Heads You Win
Winning always involves making careful distinctions. There are a few crucial distinctions in retailing that largely define success. This distinction between the big head and the long tail could be the single most important distinction to make in terms of managing the range of merchandise that retailers carry. Yet we observe many retailers stirring the two together indiscriminately, in an attempt to sell more of the long tail. Selling more of the long tail is a good idea but not at the expense of penalizing the big head.
Wired magazine editor Chris Anderson has pointed out that online retailing makes the long tail an important business. Online retailers can profitably stock and sell small numbers of niche products rather than only concentrating on the hit products that constitute the largest number of sales. Booksellers such as Amazon can stock an obscure title alongside The New York Times bestsellers. The many small sales of these niche titles add up to a large return for the retailer.7 There is some debate about whether this attractive theory holds true even in the online retail space, as pointed out in a detailed study by Anita Elberse of Harvard Business School.8 In bricks-and-mortar stores, however, the case is clear for focusing on the big head.
The reality is that it is easier to increase total sales of the big head than it is to increase sales of the long tail. Focusing on the long tail is equivalent to trying to get more people to shop on Thursday, rather than focusing on how to serve the Saturday crowd better and more efficiently. Slight increases in Saturday performance per shopper are worth a good deal more than lots of additional weekday shoppers. In the same way, modest increases in per-item big head sales are worth much more than large long tail sales increases, scattered across the massive range of products. Help your winners to win more and bigger. It will give you the resources to selectively focus on the long tail more appropriately.
Many retailers hide the big head, as shown in Figure 1.2. This is a map showing the exact location of those top 80 items from the big head for this particular store. As expected, there is a significant collection in the produce section—upper right—and in the dairy—upper left. Otherwise, the big head is pretty well scattered about, as the retailer attempts to sell more long tail by “hiding” the big head among those many thousands of items of very limited interest to the shopper.
Figure 1.2 Where the big head is hiding
The net result of this is a very large loss in big head sales, coupled with angst, frustration, or ennui on the part of the shopper. Don’t worry: There is an important role for the long tail—and there are valid justifications for “SKU proliferation,” “range growth,” and promotional fees to support the long tail—but killing off sales of the big head is not one of them.
In addition to making it harder for shoppers to find “big head” products, a proliferation of SKUs also contributes to the problem of out-of-stock items (stockouts). Increasing from three SKUs to 10 will not necessarily increase sales because it is harder to manage inventory and avoid stockouts. Roughly 8 percent of store sales are lost due to stockouts, and greater variety increases this risk.