Friday, I discussed the Pareto principle (named after Vilfredo Pareto and always Italian) or 80:20 rule and how you might apply it to your business. I thought it would be useful to suggest various actions one could take after ranking your customers into top 20%, middle 60% and bottom 20%.
First, do not spend any time or money on your bottom 20%. Some even recommend hoping they will move to your competitors as this group can be costly to your bottom line.
Next, do focus your marketing efforts on the middle 60%. This group is profitable and worth an investment of time and energy. This is where you want to add new customers and work towards moving them into the top 20%. Marketing efforts are effective with this group and should include incentives, reward programs and, the dreaded, discount. Your marketing strategy should be developed around growing the middle 60%.
Finally, the top 20% are probably spending all they can with you. There is little to no more up selling or expansion possible. Consequently, the key word here is “Support”. You do not want to lose customers in your top 20%. Personalized/targeted support is what they expect given their level of investment/trust in your business. Retaining these customers is critical. Most companies assign specially trained support personnel to address the top 20% to quickly cure any problems or issues.
Using the Pareto principle to identify customer segments, trends and behaviors is an excellent use of time and can lead to continuous business process and sales improvement.
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