Problems with Pareto

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If you relentlessly follow the Pareto Principle (or “80/20” rule) do you eventually reach perfection? Ask yourself how many perfect examples of marketing you have encountered and the answer would seem to be a resounding ’none’. So why should this be when an entire profession exists, in the form of insights and analytics, which is dedicated to the optimisation of marketing activity?

It might be possible to find an explanation from the realm of self-improvement. Any number of life coaches exist that aim to help people reach their optimum, whether in their work, health or relationship. Tim Feriss takes this further than most through the application of the Pareto Principle – by focusing 80 per cent of your effort on the 20 per cent of activities that get results, you too could end up working just four hours per week, or having a gym-perfect body with just four hours effort, he claims.

Whether you believe this is truly possible may reflect how strongly you want to lose 34lb of muscle in four weeks or to become a male stud. Feriss argues that his critics are simply envious and that hostility is a natural by-product of success.

Both of those responses may be true. But it is also true that, if achieving these outcomes were really as simple as adopting an 80/20 approach to everything, the whole self-help industry would be out of business by 2015.

In marketing, the same philosophy has long been applied and gained added popularity in 1996 with the publication of Garth Hallberg’s book, “All consumers are not created equal”. Fifteen years on, there are no more signs that marketing has reached its optimum potential than there where when he went to press.

So what happens to stop this desired outcome? First there are operational challenges – reducing your marketing campaigns to one-fifth of their previous volume can actually increase costs through the loss of efficiencies of scale. Perfection may also not be economically viable – you could reach a perfect audience, but what if it was only one person?

Second, management is likely to be alarmed by such a move and fear the reaction of shareholders. Who wants to admit to having been wrong four-fifths of the time or that the real profitable customer base is much less than was previously thought?

Another Pareto paradox is that niche marketers who might be thought to have already optimised their campaigns also have wastage. Some degree of “noise” is inevitable. Smaller companies are also less able to afford those insight and analytics skills to help them improve their targeting.

The final barrier is more insurmountable. Human behaviour means that few of us have the discipline to follow the routines that self-help gurus like Feriss map out. Every January diet is ultimately followed by Christmas blow-out. That same behaviour also means that, by the time you have identified your perfect 20 per cent segment, it will have changed and moved on. Just as self-help is more about the advisor helping themselves to become successful than the follower, so analytics might have its own perpetuation built in.

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