Why it's time to throw out the 80-20 rule

Every time you look up (from your mobile device), another new way to reach consumers and a new digital mechanism to drive brand messages seems to emerge. But with more than 307 million people in the U.S., and nearly 74 percent of them using the internet, how are we supposed to find success using the Pareto principle and target the 20 percent of consumers who drive 80 percent of the revenue?

Well, you can, but that's not being smarter, faster, or more efficient. In fact, that's traditional advertising. In my world, you achieve results by discovering one-fifth of those people, or 4 percent of your most influential consumers, and targeting them.

This significant digit -- what I like to call the 4-percent factor -- is a strategic targeting principle that forces you to drill deeper into your influencer base to discover the most significant consumers who have the greatest impact on your brand and then speak to them. Through the use of information already available via customer databases, profiling and enhancement data, real-time research, and predictive modeling, it is easier than ever to find those customers who can take your business to the next level. The information is voluminous, and so are the results when you use it to your advantage.

Just imagine being able to weed through a 40,000-person database, only to discover that 4 percent of your taco eaters drive 75 percent of margarita sales. How fast can you hit "send" on their free taco night email?

But why 4-percent? That's the significant digit that rises to the surface in countless studies and program measurements. For instance, Iams Pet Food discovered, via a Catalina Marketing study, the huge impact of just 1 percent of its customer base. LaRosa's restaurants learned about the substantial value of a small universe of its calzone customers.

These examples and others prove time and again that the customers who truly impact your brand (typically characterized as volume, margin, or advocacy) tend to be a relatively smaller number of the whole customer universe than we once believed them to be -- certainly less than 20 percent.

Brands like Yahoo, Pepsi, GNC, and CubCadet are beginning to discover and take advantage of this phenomenon, using transaction and behavior data to sort out their best consumers. In the process, they are targeting specific types of messages via specific channels of communication, from online video and mobile marketing to email and social media. They are using existing data to mine their consumer data stores and find the customers who matter most, because those customers will help build communities around your brand. It's doing business smarter and faster.

So then, how do you find this significant digit?

  1. Start by embracing the concept of the 4-percent factor and think about ways to employ addressable media, digital media, one-to-one marketing and, of course, social media to reach that core 4 percent of consumers who have the greatest propensity to identify and recruit others to your brand franchise. 

  2. Take the same consumer data and look for ways to leverage your key messaging and other insights so that the information informs and improves other relevant channels of communication too. Together, these methods will help more people connect with your brand faster.

  3. If you desire to grow a business or product line that can react and adapt more quickly to future opportunities, consider incorporating these specific steps into your strategy:
    • Find: Discover and define your main source of volume, margin, or advocacy by tapping into existing customer data. Combine this with outside resources such as enhancement data and details gathered via social media and other research tools.
    • Filter: Sift through the data and intelligence by segmenting, profiling, and utilizing predictive modeling to develop a pool of target segments and markets.
    • Magnify: Examine, select, and prioritize the top three to five target groups. Test and refine them using research technologies that allow for online focus groups to dig deeper and gather detailed insights, as well as other primary interactions.
    • Expand: Build out the selected communities via communications strategies, ranging from display to social media, in order to establish dialog and grow the universe of new entrants and new advocates. 

What you'll find is that the 4-percent factor goes well beyond a loyalty strategy. It is really a penetration strategy designed to be a competitive approach to cutting through the quagmire of less influential customers to protect and grow your business. Simply put, start smaller to get bigger faster. It also tends to be a much more sustainable approach than the typical strategy of casting a wide net and going through trials hoping to retain a percentage of new customers.  

Today, one thing we all agree on is that brands are built by communities of like-minded individuals who share their brand experiences with friends and those with whom they have some connection. By truly pinpointing those communities -- your markets of business opportunity -- and finding creative ways to get them to help recruit your next customers, you will see more significant and sustainable results.

As fast as digital channels evolve and change, so too do the ways that consumers engage with your brand. The Pareto principle doesn't cut it any more in an age where above- and below-the-line communications have blurred into an infinite number of digital consumer channels. Dive deep into those one-to-one approaches, such as social media, mobile marketing, and proximity marketing, to optimize brand and business building. Soon you will reap the benefits of the 4-percent factor with a smarter, faster and more targeted approach to online consumer engagement.

Scott Morgan is president of Brunner.

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Comments

Pamela Hoke
Pamela Hoke November 30, 2009 at 8:24 AM

Enlightening article, Scott. It's so nice to see someone is taking the initiative to simply tell it like it is - I can never stress enough to my clients (even on the small biz sector that I cater to) it's QUALITY over QUANTITY regarding reach and message - quality message to quality custoimer base will lead to increased quantity of sales, period. Thanks for the starting the week with the most genuinely helpful article I've seen in a quite some time!