The Expert: 90/10 Is the New 80/20
- Apr 14, 2009
Having professionally grown up following the precepts of Pareto’s Principle, which essentially holds that 80 percent of profits derive from 20 percent of the customer base, I have stood fast in support of it oh these many years. But, it strikes me that today’s dire economic conditions might call for a fresh re-evaluation of how applicable the Italian economist’s heralded rule is today.The recession has reached its 16th month—having officially started in December 2007—more jobs vanish every day and an estimated one in eight American homeowners is either in foreclosure or behind on payments. Thus, the lasting effects of economy on consumers’ shopping habits—fewer purchases, fewer visits and more online shopping—seems to have transformed the rule: 90 percent of any remaining profit is coming from 10 percent of the customers.If 90/10 is the new 80/20, savvy investors must do everything they can to understand their current customers and how recent changes in tenant mix or demographic shifts will affect the long-term values of their investments. Most every investor knows, or should know, that the long-term value of any retail asset isn’t based on the land or facility but rather on how well it serves its market and the consumers who shop there. Investors, more times than not, also believe they know who their customer is, but when push comes to shove, they usually fall short of understanding the differences between their “customer” and their “best customer.” This lack of certainty can prove costly.So, in light of changing economic conditions and their possible long-term impact, investors should update their customer research to better understand who their best customer is: that all-important 10 percent. Whether you decide to update your customer exit-survey or complete a shopper survey via mail or phone, current insight about your best customer, the one who spends the most money versus one who is your most frequent visitor, can have strategic impact on your leasing and marketing plans. While you’re at it, consider updating your demographic information, as it’s easy to do and critical to understanding your market’s potential.Given today’s uncertainty, and the razor-thin margin associated with being wrong, conducting customer research and understanding whom your best customer is has never been more important. Terry Munoz is vice president for Nielsen Claritas.