Abstract for: Product Diffusion in ‘the Long Tail’

Products distributed over classical sales channels serve local markets and have relatively high distribution and storage costs. However, when products are sold over the Internet and distributed directly to the end customer by specialized logistics service providers, the geographical scope of the products (and, thus, the number of potential customers) increases, while at the same time storage and distribution costs decrease (or are even zero, when digital products are considered). In addition with intelligent search and rating mechanisms, customers are able to identify products that fulfill any special needs. This phenomenon, called ‘the Long Tail’ by Anderson (2004), allows to serve market niches, when before only products of mass interests were profitable for firms to produce and to sell. Employing a conceptual system dynamics model, this paper identifies factors and behavior modes that distinguish the diffusion of products in classical versus in ‘Long Tail’ contexts. Implications for successful strategies in ‘Long Tail’ markets are derived from the analysis.