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October 2010

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Curing the Pareto Illness

October 12, 2010

One of the most serious illnesses to strike organizations is the Pareto Principle: the notion that 20 percent of customers create 80 percent of the value, which is embedded in CRM methodology. To maximize profits the object is to focus resources on retaining and attracting the top 20 while giving minimal least-cost service to the bottom 80.

The Pareto Principle offers firms short-term gains through cost reductions while building greater loyalty and hopefully revenue from elite buyers. Yet it inflicts the medium/long-term pain from rising expenses, shrinking customer bases and individual income and spending declines.

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