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The Pareto rule in marketing revisited: is it 80/20 or 70/20?

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  • Daniel M. McCarthy

    (Emory University)

  • Russell S. Winer

    (New York University)

Abstract

In a recent paper, Kim, Singh, and Winer (Marketing Letters 491–507, 2017) studied the Pareto rule across 22 different CPG categories. The authors found an average Pareto ratio (PR) of .73, meaning that 73% of sales came from the top 20% of customers. In this paper, we use a unique dataset of 339 publicly traded non-CPG companies to see whether/when the Kim et al. result holds. We have additional data on these companies, including whether they are product or service companies, whether they sell to customers on a subscription or non-subscription basis, financial and industry information, and summaries of customer purchase behavior. We find that the overall average PR is .67 with product companies having a ratio of .67, and service companies .66. We find that non-subscription businesses have a PR of .68, substantially higher than that of subscription businesses at .59. We estimate the correlates of PR by industry and other factors. Preliminary results show much higher PRs for profits than sales.

Suggested Citation

  • Daniel M. McCarthy & Russell S. Winer, 2019. "The Pareto rule in marketing revisited: is it 80/20 or 70/20?," Marketing Letters, Springer, vol. 30(2), pages 139-150, June.
    • Handle: RePEc:kap:mktlet:v:30:y:2019:i:2:d:10.1007_s11002-019-09490-y
    DOI: 10.1007/s11002-019-09490-y
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    References listed on IDEAS

    as
    1. Baek Jung Kim & Vishal Singh & Russell S. Winer, 2017. "The Pareto rule for frequently purchased packaged goods: an empirical generalization," Marketing Letters, Springer, vol. 28(4), pages 491-507, December.
    2. Sayan Chatterjee & Michael Lubatkin, 1990. "Corporate mergers, stockholder diversification, and changes in systematic risk," Strategic Management Journal, Wiley Blackwell, vol. 11(4), pages 255-268, May.
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    Cited by:

    1. Bombaij, Nick, 2021. "Effectiveness of loyalty programs," Other publications TiSEM 095c506d-5b5c-4ea3-9b41-a, Tilburg University, School of Economics and Management.
    2. Anesbury, Zachary William & Talbot, Danielle & Day, Chanel Andrea & Bogomolov, Tim & Bogomolova, Svetlana, 2020. "The fallacy of the heavy buyer: Exploring purchasing frequencies of fresh fruit and vegetable categories," Journal of Retailing and Consumer Services, Elsevier, vol. 53(C).
    3. Martin, James & Nenycz-Thiel, Magda & Dawes, John & Tanusondjaja, Arry & Cohen, Justin & McColl, Bruce & Trinh, Giang, 2020. "Fundamental basket size patterns and their relation to retailer performance," Journal of Retailing and Consumer Services, Elsevier, vol. 54(C).

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