The Pareto Principle Customer Experience Magic — A Complete Guide

We all have heard a lot about customer experience. We know it can make a big difference to our customer satisfaction. Further, these stats make it evident that Customer Experience is at the core of corporate success.

• Customer-centric organizations are 60% more profitable according to SuperOffice.
• Customer feedback guides the strategies and tactics of 51% of marketers, according to Salesforce.
• Research by PR News Wire concludes that 81% of businesses consider CX to be a competitive differentiator.

So, Customer Experience must be improved continuously. However, to improve Customer Experience it is necessary to understand how our inputs are going to impact our results. And only then can we know which areas are crucial for our efforts and from where can, we generate maximum results.

This may sound a bit confusing now. That is why we are here to discuss the Pareto Principle and how it can be used by businesses to understand and improve their customer experience. Let’s begin…

Pareto Principle: A Quick Overview

Physics proves that for every action you take, there will be an equal reaction for the same. Well, though it’s a law of physics, it doesn’t apply exactly in Social Sciences and business. And this was first observed by Italian economist Vilfredo Pareto.

According to Pareto’s observations of the landholdings in a country, he derived the 80/20 rule.

This means that 20% of the population of any country holds 80% of the land. Generalizing this observation, we can say that 20% of the cause generates 80% of the results. And that is why it is the small things that create the most significant difference.

The Pareto Principle has been widely accepted and used in many fields of work including Customer Experience studies. And astonishingly, it has been able to significantly guide marketers in their thrive to achieve customer satisfaction.

But how does using the Pareto Principle in business make a difference? Let’s understand deeply…

The 80/20 Rule for Customer Experience

The question at hand is what does the 80/20 principle propose for any business?

After all, it was observed in the macroeconomy. How to relate that to the microelements of your business?

Well, to start with, the Pareto Principle can have 2 major implications for a business:

1. There are only 20% of the areas in a business that, if recognized accurately and seized with good efforts, can generate 80% of the difference in the results of any of your business activities.
2. 80% of hike in revenue is an effect of efforts made for 20% of customers that hold the most stake in your business in terms of value and volume.

This means that to satisfy customers and generate greater CX, brands must identify the major 20% of areas that affect the customers the most. Focusing on them can add 80% to their current CX level. Also, brands must not focus on satisfying every customer.

Rather, as proposed by the Dunvegan Group, the 80/20 rule suggests that business owners must focus more on satisfying the 20% of customers responsible for generating 80% of their revenues.

This is what the Pareto Principle in business stands for. Let’s know more about the benefits this can create…

Significance of the Pareto Principle in Business

When a business uses Pareto Principle exercises, they can achieve a lot more than just higher CX. The most important benefit being the Pareto Principle productivity. And this is achieved because:

• The Top 20: The Pareto Principle motivates you to analyze your top priority customers. These are the 20% of customers that make frequent purchases or are loyal to your brand. According to Forbes, loyal customers are 5 times more likely to make repeat purchases and refer to a friend. Also, retaining existing customers is 25 times cost-effective than acquiring new ones, as per the Harvard Business Review. Thus, keeping them happy can be key to market success.
• Focused Efforts: Identification of key performance areas (KPAs) helps to reduce redundant efforts in non-performing areas. This removes futile efforts and helps you concentrate on areas that can bring you definite results. Thus, the focus is drawn to what’s more important and urgent.
• Reduced Costs: As efforts get focused on key areas and customers, the costs are bound to lower. This results in 80/20 rule customer profitability.
• The Pareto Principle Productivity: Lesser inputs concentrated on major areas can create major outputs in less time. More output in fewer inputs by the 80/20 rule is known as the Pareto Principle Productivity.
• Utilize your Resources and Time Better: As you know the priority 20 customers or areas for efficient results, you can save time and resources on redundant problems and on entertaining customers that are not going to convert. Instead, use your precious time on engaging priority customers.

To reap these benefits, it is necessary to learn about some Pareto Principle Exercises that can help in increasing the Pareto Principle Productivity.

Understand the Pareto Principle Exercises Practically with some Pareto Principle Examples

Pareto Principle Exercises are a good means to implement the 80/20 rule in your business. But, to understand the Pareto Principle Exercises, it is necessary to list some Pareto Principle examples that can help you relate to the problem and its solution. Some of these are:

With these Pareto Principle examples, hopefully, you now understand how the Pareto Principle can contribute to your business. But, there is a catch to this too…

The 80/20 Rule Customer Profitability Paradox

The Pareto Principle is not all gold. It has its downsides too.

The Pareto Principle Productivity suggests that by concentrating on 20% of the priority customers, a business can achieve 80% more revenue. And that’s true! But, a customer with a higher stake in your business has high negotiating power.

So, they might contribute to the overall revenue but in terms of profits, this necessarily will not be true. Thus, to meet profit targets, you should not entirely ignore the 80% customers.

Over investment in the top 20%, star customers can leave fewer resources for the hidden opportunities in the smaller 80% customers. This can even result in dissatisfaction of 80% of your customer base.

And according to the Huffington Post, 90% of the time these angry customers would simply stop doing business with you rather than complaining.

Thus, the hidden paradox of the Pareto Principle is that the 20% resources, customers, or areas being important don’t imply that the other 80% aren’t important at all.

They have their value, maybe less, but it exists. And so, as a word of advice, you should put at least 20% of your efforts on the remaining 80% and 80% efforts into the top 20%.

In Conclusion

The 80/20 rule marketing examples highlight how much this approach can help you in reducing redundant efforts and increasing returns. With the 80/20 rule, customer profitability will no more be a wild dream. But, this doesn’t mean you abandon the remaining customers. Just a shift of focus will suffice!