Services Relationship Marketing/Module 11

Week 11/Module 11

Pareto’s Principles is also called the 80/20 Rule based on a 1906 Italian economist’s (Pareto) mathematical formula. It can be used in application to several areas such as management application, “vital few/trivial many,” warehouse space, wealth distribution, understanding consumer problems within an organization, and others. Within a warehouse, 20% of stock will take up 80% of the space, 80% of sales will come from 20% of sales staff, and 20% of staff may cause 80% of the problems.

Imaging “the tip of the iceberg” such as the image to the left here. This illustrates the 80/20 Rule and is a great visualization when imagining customer complaints. As an organization, you may only hear 20% of the actual complaints, or you may experience 80% of the complaints coming from 20% of the customers. There are many applications, but the realization does allow you to consider how this principles (or rule) applies to many situations.

Following the customer complaint example, you can imagine each time one customer complains there are probably anywhere from 20 to 100 others who have had the same experience and not made a complaint. Customers are more likely to complain about expensive services compared to frequently purchased services. Imagine if you purchased a vacation package, had issues with airline travel, or medical services (expensive) compared to issues with fast-food service, a cab ride, or customer service help lines (frequently purchase).

There is a supported reason for organizations to keep customers happy, and avoid negative word-of-mouth (NWOM). We have probably all heard how it is financially better to keep customers happy and not have to spend the money to obtain another to replace an unhappy one. This is because the existing customer is normally less expensive to keep than the cost of acquisition again (think back to CLV calculations you made earlier in the semester). However, there are several examples of when this is not the case. I alluded to an example of a cell phone company firing customers in a previous welcome announcement and wanted to come back to that example. You can read more about this here.

There are local examples of this (for my class in Montana) as well with ATT&T wireless service being cut from northwestern Montana customers who were in non-serviceable areas and their primary residence locations were roaming constantly on towers owned by other carriers. You can review more about this example (from June 2019) here.

TOPIC

Pareto's Principle OR 80/20 Rule

Content Exam

Activity/Scaffolding

Content provided in the introduction above and work completed in the course so far.

Activity/Deliverable

Content Exam