Long Tail Principle

The easier it is for a customer to find something, the more likely it will sell. Finding something online (searching online) is easier than searching through a store's shelves. That means that more obscure or less popular items are more likely to sell online than offline.

In most businesses, 20% of the products account for 80% of the sales. This "80:20" rule is called the Pareto Principle. There is little incentive for bricks-and-mortar retailers to stock items that sell infrequently. People who want to buy these more obscure items can shop online, where things are easier to find and storage space is cheaper. It may be that most of the sales of online stores come from obscure items that sell rarely. That's the reasoning behind the so-called "long tail" principle. The name "long tail" comes from the shape of the distribution; if you plot the number of products on the x-axis and sales on the y-axis, the theory says you will see the curve fall off sharply for a bricks-and-mortar store, but a "longer tail" for an online store.

See also Brynjolfsson, Erik, Hu, Yu Jeffrey and Simester, Duncan, "Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales" (November 2007). Available at SSRN: http://ssrn.com/abstract=953587

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