Post on 24-Dec-2015
The 80/20 Rule
Principle named after Italian Economist, Vilfredo Pareto
• Developed it initially by observing that 20% of the pea pods in his garden produced 80% of the peas
• Pareto later completed his landmark analysis of Italian real estate ownership which confirmed that 80% of Italian land was owned by just 20% of the population
• Curious, he conducted surveys in several other countries and found to his surprise that a similar distribution applied.
2
In the business context, the 80/20 rule suggests that..
• 80% of our sales are generated by just 20% of our customers
3
Four examples of the 80/20 rule
One common method of thinking about customers is to place them in “deciles” based on usage potential
5
US Diabetes example
Source: IMS National Prescription Audit
Another example relates to the leading brand in the Osteoporosis category
6
US Osteoporosis example
Source: IMS National Prescription Audit
Our next example relates to the leading brand in the U.S. Antibiotic market
7
US Antibiotic example
Source: IMS National Prescription Audit
Final example relates to a personal experience working on the launch of Cardura
8
• Cardura is a drug for high blood pressure
• Launched in late 1990 into extremely crowded and competitive category (>60 drugs)
• Cardura was a me-too entry into the least desirable class of high BP drugs
Jason’s initial performance with Cardura
9
May Jun Jul Aug Sep Oct Nov Dec0
10
20
30
40
50
60
70
80
90
100
16% 19%25%
34%41%
48%56%
63%
YTD
Sa
les
vs.
ta
rge
t (%
)
1992 Cardura sales target increased by 216%
10
+216%
So I threw caution to the wind
• Focused on my top 10 Cardura prescribers (out of 75 total targets)
• Increased call frequency from 1 to 2 calls/month
• Figured out how many patients I needed to hit my goal
• Ask for firm commitment to deliver 10 patients in first 1-2 months
11
Results
12
+35%
Key lesson regarding the 80/20 rule
• It takes very few customers to achieve your target
– I targeted 10 with my high frequency, hard closing campaign
– In the end, only 5 actually followed through (5/75 total targets)
13
Summary
• The overwhelming majority of our business is generated by a relatively small group of our customers
• Tendency to cast our promotional nets broadly is a mistake that undermines your competitiveness and destroys profitability
• Smart companies invest disproportionate resources in serving the needs of their most valuable customers
14