Drive Customer Loyalty With the 80/20 Rule

Use rewards strategically to cultivate relationships with all your customers.
Chief Ideation Officer, CODA Concepts, LLC
September 26, 2012

They say that 80 percent of your business comes from 20 percent of your customers. This old adage is known as the Pareto Principle, which has been applied across many industries. Some 20 percent of your work takes 80 percent of your time. And 20 percent of your employees produce 80 percent of the work. Twenty percent of people control 80 percent of a country's wealth, and so on. Small-business owners can use this principle to determine the top-performing customers and create rewards programs and other strategies to nurture those relationships and drive customer loyalty.

Using the Pareto Principle

Small-business owners in general say this principle holds true; in some cases, the ratio is closer to 90 percent of business coming from just 10 percent of customers. John Earl Carroll, president of Unlimited Performance, says he nurtures his best customer relationships by going the extra mile. Meeting with high-performing clients after hours and in social settings and getting to know them outside of the core business relationship are just two of the ways Carroll builds customer loyalty.

Tricia Meyer, owner of SunshineRewards.com, also says her customer ratio falls closer to 90/10. To reward the top 10 percent, she offers a membership level with special perks and a higher return on the business they do with SunshineRewards.com. In addition, those customers have a special-access e-mail that allows them to contact Tricia at any time with questions, and Tricia sends those customers special tips on taking their businesses to the next level.

Reward Top Customers

By rewarding your top-performing customers, you’re enhancing customer loyalty and securing continued business from those customers who are providing the bulk of your income. Bruce Kasanoff, founder of Sense of the Future and co-author of Smart Customers, Stupid Companies, recommends allowing customers to create a wish list of products they want and the prices they’d be willing to pay for those items. When it’s feasible, offer these products and prices as a reward for customer loyalty.

“First, a wish list lets you buy inventory with more confidence, knowing how many items and for what prices you can clear inventory at the end of the season. Second, it encourages customers to tell you what they like. Third, it rewards customers for their feedback,” Kasanoff explains. Using creative strategies like a customer wish list not only helps you nurture your relationships with your best customers, but provides you with useful information you can use to enhance your overall business strategy.

Nurture all Customer Relationships

Sometimes it’s hard to know when a customer has the potential to move from the 80 percent to the top-performing 20 percent, says Diane Conklin of CompleteMarketingSystems.com, which specializes in helping clients develop information marketing campaigns. “You have to continue to nurture all of your clients and to market to them—because you never know when they might be ready to hear the message or want what you have,” Conklin explains.

Mike Wolfe, president of WAM Enterprises, is a big believer in building customer relationships and rewarding those that do business with you. In a recent blog post, Wolfe points out that many businesses will place ads offering rewards for new customers. “Why are you rewarding people you have no relationship with and punishing those who have been loyal to you? Doesn't that seem backwards? When I introduce this concept I'm often met with resistance, but it doesn't make sense to me. Why not reward your current clients?” Wolfe writes.

Rewards and perks help enhance customer loyalty, whether customers fall in the 80 percent or the 20 percent. Often, customers realize there are multiple membership levels and special perks for those who make larger purchases or are repeat customers. Finding a way to make this information available to all customers or clients without alienating those who qualify is one strategy for encouraging current customers to cross the threshold into the 20 percent.

Think about your own shopping experiences. How many times have you spent more than you originally planned because another few dollars would earn you a special reward? Using this same tactic, you can up-sell your current customers, generate repeat business and earn referrals.

 Read more about ways to reward customers. 

Angela Stringfellow is a PR and MarComm Consultant and Social Media Strategist offering full-circle marketing solutions to businesses. Angela blogs via Contently.com.

photo: Thinkstock 

Chief Ideation Officer, CODA Concepts, LLC