The ‘Power law of Distribution’ or ‘Zipf’ distribution, can be used as an adjunct to the much better understood Pareto principle.

There is a consistency to the structure of mature markets. There is a dominating leader, followed by a long tail of smaller competitors. The size rank of an enterprise inversely correlates with its market share.

This is the Zipf distribution at work.

Zipf comes from the study of linguistics, where the probabilities of the frequency of words occurring in a written piece was identified by American Linguist George Zipf in 1935. In summary, the characteristic of a Zipf distribution is that the most common item appears approximately twice as often as the second most common, and three times more often than the third most common, and so on.

For example, the most common word appearing in an English text is ‘the’ which appears twice as often as the second most common word ‘of’, and three times as often as the subsequent word.  This relationship has been validated across languages and the sophistication of language use via the free Gutenberg Project, a free database of 30,000 works. The obvious use is in the statistical probability calculations used to generate the tokens that deliver us output from AI platforms. It also powers the language translation capabilities of digital tools.

Zipf distributions occur across many domains beyond language. Income distribution, population sizes, numbers tuning in to TV shows, and followers of so called ‘influencers’.

So, how do you use this when thinking strategically about how to break into a market where you are somewhere in the long tail of a Pareto chart?

It is a problem faced by most businesses in competitive markets. The big players get all the attention, leaving little for the small players to fight over.

The answer: Identify an existing niche and own it, or better still, create your own niche, and be the dominating player in a Zipf distribution for that market segment.

Fragmented markets with a wide range of competitive offers tend to consolidate over time into a small number of players that dominate. Typically, the number one competitor evolves to be double the market share of the next.

This occurred when ‘Meadow Lea’ emerged from the crowd of margarine brands in the late seventies. It became the dominant brand with a market share over 20% (at a premium price) with the next brand in line, ‘Flora’, having a share from memory that never climbed over 8%. Then came ‘Miracle’ margarine maxing out at about 5% before going down the gurgler.

‘Apple’ created the smartphone niche, which then became the whole mobile phone market. They led the emerging market in volume until Google released Android, and allowed anyone to use it. Apple no longer holds market volume leadership, currently they are around 15% volume share, but still hold profitability leadership at about 80% of mobile phone profit share, a clear example of a Zipf distribution.

Which would you rather have?

These ‘Zipf dominators’ do not happen by accident.

They are created by a combination of the identification of unmet demand, creation and/or leveraging of a market niche, and an emotional connection compounded by long term brand building.

When you are the second brand, chasing a Zipf dominator, life is tough. It will take strategic insight, investment, time, and perseverance to prevail. Critically, it also requires a deeply strategic analysis of customer behavior and needs to be able to see the ‘white space’ than becomes ‘Zipfable’

Header George Zipf courtesy Wikipedia

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An old marketer’s explanation of the ‘Law of Purchase Duplication’ A marketer’s explanation of Standard Deviation. A marketer’s explanation of ‘Box Score’ A marketer’s explanation of EBITDA