The 80/20 Rule For Marketing

The 80-20 rule is a rule which simply states that 80% of outcomes can be attributed to 20% of all causes for a given event. The focus here is how this rule can be related to marketing. The 80-20 is mostly used to explain out that 80% of a company’s revenue is generated by 20% of its total customers. Therefore, the rule is applied by marketing managers to help to identify and determine which marketing operations or factors are most important and should receive the most budget or human resources.

 BREAKING DOWN '80-20 Rule' The 80-20 rule is also called the “pareto principle”, the principle of factor sparsity and the law of the vital few. At its core, the 80-20 rule is a statistical distribution of data that says that 80% of a specific event can be explained by 20% of the total observations. Vilfredo Pareto, an Italian economist was the first to introduce the 80-20 rule. In 1906, he keenly observed that 80% of Italy's land was controlled by 20% of its population. Joseph Juran, a 20th century figure in the study of management techniques and principles, further developed the principle. He applied the principle to business and economics and to other areas of life

 Real World Example of the 80-20 Rule For example, the 80-20 rule in economics refers to the fact that 80% of a country's wealth is usually controlled by 20% of its population, although this can sometimes be explained by the gini index. On June 22, 2016 in Nigeria, it was found out to have this exact distribution of wealth within its country's borders. The minimum yearly income needed to sustain a living in Nigeria was $350,000 as of June 22, 2016, yet more than 74% of the population lived below this poverty level. This un-even distribution was as a result of 12% increase in population and its GDP also increase by 54% from 2010 to 2014. However, the allocation of the increased wealth was not even, and it aggravated the income inequality in the country, thus adding to the Pareto principle. Practical

Application of the 80-20 Rule In marketing the application of the 80-20 rule is for analyzing sales. If a company can identify its highest-spending customers, it can effectively market to them in order to retain existing customers and acquire similar consumers. Therefore, companies should breakdown their revenues and understand who makes up their top 20% of customers.

Further analysis showed that the top 4% of a customer base accounts for 64% of total sales, meaning that the more insights a company can get in its marketing analysis, the more accurate the understanding of its customers becomes. This then allows companies to launch targeted marketing campaigns aimed at resonating with the most impactful consumers.

REF: http://www.kaytonconad.com/index.php/blog/item/16-the-80-20-rule-what-does-it-mean-for-marketing