Pareto’s Principle (good old fashioned 80/20 rule)

Diane Vautier
February 16, 2010

AE_80_20_ Most people in business today either know or have heard of the 80/20 rule which describes the theory of the vital few and the trivial many. For pretty much anything, 20% (the vital few) account for 80% of the total. The remaining 80% (the trivial many) account for 20% of the total.

The initial concept was first introduced by economist Vilfredo Pareto to describe the distribution of wealth and later adapted and made popular by Dr. Joseph M. Juran for business management practices. It commonly became known at the Pareto Principle.

Today, the rule is universally applied to almost any topic or category. Quite often the Pareto Principle is used in business to refer to sales efficiency (ie. “80% of company sales is generated by 20% of the sales staff”) or revenue sources (ie. “80% of company revenue is generated by 20% of customers”).

When times are tight it may be worthwhile to apply this time tested principle to uncover potential for your company. Apply it to your customer base to expose your top performers, those 20% of your customers that are responsible for the majority of your business, and then focus on them to make sure they remain loyal and satisfied.

But don’t stop there. Look at the remaining 80%. Although Dr. Juran first referred to his theory as “the vital few and the trivial many”, he later preferred to call it “the vital few and the useful many” to remind us not to ignore the remaining, less significant group. Building stronger relationships with prospects and lesser customers could yield results and may be worth considering.

Here are a few ideas to reinforce existing customer loyalty from the top 20% of your customers.

Increase communication – Don’t stop the lines of communication. Just like a personal relationship, when the discussion stops, so does the relationship.
Restructure the message – Let customers know you are listening to them and their concerns. Speak to their particular challenge and let them know you are eager to help them.
Change the offer – Address their immediate business concerns and find ways of doing business that help them solve them. Maybe that’s a package deal, multiple-purchase discount, or in-person consultation

Not surprisingly, those same suggestions also work well to woo more business from the remaining 80% of your customers.

Increase communication – If they are casual customers and you don’t make an effort to communicate with them, then most likely you are not top-of-mind when it comes to purchases. Engage them.
Restructure the message – What is it that infrequent purchasers want or need to know in order to become more frequent purchasers? Sometimes teaching them what they need to know will help them understand the value of what you offer.
Change the offer – Make them an offer they can’t refuse. Maybe that’s a limited trial software subscription, and extended waranty or free introductory offer to get them started.

Whether you concentrate on the top 20% (the vital few) or the remaining 80% (the useful many), I think that Dr. Juran would agree that understanding customers and making them a priority, will always yield positive results.

Tags: 80/20 rule, activeedge, communication, diane vautier, dvautier, Marketing, message, offer, pareto principle, sales, trivial many, useful many, vital few

Marketing | Diane Vautier | 11:33 am

2 Comments

By Tricia, February 17, 2010 @ 4:19 pm

Great article Diane!
By Maria, February 19, 2010 @ 11:29 pm

Interesting…I was just thinking about this concept today. Thanks for expanding on it!