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Technological advancements in the 21st century have generated new models and innovations in the sales and delivery of products and services. So what really makes a delivery channel tick in the new century? Here, Adjunct Associate Professor Neo Kok Beng unravels.
In the current context of traditional "market place", businesses should continue to explore new and alternative channels to complement or replace existing channels of reaching out to the customers. Within the music industry, consumers no longer need to browse limited copies of compact discs (CDs) that are available physically in retail shops. Instead, they can now choose to browse through the Internet to purchase individual songs online. While some retailers continue to operate in the brick-and-mortar mode, newcomers have capitalized on the power of "market space" to reach out to the global market. One such supporting example will be the prevalent use of Apple's iTunes by consumers to browse, purchase and download songs.
The Pareto Principle
The Pareto principle, commonly known as the 80-20 rule, is a common rule-of-thumb used perennially in business. In short, it means that 80% of the effects are often resulted from 20% of the causes. As a result, marketers will usually monitor the top 20% of products or services that contribute to the revenues and focus on allocating more resources to push for these products. To the retailers, it will spontaneously mean allocating more shelf space for "top 20" products.
The Long Tail Theory
Chris Anderson, Editor-in-chief of Wired Magazine, coined the term "long tail", a phenomena predominantly observed in the entertainment and media industries, to explain why non top-sellers items are made commercially available online to generate a sizeable market as oppose to the top-sellers. This is shown in his research on online music retailer Rhapsody, where 40% of the downloaded tracks in December 2005 are not available in retail stores.
Anderson also identified 3 forces that created a new set of opportunities in the market space. The first, is the force of "democratize production", one which is the direct result of the use of new tools which subsequently facilitated the production of digital tools such as the digital cameras. The second, is the force of "democratize distribution", one that creates online shopping opportunities for customers to browse and purchase. The third, is the force of "supply & demand connections", one that taps into the distributed intelligence of millions of consumers that gathered together as a community to share and exchange information.
Scarcity versus Abundance
In the physical world, organizations are always limited by physical constraints. The scarcity of resources and the ever-inherent costs often limit the choices offered by the companies to its customers. These constraints however are not applicable in the online space as companies can make any good or service abundantly available with little or no limitations placed on costly physical space. As such, online organizations will in turn be able to open up and offer a lot more.
The question however, remains on how companies that operate in a physical space can leverage on the long-tail phenomena. Should they continue to play the role of aggregators to provide a one-shop-for-all products? Or should they tap extensively on information intermediaries such as Google or Facebook as alternative channels to reach out to the customers? Whatever their strategies might be, it is going to be a tough decision to make in order to pave the way ahead for businesses to flourish in an inter-connected world.
Adjunct Associate Professor Neo Kok Beng teaches technology entrepreneurship at the NUS Business School. He is the Founder of NeoCapital Group, an innovation-development catalyst and accelerator that incubates high-growth technology-based companies for the global markets, and is Founders/CEOs of companies such as AWAK Technologies (wearable kidney), Nextwave Biomedical (mobile healthcare) and HASu Media (GPS-bases social networking platform).
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