bookmark_borderCustomer Targeting inside the Madrasa

When Ulugh Beg Madrasa was built in 1420, it soon became one of the educational centers of Central Asia, attracting astronomers, mathematicians, and scholars from all over the Islamic world. Today it is one of the main tourist attractions in Samarkand. But maybe it’s due to this spirit of being a former educational institution that the madrasa hosted in May 2019 the ICTP summer school on advances in condensed matter physics, which I had the pleasure to attend.

While the morning and afternoon were filled with physics lectures, during lunch break, we had plenty of time to stroll through the madrasa, enjoying vistas from one of the minarets, admiring the beautiful ornaments — and passing by an innumerable amount of tourist shops on the go.

These tourist shops all basically looked the same. They all sold more or less the same tourist stuff, including shiny fridge magnets, wooden business card holders, and scarves of all different colors (surprisingly haven’t found any postcards). And when you stopped by, the owner would tell you the same story in broken English, that their magnets were the real ones and only their scarves were made from authentic silk.

The impression of these shops grew familiar until I reached the Dil-Suzani Boutique. The shop was run by Dilshod, whom I heard even at some distance talking to his clients in decent English, seamlessly switching to French and then greeting me in German, once I had entered his shop and he had asked where I was from. This shop was truly different and unique on its own!

For more than ten years, Dilshod has been running the shop, and by now, the Dil-Suzani Boutique is well known for its high-quality embroideries. Someone passing by may have just thought he is selling some sort of funny carpets. But after talking to him, she would have learned that these were traditional Uzbek suzani and would share his passion for all the intricate little details and hidden meanings of their patterns. And eventually, pay a reasonable price to keep a suzani as her very special gift from Uzbekistan.

When running the shop for over ten years, Dilshod had come across people from all over the world. But unlike other shop owners, he really had to talk with the tourists, explaining the meaning of the embroideries and finally inspiring them to pay for them. Targeting a high quality — high price — low volume segment of customers, Dilshod had to engage with them a lot more, picking up words from so many languages and thus speaking English and many other foreign languages a lot better than the average shop owner. A hypothesis I tested soon after when visiting a real carpet shop and finding that the owner as well spoke decent English.

For the average tourist shop that sells the usual tourist stuff, it received from the same supplier, competition among the shops levels out any competitive advantages and thus price differences. The price quotes were still about ten times higher than what the locals would pay, but with some finesse, you could negotiate a reasonable price. And then there were no substantial differences in pricing among different shops. (Prices are generally low, compared to Germany, but you just don’t go to these shops or the bazaar without bargaining. That’s part of the game.)

Your shop will only receive special attention if your value proposition is significantly different from the shops surrounding you. And that is what needs to be addressed by your skill level and your strategy for customer targeting.

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bookmark_borderThe Long Tail Upside Down

On the one hand, long-tail distributions (a fancy name for something like 1/x) are well studied in science when it comes to outliers. They demonstrate that although outliers are very unlikely because their distributions fall off relatively quickly, these distributions are also extremely long. Thus, the probability of extreme outliers is still quite finite, and they occur more often than intuitively expected.

Rare words occur more frequently in texts than we are used to [1], stock market crashes are more likely than financial analysts like to think [2], and floods, for example, can sometimes be so severe that they are even given their own name: Flood of the Century.

So it seems that long-tail distributions are capturing the effect of outliers, occurring rarely, but producing a large impact. On the other hand, long-tail distributions were introduced to the general public when Chris Anderson published his article of the same name in the magazine “Wired” [3] and applied the concept to the realm of business (worth reading!).

He argued that the success of goods sold digitally, let it be immaterial things like music, films, code, or even real-world stuff like books, follows a long tail behavior: usually, the winner takes all. While standard economics usually focuses on the head of the distribution, i.e. things that sell outstandingly well to the average customer, Anderson puts attention to the fact that there is also a lot of business to make from the long tail.

Like Amazon did when it started out selling books online: Adding another book to the online catalog involved only marginal costs, but it enabled Amazon to serve a huge and diverse range of customers, even those with a very peculiar taste for odd books.

So in this picture, the business comes from the long tail of books that only sell fewer and fewer times to more specific customers. Still, as there are also more and more of these odd books, the economic impact, i.e. the overall revenue from selling all of these books, can be substantial.

How do we fit these two views together? Well, it depends from which perspective you are looking at a long-tail distribution. The perspective of Anderson (“Business Perspective”) introduces long-tail distributions as “impact over occurrences,” in other words, “revenue made over the number of items sold.” In contrast, the perspective of natural disaster research (“Science View”) takes a look at the rare number of times events with a tremendous impact occur.

TL;DR If you turn a long tail distribution upside down, it still remains a long tail distribution!

[1] David M. W. Powers. “Applications and explanations of Zipf’s law.” In: Association for Computational Linguistics (1998), S. 151–160.

[2] Nassim Nicholas Taleb. The Black Swan: The Impact of the Highly Improbable. Penguin 2008.

[3] Chris Anderson. The Long Tail. Wired 2004

Chris Anderson. The Long Tail: Why the Future of Business is Selling Less of More. Hachette Books 2008.

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