No Escaping the 80/20 Rule  5/3/2016

I grew up in the packaged goods/mass retail universe, and one of the fundamental things I learned there was the importance of the 80/20 rule – the simple reality that in most cases, the top 20 percent of your customers represent 80% of your revenue. I was surprised to learn just how universal this rule was in the world of mass retail. Wherever I went, from dish soap to drugstores to mouthwash to supermarkets, the 80/20 rule still seemed to hold, and the value of a brand’s best customers was always surprisingly high. In fact, I came to think of it is being closer to the 90/10 rule than the 80/20 rule.

But about 15 years ago, when I diversified my consulting business into a variety of more niche markets, many folks warned me that the 80/20 rule did not work so reliably outside of mass markets. How many houses does a realtor’s best customer need, anyhow? So I lessened my focus on the 80/20 rule when dealing with categories that seemed not to adhere to it.

And then I started seriously riding a bicycle, an activity which I discovered that I loved. So I bought a bike. Two bikes, in fact; one to ride in Manhattan, where I live, and a different one for the country, where I reside during the summer. Then, as I became a more accomplished rider, I decided that I needed to upgrade my primary bicycle, so I could go faster and longer. So I asked my friend Kevin for advice about buying a better bike, and he told me about all 11 of his bikes –road bikes, the mountain bikes, the good bikes, the better bikes, the urban bikes and the rural bikes. He helped me pick out the perfect bike for me (for now, anyway).

Which once again brings us back to the 80/20 rule. Even when it comes to things for which it would seem a consumer would only want or need one – such as bikes – for those who really love a category, and get enthused about it, they tend to become that 20 percent of consumers who spend 80 percent of the money in in it. 

Since having my bicycle epiphany, I have looked at some of these other categories for which I thought the 80/20 rule wouldn’t apply, and discovered, to my surprise, that many of them do in fact, operate in an 80/20 world, or at least pretty close to it. The top 20 percent of air travelers represent 80 percent of the money spent on airfare. When you include collectors of classic cars, 20 percent of car buyers spend 80 percent of the money spent on cars – which, when you think about it, is not so surprising when you consider that the true car lovers are buying many cars AND the most expensive ones.

So, after a period of skepticism, my faith in the 80/20 rule has been reaffirmed, and I now believe in it more than ever. So when you find yourself working in a new area, exploring a new category, or charged with understanding consumer behavior in a new way, my advice is to seek out those best customers, the 20 percenters, study them, get to know them well, and make sure you attend to every need. If you can deliver on them, you can earn a large share in your category.


EDITOR'S NOTE: I think Dave makes a great point here, and I'd like to add a little to it. In addition to seeking out and studying these 20 percenters -- the hobbyists, the fanatics -- you should hire them. These are the people who should be selling and marketing your products -- folks who are fanatical about the category on a personal level. They understand the nuances of why such consumers go deep in a category. They understand why avid cyclists have carbon-fiber bikes, the best equipment on them, a closet full of cycling apparel, helmets, gloves, water bottles, fitness trackers, etc.

The same goes for any other category. Personal fitness, electronic cigarettes, pets, consumer technology. My brother Dave collects and trades rare crystals. He knows EVERYTHING about them -- where they originate, how they are formed, the value of each type. I'll admit, to me, they are just rocks, but to him and other collectors, they are things of beauty, science, and represent the history of the planet (and other planets). And when he describes the history and journey through the ages that one of his crystals has taken, his eyes light up and his knowledge and passion for the subject is clearly evident. The only way to engage such consumers, and land their steady business, is to share their passion and knowledge of their particular niche.

They say you need to speak the language of the customer, and to best engage those 20 percenters, you have to have native fluency.


David Diamond

David Diamond Associates

David Diamond is president of David Diamond Associates, a consultant to retailers, manufacturers and service providers to the food and CPG industries.He can be reached at (646) 742-1373

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