The Truth About The '80:20 Rule' And The Dangers Of Received Wisdom
“Sooner or later though, you always have to wake up"
The received wisdom
As an industry, we like the idea of loyalty. The language of "affinity", "commitment", "fans", "loyalty" and so on runs like a river through our conversations and recommendations. We like to believe that consumers have - or can be encouraged to have - passionate feelings about what we do and make. We like the notion that brands are edifices constructed out of loyalty.
Take the so-called Pareto’s law. Or as it is more commonly referred to, the “80:20” rule.
Marketing does like its received wisdom and this little piece of received wisdom holds that 20% of a brand’s buyers account for 80% of purchases.
If you buy into Pareto’s law it makes sense to focus on the heaviest of buyers. It makes sense to use one’s finite resources against a small group of people who account for such a significant part of our volume.
Equally, it makes sense to largely ignore - or at least treat as secondary - the much bigger group of buyers who account for only 20% of purchases. Or to try and increase their loyalty.
So goes the received wisdom.
The empirical evidence
The problem with a lot of received wisdom is that while it is most definitely received, it often contains a lot less wisdom than we think. We could do with a lot more scrutinizing of wisdom, and a lot less of receiving it.
And if we can be bothered to look at the data, we actually see that over a 12 month period, the heaviest buyers of a typical packaged goods brand will account for around 50% of purchases.
For example, analysis of Nielsen BrandScan data from the US conducted by Professor Byron Sharp and Dr. Jenni Romaniuk of the Ehrenberg-Bass Institute shows that the heaviest 20% of buyers account for:
51% of the average liquid fabric conditioner brand’s volume
54% of the average breakfast brand’s volume
53% of the average canned soup brand’s volume
65% of the average soft drinks brand’s volume
And so on.
That’s a long way off the much-vaunted 80% of purchases.
So much for the 80: 20 rule.
Light buyers matter
The data clearly shows us that there are many more light buyers of brands in the world than heavy buyers.
(And if the majority of the market is composed of light buyers then trying to increase purchase frequency is not so much a marketing strategy as picking a fight with the market).
Light buyers don’t buy any given brand very often, because - however uncomfortable it may be for us - like any normal person they don’t care about brands that much and have spilt loyalties across a number of brands.
However, because there are so many of them, they make up a very significant proportion of a brand’s purchases.
And a lot more than the mere 20% that received wisdom would have us believe.
This pattern holds true not just for packaged goods brands but for so-called ’iconic’ brands such as Apple, and Harley Davidson.
So while rhetoric and received wisdom point to the importance of loyalty, the empirical evidence (of which there is a very great deal) blows a rather large hole in its logic.
The key to brand growth is not chasing loyalty to the exclusion of all else.
Or more accurately, brand growth depends on some loyalty and a lot of light buyers.
And marketing to people who don’t know you well, don’t come into contact with you often, or don’t care that much about you is a rather different undertaking from marketing to people who deeply know and love you.
My source for this evidence is How Brands Grow: What Marketers Don’t Know. It’s by Byron Sharp and the researchers at the Ehrenberg-Bass Institute.
If you want to buy one book this year to help you (or the marketer in your life) be a better a marketer, don’t buy all the data-devoid stuff that makes us feel cutting edge, or massages our egos. I suggest you read this one. It is full of proper data and analysis. And full of the stuff that as Sharp says, marketers should know, but many clearly don’t. Like double jeopardy, retention double jeopardy, the law of buyer moderation, natural monopoly law, etc.
It’s easily the most useful, challenging and illuminating book about marketing I’ve read in years.
Once again - what’s love got to do with it?
We are as a business unnaturally fixated on notions of commitment, affinity, relationships and loyalty. Some of us even suggest that brands can command people’s undying love.
Such then is the absurdity of marketing rhetoric that we expect a degree of loyalty, commitment and devotion towards brands that is not always in evidence in all of our own personal, real life, flesh and blood relationships.
It is time we stopped receiving wisdom, examined the empirical evidence a little more and woke up.