Have you heard of the adage about '20% customers producing 80% of sales' (the 80/20 rule) or the advertising one that says '50% of my advertising is wasted, I just don't know which 50%' (the 50/50 rule). Enter two primary marketing concepts, customer acquisition/retention and advertising tracking and accountability. How do these two rather separate items fit together in the greater plan?

It is important to understand that the "20%" that are considered loyal, profitable customers are a fluid 20%, they are constantly moving in and out of this customer group into the 80% group. Look at it this way, the '20% customer group' is really a like leaky bucket. Let's call it the 'Profit Bucket'. Although it is always full, it is also always leaking customers back to the 80% group, and in some cases away all together. It constantly needs replenishing.

If we look at almost any retailer, the makeup of the customers in the Profit Bucket in the spring may look totally different than the customers in the fall, due to lifestyle, needs, product selection, location and demographics. The total is still 20%, just a different 20%.

So, if we are going to advertise efficiently, we have to advertise to those that are in the 'Profit Bucket' or to those who will be in the bucket.

This means not only keeping both the 80% bucket and the 20% Profit Bucket full, but keeping them full of customers that are meaningful and potentially profitable. The thing that some retailers fail to understand is that every one of their customers in the 'Profit Bucket' were once in the 80% bucket and before that in the Universal Sea. A certain number of 80%ers are always in the development stages of becoming 20%ers. But which ones?

This is where the 50/50 rule comes in. Which 50% of the 20%, the 80% or the Universal Sea should be advertised to get the maximum returns? A little bit of analysis can sort this out. It will identify your best 20% of customers and eliminate the wasted 50% of your advertising.

Recent improvements in data capture and data management, GIS (Geographic Information Services), Postal Code Segmentation, Analysis and Data Mining techniques have increased the efficiency of customer buying pattern analysis.

Which advertising respondents are actually in the Universal Sea, the 80% Bucket and the 'Profit Bucket'.

How do the 'Profit Bucket' customers change from season to season, time to time or campaign to campaign, and therefore,

Which advertising media (radio stations, TV, newspapers, magazines, in-home media) should be used to most efficiently reach the 'Profit Bucket' segments.

What is the lifetime spend, or "dollars in my pocket" of the customers in the 'Profit Bucket' and the 80% Bucket.

The requirements from the retailer are simple. For the more sophisticated retailer, full customer and transactional data will yield very deep and rich results. For the retailer that is novice to this area, a customer's postal code, sale amount and transaction date will produce more actionable information than he/she will know what to do with.

So, as you can see, controlling the efficiency of advertising and thus the proverbial 50% of wasted advertising dollars is really a simple element of knowing which customers, or potential customers constitute your 80/20 groupings, and using simple, available software or services to break the data into usable information. The bottom line is:

Spend the same amount and get far better results,
Spend less and get the same results, or
Do the same as you have always done.
Marketing Introduction and Lifetime Value

Make the 80/20 and 50/50 rules work for you

Canada Post Requirements for Address Accuracy

Know your customers and create more profitable Direct Marketing programs with Data Mining

What is Data Mining?

Response Modeling?

Segmentation and Profiling

Customer Valuation

Cross Selling

Working the Modules Together