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The Pareto Principle in Industrial Marketing | Manufacturing Marketing

The Pareto Principle in Industrial Marketing

paretoprinciple

Identify the industrial marketing activities that generate the majority of returns – the 80/20 rule in action.

Vilfredo Pareto was an Italian economist who is generally credited with the research and observation that 80% of wealth is held by 20% of the population. This was more widely applied by Dr. Joseph Juran as a principle for quality improvement and problem solving. Identifying this vital few (20%) and the trivial many (80%) is a concept which is prevalent in sales but less so within industrial marketing.

In its’ broadest sense, the Pareto process of identifying and ranking elements is optimization. The result is the listing of the most important, the vital few, through to the least important, the trivial many. To optimize a process is to focus resources where the greatest return is possible with the least investment.

For optimization to be possible, a method for tracking results of each marketing effort must exist. A wide variety of statistics are available to identify relative success per effort. The lack of a common denominator limits the utility of these individually. For example, website page views is a useful measure in general but should not be used to establish a specific return on investment. Rather, page views should identify the vital few from the trivial many.

Total sales per marketing initiative as stated in revenue is necessary as a broad measure. Total revenue per specific effort is possible only if tracked statistically in a meaningful way. Knowing how many phone calls were generated by a specific webpage is great, but knowing which page generated calls resulting in specific revenue is the key.

For industrial marketing to be truly effective, the vital few must be known for both your total sales and your customer base. Knowing which products generate the most sales allows for narrowing your marketing to target the promotion of these over the trivial many within your product mix. This is the most obvious application of the 80/20 rule – 20% of your sales typically generate 80% of your profits. Limited resources applied where the greatest returns are possible.

Less obvious is to apply the Pareto Principle to your client base. Certainly knowing which customers are the vital few from a total sales standpoint is standard practice. Take that knowledge and look for common characteristics among your top 20%. There should be clues which allow for the identification of additional customers within that market niche. Strive to grow your vital few customers – bring new customers into the top 20% – rather than adding more customers of lower value.

Narrowing your focus in this way creates the most efficient process for not only industrial marketing but your business in general.

Click on the following links to learn more about Vilfredo Pareto (1848-1923) and Dr. Joseph M. Juran (1904-2008).

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