discount pricing for their older titles and more obscure new acts.

The ultimate manifestations of this would be dynamic variable pricing, where prices for music would automatically fall with popularity. That is, in fact, what Google does with its automatic auctions for keyword ads, and what eBay’s similar auctions do for everything else. The more demand there is, the higher the price goes.

A really efficient variable pricing market would presumably lead to a more gradual sales decay, and a flatter demand curve overall. But for music, at least, the adoption of such a model runs up against the advantages of single-price simplicity (as in iTunes’ fixed-price $0.99 model) and the perils of dreaded “channel conflict” with CD retailers who cannot so easily change their prices. As the music industry gets more desperate it will probably grow more bold in its search for new business models. And then we’ll have better data with which to answer this question.

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