The 4% Factor And How Small Groups Drive Success

Why It’s Critical To Radio

Recently AdAge pointed to remarkable new research that demonstrates repeatedly that 4% of consumers of a product or service drive most of the consumption. The Pareto Principle, aka, the 80/20 rule — 80% of the business comes from 20% of the customers — has compressed to the 4% factor.

In the article, How To Grow Your Business When Everything Else Is Shrinking, author Scott Morgan highlights “Catalina Marketing, with its Checkout Coupon system, recently identified that 1% of Iams’ pet-food buyers accounted for 80% of the annual volume of the brand’s sales via the supermarket channel. Cincinnati-based LaRosa’s Pizzeria chain found that a small percentage of pizza consumers account for significant portions of various menu items (for example, 4% purchase 65% of calzones).”

We’ve written extensively about Best Buy’s life-sustaining customer segmentation strategy that focuses on the most important customers rather than casting the net wide with TV hoping for any warm body to walk into the store.

Most importantly, a close look at the respondent-level PPM data conclusively supports this small % matters most factor. For example, in the White Paper, P1’s in a PPM World, our partners UW-Madison and Arbitron showed that even for Houston market leader, KODA about 4% of the market meters accounted for nearly half of the station’s listening. More recently, Bonneville’s record-setting WTMX shows small is the new big with nearly 60% of the station’s 25-54 listening coming from just over 1% of the Chicago market’s panelists.

Morgan maintains, “The 4% Factor goes well beyond a loyalty strategy — it is a penetration strategy — designed as a competitive approach to protecting and growing your business. Simply put, start smaller to get bigger faster. It also tends to be a much more sustainable approach than traditional strategies of casting a really wide net, going through trial and then hoping to retain a percentage of new customers.”

In what ways should this new insight direct your strategy? Consider these steps:

• Identify: Determine your PPM audience profile. You can look at P1 percentages to begin. In addition, dmr can provide insight and depth to help. Next, use your database to more deeply understand your listener profile (this can be appended to shed additional insight about their demographics, psychographics and potential listening behavior) and details gathered via social media and other research tools.

• Filter: Use geo-demographic data with PPM and with your database to segment, profile, and develop targets to focus your resources on the consumers and areas that provide the most leverage.

• Magnify: Examine, select and prioritize the top one to two target groups. Test various messages and approaches and look for deeper insights with those target groups. Seek to deeply understand the consumer and their lifestyle.

• Penetrate: Target and grow selected communities via multi-faceted, integrated communications strategies ranging from mail, phone, text, digital, and social media in order to establish dialogue and grow the loyalty and engagement with existing and new advocates.

• Amplify: Brands are built by communities of like-minded individuals who share their brand experiences with others and those with whom they have some connection. Pinpoint those communities (both virtual and physical) and find creative ways to get them to help recruit your new listener or build loyalty among existing listeners.

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