Vilfredo Pareto was an Italian engineer, sociologist, economist, political scientist, and philosopher, observed that 80% of the land in Italy was owned by 20% of the population. This made him form Pareto Principle, commonly known as the 80/20 rule.
He also discovered that the 80/20 rule is true for other places as well not only in land ownership in Italy. Some examples include:
- 80% of a company’s profits come from 20% of its customers
- 80% of road traffic accidents are caused by 20% of drivers
- 80% of APP usage is by 20% of users
- 80% of a company’s complaints about product/service come from 20% of its customers
- 80% of wealth is owned by 20% of people
In a nutshell, the Pareto Principle predicts that 80% of effects come from 20% of causes.
This means, only 20% of your activities towards goal produces 80% of desired outcome. The rest 80% only produces 20% of desired outcome. So what we could do is, do the 20% of result producing activities more and cut the rest 80% to make success faster.
You think this rule is awesome? Hold on, there is another amazing 64/4 rule which I think will blow your mind. If we take 80% of 80 and 20% of 20 then we end up with the 64/4 rule.
This means, 64% of effects come from 4% of causes.
If we elaborate – most of your desired outcome towards goal is achieved from top 4% of your activities. On the other hand, 96% of your activities only contribute to get 36% of desired outcome.
You must be thinking why I am explaining these two rules when I am supposed to talk about selecting right target audience for the business. Now let me come to the point, what makes your business running? Of course it’s money.
So, how will you make money? Its marketing function, more specifically the marketing plan of a business holds the key to making money. I have a purpose of mentioning these two rules here, when forming your marketing plan; you need to focus on doing activities which brings you most value that is money. You should figure out which are the 20% activities produce 80% of profit and out of which 4% activities that produce 64% of profit.
So how can we form a marketing plan that produces 64% of desired result out of only 4% activities? It begins with selecting the right target market for the business first.
Selecting Target Market:
You do not have huge budget for marketing activities if you are the owner of a SME or Startup. So selecting the right target audience is crucial for you to make optimum usage of marketing budget and delivering your message. Who is your target audience? You may be thinking everyone in a specific industry. No, this is not true. Everyone literally means you are actually targeting no one specifically. In this process, some percentage of your intended audience will get your message but most will not. This ultimately leads to campaign failure without much success. For example, if you kick balls towards every direction in the dark without knowing where the goal post is, you might end up reaching the target in some cases, but in most cases you will not.
Niching – The Power of Focus:
It’s better to be a big fish in a small pond, rather selecting a broad group of target audience and not able to communicate your message and satisfy them. So you should select specifically targeted audience, who are in real need of your product/service. This is where niching comes.
Niching is selecting a very specific population for a business specialized in specific product/service, that serves particular demographic of the target audience.
Niching help your business to stand out from its competitions, and create greater business opportunities. The size of a business’s niche relative to its target audience may vary. Some niches consist of the entire target audience, whereas others may consist of a small percentage. The size of niche depends on the business opportunity it has in specific demographic, area, price points and business model etc, which makes it more appealing to the target customers than its competitors.
For example, let’s say you have a e-commerce store which sells imported trendy shoes for men, that falls in shopping and fashion category and quite wide as a target market. A shopping and fashion category can have beauty, clothing, fashion accessories, shopping, toys sub category. If we consider clothing sub category, it has children, men, women clothing and shoe in it. So our target niche should be people who love to buy trendy imported shoes from online in shoe sub category.
Niching – The Benefit:
Niching brings several benefits for small businesses. Here are those
- Better relationship with customer: Most of the cases a niche has small customer base. When you have limited customer, you can have more time to engage with the customers and nurture relationship, your emails to them could be more personalized, you can follow up more, you can provide customized service etc. This will enable you to better serve your customers and get their loyalty.
- Niching makes price irrelevant: if you suffer from kidney problem, will you go to a general doctor or a kidney specialist for treatment? Of course, a kidney specialist. Will the kidney specialist charge the same amount as general doctor? Of course not. But still you will go to the kidney specialist for treatment in spite of higher price. Why? This is the beauty of niching. Niching make price irrelevant. An expert or specialist in a field can always charge more than jack of all trades.
- Increased visibility: Niching ensures increased visibility of your message to the right audience. This leads to better awareness among your target audience and increased sales.
- Word of Mouth Growth: The audience in your niche has other contacts that are also your target. If you can satisfy customers in the niche, they can inform and promote your business to their network which increases sales opportunity.
- Less advertisement budget required: When you are targeting a small and more specific audience, you don’t need to spend huge money for mass marketing like a large company. You can look at the data and analytics of the target segment and adjust your marketing campaign according to it. Laser focus to the needs of specific segment achieves better result with less resource.
Therefore, first step of building a profitable business is to form an effective marketing plan. When you write marketing plan for the business, always remember to use 64/4 rule. Include 4% activities in your marketing plan that will yield 64% of desired outcome and do more to increase your success rate.