Small Business Marketing Review - The 80/20 Principle Part One

There is a fantastic book we recommend to any marketer overwhelmed with more tasks than time. (That includes every marketer we know.) That Book is by Richard Koch and it’s titled The 80/20 Principle.

Following the 80/20 Principle, we are only reviewing the few chapters that will give you, as a small business marketer, the most insight with the least amount of time spent. We do recommend you read the entire work, as the insights which Koch derives from his study and application of Pareto’s discovery of the 80/20 rule go beyond marketing. Indeed, the latter chapters have relevance for us as individuals and also as a society. But here our scope is limited to marketing. In this article, we focus exclusively on Chapter 2: How to Think 80/20. In our next article we examine Chapters 5 and 6.

You’ve probably seen the 80/20 rule expressed in your own business. It’s likely that 80% of your profits come from 20% of your customers–or products. 80% of effect is the result of a scant 20% of cause (p.4). OK, so how can we marketers gain from 80/20?

One key is in Koch’s brilliant chart illustrating two ways to use the 80/20 Principle. (p.29)

Koch delineates the difference between “80/20 Analysis” and “80/20 Thinking”. A small business marketer needs to bend her brain both ways.

Analysis is useful when you have the time, the data, and the analytical means to help you study a situation. Analysis is important, and can uncover hidden insights. This quote sums up much of Koch’s book: “When using the 80/20 Principle, be selective and be contrarian. Don’t be seduced into thinking that the variable that everyone else is looking at…is what really matters. This is linear thinking. The most valuable insight from 80/20 Analysis will always come from examining nonlinear relationships that others are neglecting.” (p. 27)

But in this chapter Koch also focuses on what he terms 80/20 Thinking. Koch calls this “… my phrase for the application of the 80/20 Principle to daily life, for nonquantitative applications of the principle.” On the next page, he encourages us to focus on the “vital few” rather than the “trivial many”. This is a theme throughout the book.

For a small business marketer, if we can learn to integrate 80/20 thinking into our daily or weekly reflection about how best to market our company, then we can get more done, faster. We learn to focus quickly on what really matters, and properly prioritize what is least important. Most of us wear more than one hat in our small business. Marketing is a part of our overall job, so it becomes especially critical for us to quickly and clearly focus on what will produce the most profitable results.

Next: A look at Chapters 5 and 6.

Remember: Brand (who you are) + Package (your Face to the Customer) + People (customers and employees) = Marketing Success.

© 2006 Marketing Hawks

Small Business Marketing Review - The 80/20 Principle Part One