Company News from yesinsurance
23 August 2006 Long Tail Theory Will Benefit Personal Finance Sector
A new theory, which predicts massive changes in retail markets as a result of the spread of technology, has significant implications for the personal finance sector, according to Paul Purdy, head of marketing at online insurance provider, yesinsurance.co.uk.
The theory of the Long Tail is outlined by Wired editor-in-chief Chris Anderson in his recently-published book of the same name, which has been hailed as an important pointer to the way business will be conducted in the digital age.
The book highlights the fact that low-cost online production, distribution and search mechanisms are now enabling consumers to purchase products which are specifically designed for small market niches, rather than for the mass market.
"Traditional theory dictates that 20 per cent of products produce 80 per cent of revenue, which means that retailers generally only stock this small group of high-popularity products," says Paul Purdy.
"Anderson's theory turns this on its head, pointing out that our economy and culture are shifting from mass markets to millions of niches, as a result of the ability of producers to distribute, and consumers to find, specialist products over the internet."
As a case in point, Anderson highlights the fact that in the USA, the average Barnes and Noble bookstore carries 130,000 titles. Yet more than half of Amazon's book sales come from outside its top 130,000 titles.
"The market for books that are not even sold in the average bookstore is larger than the market for those that are, but only an online retailer is able to offer such a wide range of choice - there simply isn't room to stock them all in a bricks-and-mortar bookshop," says Paul Purdy.
"For suppliers of financial products such as insurance, which do not require shelf space, the implications are obvious. Consumers now have the ability to use the internet to source products which correspond exactly to their requirements, which means that a whole new market for niche products is emerging.
"Thanks to the growth of broadband and the development of more sophisticated search engines, niche insurers such as ourselves now have the ability to reach consumers over the internet directly or via comparison websites," he said.
Purdy says that the shift towards sales which span the long tail of niche products has four important implications for the insurance sector:
The number of niche insurance operators will grow, as will the variety of niches that they serve.
There will be growing pressure on old-school insurers which do not adapt to the new market conditions
Comparison websites will become increasingly important in the supply of niche insurance products
The increasing power of consumer reviews, blogs and other forms of online endorsement or criticism is beginning to shape consumers' choices in sourcing insurance products
"Suppliers such as yesinsurance.co.uk are able to offer niche products to particular groups of consumers, such as those who have cars which are over five years, who have a second vehicle, are female, are low mileage drivers or who live in non-urban areas" says Purdy.
"Expanding use of PCs and broadband Internet access mean that it is now much quicker and easier for insurers to develop and market niche products, and for consumers to find them easily via search engines and other means."
Purdy predicts that the next five years will see rapid growth in the niche and specialist provision of insurance and other financial services.
"There are already a number of insurance providers which specialise in niches rather than the mass market and we will see a dramatic increase in this sector over the next few years," he said.
"Consumers now have the ability to easily find insurance products which correspond exactly to their own set of circumstances. The days of general off-the-shelf products that have not been designed with niches in mind are now numbered."
