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.

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In the business context, the 80/20 rule suggests that..

• 80% of our sales are generated by just 20% of our customers

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Four examples of the 80/20 rule

One common method of thinking about customers is to place them in “deciles” based on usage potential

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US Diabetes example

Source: IMS National Prescription Audit

Another example relates to the leading brand in the Osteoporosis category

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US Osteoporosis example

Source: IMS National Prescription Audit

Our next example relates to the leading brand in the U.S. Antibiotic market

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US Antibiotic example

Source: IMS National Prescription Audit

Final example relates to a personal experience working on the launch of Cardura

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• 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

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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%

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+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

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Results

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+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)

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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

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