This post is by Anton Buchner, a senior consultant with TrinityP3. Anton is one of Australia’s leaders in data-driven marketing. Helping navigate through the bells, whistles and hype to identify genuine marketing value when it comes to technology, digital activity, and the resulting data footprint.
The Pareto principle (also known as the 80/20 rule), states that, “for many events, roughly 80% of the effects come from 20% of the causes”.
Wilfredo Pareto developed the concept in the context of the distribution of income and wealth among the Italian population in the late 1800s when at the University of Lausanne.
I’ve always loved the rule, and often apply it in marketing planning.
It’s a simple way of identifying where business value is coming from when analysing a customer base. (ie: 80% of the revenue, or profit, comes from 20% of consumers).
90/10
We have just completed a project for a global trading platform.
After initial discussions of their marketing challenges, we arranged for some deeper customer value analysis.
Their customer base turned out to be 90/10 with 90% of the value coming from the top 10% of their customer base!
This number challenged their current marketing mix and channel activity thinking. It highlighted the need to think differently about their VIP trading base (the top tier).
How can the Pareto rule be applied?
It’s a rule that can be applied in many ways.
To employees – to identify the most valuable or engaged or influential employees within your business.
To business customers – to identify your most valuable B2B partners.
To product segments – to identify the most valuable product segments and sub-segments.
To channels – to identify the most valuable channel mix and sources. This analysis is often done in conjunction with some level of attribution and in the context of consumer journey mapping.
To technology investment – to identify more effective decision-making.
And obviously to a consumer database – to identify the most valuable consumers as outlined above.
The Pareto Rule can also be applied to your workload and work in progress (WIP). To help you prioritise all the activities that you are currently doing, by identifying which ones will have the most demonstrable return for the effort expended.
So, what is this post all about?
I’m interested to see if you have applied this thinking to your business. And if so, then are you following it regularly.
Or has the rule slipped from being front and centre of your thinking?
If it has slipped, then may I urge you to please bring it back.
It is this level of simplicity that can really untangle business thinking in today’s increasingly complex environment.
It can help unearth real and actionable insights.
And it can help transform your approach to marketing by majoring on the ‘majors’ and not the ‘minors’.
Here are 10 questions to answer
10. Which employees have the widest social influence in terms of their social media networks?
The answer will allow you to identify and harness the power of these influential employees. We live in an era of human branding, where every employee should be seen as a marketer for your business and brand world.
9. Which consumer service agents have been scored the highest in terms of consumer experience?
There will be a select group of service agents that go above and beyond when it comes to handling consumer interactions. They follow scripts within reason, but add their own personal tone and level of reality rather than delivering a robotic response.
8. Which consumers are logging on to your digital assets the most?
There will be a group of highly engaged consumers that are logging on to your Apps, online accounts and other protected areas. How are you getting to know these people better?
Do you know why they are using the assets so regularly and what content or tools they are utilising? And have you asked them what level of relationship they want from you?
To go back to the global trading example that I mentioned earlier in this post, there’s a great opportunity for them to get to know the top 10% much better and then segment these VIPs based on their needs and attitudes rather than just lump them into a top tier.
7. What content is being viewed most on your website?
Websites are typically being built based on great user experience requirements. However too many are failing to optimise the information and content based on actual usage.
If you take a look at your site analytics now, then there will be a majority of site traffic on 20% of your content.
Hence this content should be at the top of any navigation bar or menu. Take a look at any tool, calculator or other interactive area that you may have on your website. If this is the most used content, then why isn’t it in the first area of your content navigation bar?
If your ‘contact us’ section is the second most viewed content area, then move it from the last content menu area to the second etc.
This will also allow you to focus more on optimising conversion rates, rather than be blinded by site aesthetics. I reviewed a site recently where the client was very excited about their new website. However it failed the consumer-centric test. It was illogical and didn’t take me through any journey to action.
It looked great but just wasn’t practical.
6. Which people have engaged the most with your content in terms of liking, rating, reviewing, and sharing?
If you offer product ratings and reviews, then it will be important to identify who is rating and reviewing. However there may be a catch.
We often see people ‘gaming’ these features, hoping to receive something in return for giving high marks. So it will be important to open up a dialogue with these people to identify their true value, intentions and the associated marketing opportunity.
5. Which analytics briefs are critical for your business success?
We see many analytics teams drowning in analytics briefs. Every business unit wanting their analytics team to analyse until the cows come home.
However with competing interests, and limited resources, how can you prioritise your efforts on the most valuable ones? Apply the 80 / 20 Rule.
4. Which media channels and formats are delivering value?
This could be a post unto itself, however it’s important to determine what value means for your business.
This will then be determined by your strategy. Which hopefully will be from a consumer-centric perspective where media (and the associated content) is assessed based on a consumer journey rather than channel only perspective. Hence cost per thousand and share of voice become redundant.
3. Which KPIs are the most important?
We regularly assess performance metrics and the conclusion is often the same. A lack of agreed and aligned KPIs to measure success. And a mass of reports, dashboards, and results measures drowning marketers.
2. Which data variables are the most important for marketing?
Whether you believe in contextual targeting and behavioural re-targeting, or starting with segmentation and optimising activity, then you’ll need to agree the most valuable data variables as inputs into your marketing model.
This will involve agreeing the variables that ladder up to an overall measurement framework as well as the key variables or attributes to be used for profiling.
However don’t drown in the myriad of variables that are being recommended to you. Just select the 20% that mean the most.
1. How should your budget be allocated in a new world of marketing opportunity?
Focus on fewer, bigger, bets rather than fragmenting your budget across too much activity that won’t deliver the impact that you require.
Other ideas?
Do you have other ideas for applying the 80/20 Rule?
Are you struggling with the complexity that digital and data offer to business? Let TrinityP3 make sense of the new digital ecosystem for you.