Tag Archives: long tail
As promised at the end of one of my recent posts, let’s have a closer look at the long tail approach and how PIM supports it. The driver for the long-tail model is customers expectations. In fact, they demand an increasingly larger and broader assortment of products through various online channels given that the shelf space is no longer a concern. The key insight here for independent retailers is that expanded offerings and selection can reveal demand that was otherwise not known to exist.
The benefit of a long-tail strategy is that products in the long tail can be sold against a higher margin. Aberdeen reports up to 29 % higher profits due to higher product margins in the long-tail assortment.
The challenges for many companies, however, is the actual management of large assortments. The graph below shows the relationship with the size of a company’s assortments and having a PIM system.
It is remarkable to see that when the assortment increases to over one million SKUs there are no companies that do not have a PIM system.
How PIM supports the long tail has been clearly highlighted by Rolph Heiler, founder of Heiler Software (which has recently been acquired by Informatica):
Assortments are often restricted by the fact the product data cannot be efficiently maintained. A Product Information Management (PIM) systems enables dealers to setup and manage extremely large assortments, without rising costs for expanding their assortments.
End quote. The point is that for the first time ‘dealers’ are given a process and a tool to onboard data from suppliers and store it centrally before it is prepared and enriched for presentation purposes. However, as aptly pointed out by J. Abraham in his upcoming book (see references below), implementing a long-tail strategy entails much more than just onboarding data from suppliers to your PIM system, and the ability to technically manage larger assortments. More specifically, he observes that…
Processes have to be set up to manage the information in the PIM system. Price mechanisms have to be set up to manage the margin for which products are sold. Just adding 30 % margin to all products might be a simple thing to do, but it does not take into consideration the actual logistical costs, perceived product value by the customer, and competitors’ prices. Likewise, when suppliers stop selling a product, the product also has to be removed from the assortment of the wholesaler or retailer.
Once a product is sold, the product has to be ordered, possibly repackaged at the company’s warehouse and delivered to the customer. To do this, logistical processes have to be set up in the ERP system, especially when the ERP system does not yet know the product just sold. With the external and internal processes set up right, companies are able to expand their offering very fast. WarmteService for example was able to expand its offering from 20,000 products to 150,000 products in less than 1.5 years
End quote. This is a broader and more accurate view of the processes that need to be put in place to implement a successful long-tail strategy. As Ted Hurlbut put it, “The Long Tail is not an argument merely to carry broader assortments. It is not an argument to expand into unrelated categories that stretch customer’s expectations and the retailer’s core expertise. It is not just about capturing the add-on or plus sale. It is rather a demonstration that there is business to be done in carefully selected items that deepen assortments in a retailer’s niche that appeal specifically to the customer’s imagination.”
In conclusion, it should be clear that the long-tail model is a compelling territory for innovative customer experiences*. PIM has a respectable place in the model insofar as it allows retailers to quickly respond to product demands by facilitating the creation of relevant assortments in a timely and efficient manner.
Drop shipping is an interesting example of long-tail strategy that will be analysed in one of the upcoming posts. Stay tuned!
- J. Abraham, Product Information Management, Management for Professionals, Springer International Publishing Switzerland 2014
- Aberdeen Group, The Instant Power of All-Channel PIM: Increased Sales and Competitiveness, December 2011.
- PIM for long-tail, Heiler whitepaper
*I am not a blind believer of The Long Tail. I see few grey areas that various authors have spelt out greatly. If there’s interest, I will plan to extend on this fascinating subject.
Our blog frequently provides best practice stories of our customers using product information management (PIM) for their business model. This case is about the “long tail strategy” at Kramp.
Tines, hand tools, spare parts for agricultural machines and hydraulic motors are the order of the day at Kramp. Kramp, based in the Netherlands, is Europe’s largest wholesaler of accessories and spare parts for motorized equipment, agricultural and construction machines. The company’s business model and e-commerce strategy is exemplary. Kramp is using product information management (PIM) for their long tail strategy in e-commerce.
Kramp’s Value Proposition: “It’s that easy”
“We want to make it easier for our customers, partners and suppliers. We believe in the future and the power of e-commerce”, said CEO Eddie Perdok. Kramp grew the product assortment from about 200,000 to 1,000,000+ items from about 2,000 suppliers.
Previous stock policies in mail order retail always meant having limited space. In the catalog there were only a certain number of pages available. Even the logistics were limited – warehouse storage limited the possibilities so much that the majority of companies tried to find the “perfect catalog range” with the largest number of bestsellers.
The Digital Assortment Has No Limits
“Compared to other sales channels, the internet gives us significant cost advantages”, says Eddie Perdok. The digital department store consists of servers that can be easily extended at any time.
Adding a new product requires no more than a few additional entries in a database. The challenge is that the product data must be obtained from the suppliers and then distributed before products can be presented in a shop. The range is therefore often limited because the product data cannot be efficiently updated and sale is lost to other vendors are retailers.
Europe’s largest wholesaler of spare parts for agricultural machines and accessories focuses on managing all product data from a central data source for all sales channels and languages.
Customer and supplier feedback is an important factor
“We want to bring customer opinion and supplier knowledge together”, explains Eddie Perdock. “Online customer evaluation combined with the knowledge of the manufacturer puts us in the position of being able to optimally control our stock”. In e-commerce, vendors, retailers and customers are coming closer and closer together.
Benefits Kramp realized with PIM on their long tail strategy
- Quick ROI due to short implementation phases
- Better customer satisfaction due to optimal data quality
- Higher margins and turnover in e-commerce due to niche items in long tail
- Easy, professional handling of mass data lowers process costs
- Short product introduction times to new markets
You can learn more on using PIM for long tail business on the entire case study or hear Ronald Renskers, Manager Product Content at Kramp, and others talking on the latest video.
Massively increasing the assortment is one of the top trends retailers and distributors focus on, according to Forrester Principal Analyst, Sucharita Mulpuru. Forrester’s research shows that retailers’ biggest competition are brands that sell directly to consumers. Marketplaces like Amazon result in higher margins, according to Forrester and www.pim-roi.com.