All Customers and Employees are Not Created Equal

 

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107 years ago a man would stumble across an idea that would change the course of history. This revelation would come from a simple observation in his vegetable garden. Vilfredo noticed something interesting about his pea pods. He discovered that 80% of his peas came from a mere 20% of his pods. This intrigued the 59 year-old Italian economist. Soon Vilfredo was applying this ratio to other socioeconomic scenarios. His last name was Pareto and his most famous finding was that 20% of the people in Italy owned 80% of the land.

vilfredo pareto

Partly because of Pareto’s work, the field of economics evolved from a branch of moral philosophy, as practiced by Adam Smith, into a data intensive field. Yet Vilfredo Pareto’s discovery and contribution was largely unheralded until two decades after his death. During the second word war, social scientist Joseph Juran uncovered his work while streamlining shipment processes for the Lend-Lease Administration in Washington, D.C. Juran was the first to coin the phrases, “Pareto’s Law of Unequal Distribution” and the “80/20 rule.”

Pretty soon Juran was applying the rule to a number of scenarios. Here are a few of the findings:

  • 80 percent of the World’s GDP is controlled by 20 percent of the people
  • 80 percent of the complaints come from 20 percent of the customers
  • 80 percent of a company’s sales come from 20 percent of the products

The Vital Few

Juran’s most important application came within the field of quality control. He noticed that the majority of defects came from a small percentage of the total causes. Juran famously referred to Pareto’s Principle as, “The law of the vital few and the trivial many.” Juran pioneered the quality movement. His work is credited with spawning the six sigma and lean manufacturing philosophies. It was Juran that traveled to Japan in the 1950’s, giving a number of lectures that were responsible for igniting the Japanese quality manufacturing movement.

80% of your profits come from 20% of your customers

According to The Economist, since Juran’s original research, “Everyone from Xerox to the IDC and even the United Nations have tested Pareto’s Law, and found that within a tolerance of 5%, the 80/20 rule works just fine across a range of cause and effect scenarios.”

The 80/20 rule was also recently popularized by Tim Ferriss in his 2007 book, “The Four-Hour Work Week.”  Ferriss suggests “firing” the 80% of customers who only bring in 20% of overall sales. His rationale is that it gives you more free time and allows you to focus on your most profitable customers.

Of all the applications of Pareto’s law, here’s the three I believe are the most important,

  • 80% of your profits come from 20% of your customers
  • 80% of a company’s sales are made by 20% of its sales staff
  • 80% of new business comes from 20% of your existing customer base

Are all customers created equal?

When talking about how to invest our time and resources in the fields of customer experience and employee engagement, the answer should be clear. In the spirit of Juran, we should be focusing on the vital few. My first two books, Purple Goldfish and Green Goldfish, explored the “little extras” you do for all customers and employees. The underlying premise is that you standardize these programs across your entire workforce and customer base. While these efforts are important for establishing differentiation and improving overall culture, they are probably not the most efficient use of resources.

The Golden Goldfish

I’m currently writing my third book about goldfish. It’s the “golden goldfish.” The little things you do for your top 20% of employees and customers.

golden goldfish cover

Why Gold? Gold is one of the three colors of Mardi Gras. It’s a direct reference to the birthplace of the creole word called lagniappe. A word that Mark Twain once said, “was worth traveling all the way to New Orleans to get.”

Inspired by Pareto, my goal is to find the Top 201 examples of how companies do the little extras for the vital few. Here are some current examples:

  1. Home James – If you are an upper class flyer of Virgin Atlantic, they offer free car service within 75 miles of the airport. In addition, the driver calls dispatch 15 minutes out with the number of bags the person has and when they arrive at the baggage carousel, they tag and grab it.
  2. New Jersey – The Tampa Bay Lightning gave season ticket holders a special STH game jersey. Embedded in a patch on the sleeve was a computer chip. Scan it and receive 25% and 35% off food and merchandise respectively at the arena. Nice way to acknowledge and thank your best customers.
  3. Helicopter Roadside Assistance – If your Lexus LFA* breaks down over in Europe, the car manufacturer will helicopter in a team to fix it. A big repair… no problem as Lexus is prepared to put you up in five star accommodations. (*one small snag, the LFA costs $400,000)

More importantly determine what really matters to them.

You don’t treat everyone the same, you treat everyone fairly.

Discover Design Deploy

So – how do you get started developing Golden Goldfish? Here is a 3D circular framework inspired by Vilfredo, Joseph and Tim:

  1. Discovery – The first step involves identifying customers and their needs so that these can be satisfied. Ferriss calls this deconstruction and selection. Who are your vital few? Find your critical 20% and more importantly determine what really matters to them.
  2. Design – The second step is about developing ideas and processes that can meet those needs. Prioritizing those you think can make the greatest impact. Then piloting and testing those concepts to gauge their effectiveness.
  3. Deployment – The third and last step is about operationalizing those ideas, measuring their progress, and constantly trying to improve those processes. The best organizations are those who resist sitting on their laurels. They realize today’s extras become tomorrow’s expectations. They treat these three steps as an ongoing circular process.

Switch & Shift readers: Are you willing to achieve more by doing less? Ready to count your peas? What’s Your Golden Goldfish?

 

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Image credit- yeletkeshet / 123RF Stock Photo

Stan Phelps is the founder of 9 INCH marketing, a consultancy that helps brands obtain customers that are four times as valuable as ordinary customers through the Goldfish Rule. He works with senior leaders to focus on meaningful differentiation to win the hearts of both employees and customers. Driven by client objectives and inspired by bold vision, Stan creates custom keynotes, workshops, and programs that are memorable and on brand, inspiring businesses to become talk-able by design.

  • Stan,

    What a knockout post to kick off the new year! I can’t wait to get my hands on WYGoldenG? Your first two books were phenomenal; the third in your trilogy is certain to WOW.

    I read years ago that 80% of BMW’s complaints come from buyers of their least-expensive (and least-profitable) line of cars. There are all sorts of inferences leaders can draw from examples such as this and the three you share above, and I suppose each company must make its own collective mind up as to what is “worth it” and what isn’t.

    Here are just a couple of my own questions that come to mind:

    * If Lexus (or BMW, or… fill in the blank)) only sold $400,000 cars and fired all its other customers, would they better thrive as a company? Sounds a little like Rolls Royce. I wonder which is more profitable.
    * If the Tampa Bay Lightning only sold season tickets and focused on spoiling those super-fans, again, would they thrive more as an organization?
    * Could Walmart or another lowest-cost company institute something like a Golden Goldfish preferred-shopper program, or would customers just laugh at that?

    I think I know your answer already: cater to both clientele, but allocate energy, financial assets, and staff to the Golden crowd. Fair, but not equal, as you put it.

    More than most of the experts I know, you make me think – which is exactly what makes you an Extraordinary Thinker! I can’t wait for your next post, Stan. Thank you for sharing with our community.

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