20% deliver 80% – so focus

cut the crap and focus on the markets that deliver

No-one in business wants to spend any more than is absolutely necessary on marketing. At the same time, everyone in business wants to maximise sales and, ultimately, profitability. Sometimes, these objectives appear to conflict with the aim of reducing marketing and advertising expenditure. They may even be seen as a sure way of reducing sales.

This is the third in a series of 5 thoughts examining this perceived conflict and outlining action that can be taken to reduce marketing and advertising expenditure without impacting sales.

High profile venture capitalist, Mark Cuban, once suggested that he applies three principal criteria to the assessment of an investment opportunity:

  • Is it addressing the smallest possible market?
  • Does it have a strategic competitive advantage?
  • Is the business absolutely customer focused?

Each of these criteria points directly to the predicted marketing budget. The smaller the market, the greater the potential for a smaller advertising budget. Equally, the sharper and more tangible the competitive advantage and the more consumer focused the business – the lower the marketing budget. It is the first of these issues that is addressed here.

Cuban postulates that the market should be large enough to deliver the required profitability and small enough to be well understood. Further, the product and associated service must be tailored in a way that meets the expectations of the primary target market in order to maximise margins, sales, and referrals.
This highlights one of the keys to reducing marketing budgets – identifying and targeting a profitable niche market.

The 80/20 rule is also known as the Pareto Principle. In this case, the Pareto Principle refers to the fact that for many businesses 80% of their profits could be derived from 20% of their customers.
Evidence suggests that focusing on the 20% with a view to reduce marketing costs, and other costs, and specifically:

  • Maximise repeat business (repeat customers spend up to 300% more than new customers)
  • Maximise referrals (referrals generate an 80% higher conversion rate than other customers)
  • Maximise margins (loyal customers are far more likely to pay a premium in recognition of the value they perceive)

RECOMMENDATION

Identify your primary target market and focus resources on addressing it. Define the market most likely to generate the greatest possible returns over the short, medium, and longer terms.

Rather than targeting the largest possible market, target the best possible market, that is, the  market that maximises profitability, giving due consideration to margins, repeat business and referrals.

Niche marketing can deliver significant benefits in terms of enhanced customer relationships, reduced competition, maximised visibility, WOM, superior expertise, and lower costs.

Put the facts ahead of gut feelings, habit and guesswork.

SOURCES OF THIS WEEK’S STATISTICS

CNBC, ReachForce, Single Grain, Business Know How, DDE, The British Psychological Society, UDC Sauder, Small Business Trends, Quora, Business Town, Thrive-Hive, My Customer, TallyFy, The Daily Egg, Forbes and E-Star

READ MORE – www.djohncarlsonesq.com 
HAVE YOUR SAY – https://www.facebook.com/djohncarlson/
TALK TO ME johnc@lincintegrated.com
FOLLOW ME@djohncarlson
BRILLIANT READING – www.djohncarlsonesq.com 
No tags 0