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.
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.