(To be written) Resolving conflicts of longtail and attention
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Created 232 days ago, Updated 224 days ago
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How to divide consumption units
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Include rental model examples (Comics museum)
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Filtering
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Variety is relative… But if you target the extreme variety, put it online even if you are an offline shop.
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Costs of manual filtering. I go to a bookstore often. The largest cost will be ‘service staff finding a book’, not space costs.
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Use online.
Large bookstore online vs. offline. Online’s strength is in filtering as well as shelfspace. The largest cost is still human at bookstore not the rental. The search DB in the bookstrore for customers are often used by bookstore staff requested by customers. Strange… When your staff need IT systems to find something in your store, you are near the limit of your business model. Turn to online. -
Category killer
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Include Toonk vs general bookstore – people will start focus on some niches. Also, cable TV vs. terrestrial TV
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We started by studying one of the largest offline bookstores in Korea. We thought that the major bookstores would be perfect for comparing the long-tailedness of the online and the offline because they carry huge amount of book inventory and selection and most of them also have the online operation as well as the offline operation.
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First, we compared sales data of comic books from both on and offline divisions to confirm the stronger Long Tail in online channel. We came up with two findings; for both on and offline, the portion of head of curve came out similar, or slightly higher in online, and the tail of the curve was much longer in online sales.
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For the given 6-month time frame, the number of comic titles sold in the offline store was 3,000, and in the online it was 7,000, more than double. Out of 7,000 titles of comic books sold, 4,000 titles were being sold exclusively online and their share of sales was 14%, which is significant enough to draw attention. The differences in underlying economics of the online and the offline must be causing this difference in long-tail orientation, as you see in the comparison of Amazon and offline stores illustrated in The Long Tail.
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Offline stores cannot display books that do not sell well in the limited shelf space given high rental fees and labor costs involved. If they had done so, soon they would need to return those unpopular books to the publisher.
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On the other hand, online stores can display books not in strong demands because the cost of inventory, usually stocked in remote area, is very low, and the cost involving placing items on the website is nearly none. Therefore, the online division sells many online-exclusive titles that are not carried by their offline counterpart, and can keep one or two copies of titles that are returned by the offline stores.
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In the beginning of the research, we decided to review the data of three entities; major bookstore’s offline division, the same bookstore’s online division, and No. 1 portal’s, Naver’s, digital comics website, based on the assumption that major offline stores are the ones that would carry widest selection of comic books in the offline.
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However, talking to the major offline store, we heard something that we had not expected. They said that they did not carry wide enough selection of comic books. We were surprised as they usually boasted about their huge catalogue. They said it was because the margins on them were thin and the comic books contribute only 1~2% to the total sales of the offline stores.
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This broadened the scope of our research and gave us extra homework but that unexpected answer itself implied a fundamental aspect of the Long Tail. The major offline stores may look like an ocean of books, but they cannot carry ‘everything.
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In a way, those offline mega bookstores were themselves a Long Tail. In one category among many that a department store had, they introduced a category killer which carried numerous niches in addition to hit titles. Amazon may be a representative example of Long Tail, but offline mega bookstores also pioneered the Long Tail before Internet commerce arrived by leading people to read diverse books by simply offering diverse books.
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After knowing that the largest offline bookstores have limited selection of comic books, it occurred to me that mainstream and niche are relative. What does that mean? Let’s have a look at Hanyang Toonk, a specialty comic bookstore, which makes major offline bookstores look like a department store.
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Hanyang Toonk is a category killer of comic bookslocated around Hongik University, one of the hottest hangout area for young people and university students. Kiseong Kim, the owner of the store, is a well known person in the comics industry in Korea. However, he had worked at a brokerage house until Toonk, seven years ago. He took over the business and jumped into the management after Hanyang Toonk, which was then owned by a friend of his and Mr. Kim financed partly . He struggled for the first three years after taking over the business, but he puts those struggling experience as a price paid for such a valuable lesson.
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The size of store is not as big as those landmark offline bookstores, but it truly is filled with cartoons beyond anyone’s imagination. He also runs two warehouses separate from his store. Hanyang Toonk keeps the inventory for even cartoons that are out of print because manias still look for those valuable out-of-print cartoons.
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Mr. Kim says Hanyang Toonk is considered to be the mecca of cartoons in Korea. Sometimes film makers come to the store and look for rare cartoons, mostly out-of-print, for their film making. Hanyang Toonk also runs online store. Offline has higher portion of sales of hits compared to online, according to Mr. Kim.
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First, we analyzed online sales data, and we found out that Hanyang Toonk has less dependency on hits than other online bookstores. Although perfect apple-to-apple comparison was not possible due to the time difference in data, it was very clear to us that it has less dependency on a few hits. Cartoon sector is a niche for major offline stores but it is a mainstream for Hanyang Toonk. Like wise earth maybe a small dot in the whole universe, but it is an unimaginably huge world to people who live on.
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Collection of Hanyang Toonk is composed of Korean cartoons, 25%, Japanese cartoons, 70%, and western cartoons, 5%. On this front, western cartoon category is a niche for Hanyang Toonk. The fact that cartoon lovers buy widely diversified selection of cartoons on their online store, TOONK.COM, perhaps natural on one hand and mystical on the other hand.
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Reasoning behind the natural side goes to mathematical aspect of it; diversified buying pattern is a reflection of wide range of collection. What is mystical about it is that there is a market developed for those rare and out of print cartoons. Did diversified supply provoke the demands or did supply meet the existing diversified demands?
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However such a question is meaningless. Despite the fact that there has been controversy over whether supply leads the demand or vice versa when many economists identify the fundamental factors for innovation, we believe supply and demands should do their parts to create a market based on simple but legitimate truth. And we think that such belief can be applied to this cartoon industry. In other words, it could be go both ways; rare and not-easy-to-find cartoons are displayed on the shelf which makes customers want to read, or demands on rare cartoons were not met until customers see those books on the shelf.
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Based on sales data, we found portion of Long Tail was increasing as targeted segment gets narrower; in the order of cartoon-specialized store, major online store and major offline store. What is more surprising to us through this research was to find out there has been much demands for buying cartoon books, which we did not expect to see.
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However, more often than not, people rent cartoons than buying. There are two business models existing in cartoon rental market. One is called cartoon café which rents books and let customers read in that space. Another is called cartoon rental store that only rents books. There are very few places that operate under those two business models combined.
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There is cartoon museum in front of Dongdeok University, the biggest cartoon café in Korea, which offers both rentals and reading. We also analyzed their data and found out that their demand curve is much shifted toward tail, less hit-centric and loner in tail, compared to that of Hanyang Toonk. We ran down 7 and a half years of data, and there have been 62, 337 different books rented during that period and the sales portion of top 4,500 (equivalent to 300 during the six month of period) was a mere 30%. In case of offline bookstore and online bookstore, they were 65% and 55% respectively.
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Why would that be? One possible explanation would be the cost difference between rental and purchase, and rental causes people to be more adventurous; cost of purchase per book is at $3 whereas rental cost per book is one tenth of it. Providing substitute, rental service, for customers who do not want purchase comic books makes difference in customers’ behavior pattern. Affordability promotes adventurous behavior.
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One interesting finding was that most of customers at this cartoon museum fall in mania group. They normally make a visit to the museum at least once a day. That mania customers drop by the museum nearly everyday to check out new releases, and the essence of making them stick around is to secure new releases earliest possible.
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When starting cartoon café business, some entrepreneurs equip with about 2,000 copies of popular comic books and most of them quickly go out of business. That is because the regular customers to cartoon cafes are manias seeking new releases, and selections without fresh additions would not be sufficient to maintain those hard-core manias. Relatively many customers are consuming a few hits at major offline stores, and a few customers are consuming many different niche products at the carton museum.
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To rather simply put, interpretation of 80/20 law indicates to focus on a few customers, e.g. VIP, and a few hit products, which misguided people to think that a few customers and a few hits go hand in hand. However if we look one step deeper into it, those two are not complementary to each other but, in essence, mutually exclusive to each other. Should have wide range of selection to appeal to manias? Or should carry a few hits that many customers demand?
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This kind of category killers and specialized stores are the powerful business models driving Long Tail. The key question here is to identify the existence of demands and to find interesting categories triggering demands. Which category should be pursued? In what level of magnitude the categories should be defined? Should it be supermarket? Or Should it specialized kimchi store?
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