The 80/20 Rule

Principle named after Italian Economist, Vilfredo Pareto Developed it initially by observing that 20% of the pea pods in his garden produced 80% of the peas Pareto later completed his landmark analysis of Italian real estate ownership which confirmed that 80% of Italian land was owned by just 20% of the population Curious, he conducted surveys in several other countries and found to his surprise that a similar distribution applied. 2

In the business context, the 80/20 rule suggests that.. 80% of our sales are generated by just 20% of our customers 3

Four examples of the 80/20 rule

One common method of thinking about customers is to place them in “deciles” based on usage potential 5 US Diabetes example Source: IMS National Prescription Audit

Another example relates to the leading brand in the Osteoporosis category 6 US Osteoporosis example Source: IMS National Prescription Audit

Our next example relates to the leading brand in the U.S. Antibiotic market 7 US Antibiotic example Source: IMS National Prescription Audit

Final example relates to a personal experience working on the launch of Cardura 8 Cardura is a drug for high blood pressure Launched in late 1990 into extremely crowded and competitive category (>60 drugs) Cardura was a me-too entry into the least desirable class of high BP drugs

Jason’s initial performance with Cardura 9

1992 Cardura sales target increased by 216% %

So I threw caution to the wind Focused on my top 10 Cardura prescribers (out of 75 total targets) Increased call frequency from 1 to 2 calls/month Figured out how many patients I needed to hit my goal Ask for firm commitment to deliver 10 patients in first 1-2 months 11

Results %

Key lesson regarding the 80/20 rule It takes very few customers to achieve your target –I targeted 10 with my high frequency, hard closing campaign –In the end, only 5 actually followed through (5/75 total targets) 13

Summary The overwhelming majority of our business is generated by a relatively small group of our customers Tendency to cast our promotional nets broadly is a mistake that undermines your competitiveness and destroys profitability Smart companies invest disproportionate resources in serving the needs of their most valuable customers 14