There is a set of universal clichés and concepts that have become so ingrained that they have come to be called laws. But is it really so?
As you know (one of the worst ways to start a text is with this expression, but here it fits perfectly), everyone is familiar with the Pareto rule, Overton’s window, Occam’s razor, Maslow’s pyramid and Murphy’s law. To challenge them is somehow even inconvenient. Unless as a joke or at the level of analytics about a flat earth. These are just facts. Well, yes, that’s how it works.
However, in real life, the practical application of the “laws” of psychology, sociology and business is hampered by the fact that … How would it be softer … But they do not work! There are so many exceptions that it’s easier to start learning irregular verbs right away than trying to find universal logic.
Ultimately, all these pseudo-scientific formulas are reduced to some kind of abstract mantras. It seems like folk signs about where to keep a coin in order to lure good luck. It’s funny that not every entrepreneur seriously and publicly admits that he goes to fortune-tellers in order to get a conspiracy for good luck in business. But at the same time, to say that we ranked the client base according to Pareto is the most common and even honorable thing.
Let’s disrespectfully scratch the golden calf of business ideology with our fingernails and see if it’s clay.
20% of the effort gives 80% of the results.
Pareto rule
Few people find it difficult with examples from their projects and businesses that illustrate such a formula. Sometimes there are slightly different factors, but the principle itself is correct. It is the foundation of ratings, brands and monopolies.
And the loss methodology, I guess. Because if you follow Pareto literally, then you need to pay more attention to some customers, partners and users at the expense of others. As a double selection:
- We reward the best to show how we value them.
- We motivate the rest to be equal to the son of my mother’s friend.
Let’s admit. But people are not that vindictive (although yes, how!). They are difficult to predict. A nondescript loser from the bottom layer of the ranking cull may turn out to be a trial buyer for a large brand. Or he has such friends and relatives that your salespeople would fight at the office cooler to get to know them.
It is easy to calculate the actual LTV (lifetime value – customer lifetime value, ed.). This is a mechanical sampling by base and lines. But how do you assess the missed opportunities? What if some companies have developed, gained good momentum, created their own networks and marketplaces. You can’t return to them with new proposals, because they remember the old ones.
In fact, Pareto’s law pushes business not to strict mathematics about 20/80, but to customer service.