Long Tail

Razor Strategy



The excellent manager is a restless one. He uses transformative strategies to move from one life cycle to another and strategies like the Long Tail, Blue Ocean, and the Razor for a competitive advantage and/or increased results. The Razor Strategy is three-step classic road map that has been used by many entrepreneurs to transform a moderately successful service business into a significant financial success. A similar approach can be used to transform a product company.

For the service company:

  1. In step one, you figure out how to package the business’s services in order to market and price them like a product (the razor).
  2. In step two, you figure out how to add a service component (the razor blade) to the packaged service product.
  3. In step three, add amenities around the product and services to create a unique, high-value experience for the customer. 

Product companies can be transformed by adding a service component (razor blade) to provide a continuing revenue stream and forge a lasting relationship with the customer. Make it easier for the customer to acquire the product (the razor) in order to secure the ongoing service revenues. Then amenities can be added to create a unique, high-value experience for the customer.

Why is it important to create the “blade” component for your business? Product companies have to resell their product every year to produce revenues. In effect, the top line on the income statement of the product business starts at zero on the first of every year. The top line of the “blade”-orientated company is cumulative from year to year. Each year’s new sales are added to the revenue line. It does not go back to zero.

Coffee companies transformed their business by selling coffee systems and coffee clubs where existing customers reorder coffee for the product (the system). They added exclusivity, deluxe packaging, and exotic blends to provide a unique customer experience. Printer companies dramatically reduced the cost of printers in favor of recurring ink/toner sales.

In a law firm example, an estate practice bundles its services in several different packages where each targets to different segments of the population: the up-and-coming professional, the young married couple, and the mature high-net-worth couple. The packages are sold for a fixed price, and promotional materials use the same look and feel as the brochure for a car. They add an optional monthly fee to its service package. This “razor blade” service includes updating the documents for changes in laws and keeping the client informed of any changes or expected changes in taxes, laws, court decisions, and regulations that might affect their estate or estate plan. The estate practice adds an addition to its office along with an upscale hospitality staff, all specifically designed to cater to their more affluent clients. Everything about their high-worth-focused facility and services reinforces the special VIP status of the firm’s opulent clientele. The experience provided for the clients’ benefit raises the firm to an entirely new level, attracting more targeted clients.
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Mysteries by Tom Collins include Mark Rollins’ New Career, Mark Rollins and the Rainmaker, Mark Rollins and the Puppeteer and the newest, The Claret Murders. For signed copies go to http://store.markrollinsadventures.com. Print and ebook editions are available from Amazon, Barnes & Noble and other online bookstores. The ebook edition for the iPad is available through Apple iTunes' iBookstore.

Tom.Collins@SixtyFiveNorth.com
http://www.sixtyfivenorth.com





The Long Tail Strategy


In modern times,enterprises have had business models that have been heavily influenced by the law of Disproportionate Results—the 80/20 rule.  In the world of brick-and-mortar, 80% of results were traditionally derived from only 20% of the activity—sales, inventory, paperwork, jobs, space, etc.  Management’s job involved constant diligence to eliminate low yield or nonproductive activities.  Unfortunately that often meant a decline in service and a slow but relentless movement toward sameness.  It was as Toffler had predicted a world of unlimited choices—all the same.  You can have anything you want as long as it is within the 20% of alternatives that 80% of the population wants.


The 80/20 rule is still important when dealing in tangibles but something important has happened.  No longer does the 80/20 rule dominate.  It is called the Long Tail, and it is the new dog on the block.  In the digital world, the right side, or tail end, of the bell-shaped normal curve goes to infinity without ever reaching zero.  When the cost of maintaining inventory, handling transactions, and distributing products or services drops to near zero, the Long Tail of the bell curve becomes as rewarding as its center—the center that used to account for 80% of all activity.  Today you can have any song, any book, and any video—even though they, long ago, became no longer economically feasible to keep on store shelves.
 
Today’s excellent businesses look for opportunities to operate in the Long Tail while being mindful of the 80/20 rule in other aspects of their business.  Nor does one's product or service have to be digital to gain some of the benefits of the Long Tail.  The key is to reduce the cost of maintaining inventory, handling transactions, and distributing the product or service.  When these cost are reduced, the Long Tail benefits become realizable.
 
When it comes to sustaining their financial success, we have seen printer manufacturers shift their emphasis from hardware sales to the profitable revenues produced by selling the ink used by that hardware.  The ink has low inventory and distribution cost when compared to those costs for the hardware.  We see coffee services shift from relying on the profitability of the coffeemakers to the revenues produced by selling the coffee used by the coffeemakers—the coffee having a lower inventory and distribution cost.  Excellence companies look for ways to capitalize on the Long Tail while being considerate of the 80/20 rule. 

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Join me January 22, 2013 for a glass of claret.  I will be at Parnassus Book Store in Nashville signing the new hard cover edition of my novel, The Claret Murders. In keeping with the main character’s reputation as an epicurean, there will be also be caviar to go with your wine. We will have a lively discussion, some readings and prizes--one of those will be a thirty year old claret from my private cellar, a 1982 Chateau Sociando-Mallet.