Way back in 1906 an Italian economist, Vilfredo Pareto discovered something that very few are willing to accept:
Life isn't fair.
Pareto studied wealth patterns of the Italian population and discovered 80% of the wealth was controlled by 20% of the Italian people.
He then went on to discover that most everything else in life falls into a similar 80-20 split. Today, we know this phenomenon as the Pareto Principle and some of us simply refer to it as the 80-20 rule.
This rule is not 100% exact but you'd be amazed at how often the 80-20 principle happens right front of us. For example:
• 80% of sales come from 20% of customers
• 80% of profits come from 20% of products
• 80% of problems come from 20% of customers
• 20% of your customers have the potential to spend four times as much money as they are right now
Speicifically, in the restaurant biz:
• 20% of your marketing efforts are producing 80% of the results
• 20% of your customers are producing 80% of your operating income (consider frequency of visits, longevity, referrals and incremental purchases)
• 20% of your personal time is producing 80% of your results
• 20% of your customers are taking 80% of your time
• 20% of your employees cause 80% of your headaches
Now, these are not always exact, but if you look within your business, I'll bet each of those statements very, very close to being correct.
The productive application of this knowledge is to IDENTIFY the "20% factors" within your business and focus more of your resources on them.
Here's just one example: Let's say it takes you 2 hours and $250 to prepare and run an ad in a local newspaper. And the ad brings you only 5 new customers that month.
Or you can spend 2 hours and $250 on another type of marketing method that will produce 20 new customers that month. 80-20 in action!
There is tremendous power in this knowledge. If the "20%" activities are scalable you can eliminate a BIG chunk of your budget and time expenditures while achieving more than you ever thought possible.
Moving forward into 2013, I encourage you to find the inequality in your restaurant business and - rather than complain about it like most people do - use it to your advantage.
How a fancy sounding process illustrates the Pareto Principle.
When working with our clients, one of the very first thing we do is a reverse customer analysis. This allows us to find the "top 20% characteristics" of their customers.
You can do this for yourself, if you want:
Export your customer database into a common format like Excel. Using Google Earth or similar mapping software, import their addresses and map where each customer lives.
One of the many unique characteristics about the restaurant business is customers will come from all over the place. However, you'll quickly notice that there is a small geopgraphic portion of your total "customer draw" area that produces 80% or more of your current customers.
For example, you might find that you're attracting some customers from 15 miles away. But, upon further inspection, you'll notice that 80% are coming from within a 3-mile radius from your store, or from a particular part of town 4 miles away.
Then, take that same database file and have a demographic analysis performed. (You can find services on line that will do this for you.) You will be able to determine income, age, home ownership status and other interesting characteristics that will help you further define who your true target market is.
You will immediately see trends that will be invaluable to you in running your business. You'll notice surprising income trends, age groups and other defining facts about your customers.
This information moves from fascinating to immensely practical when you eliminate marketing to those who don't fall into your 20% group and spend more of your time and budget capitalizing on those who are obviously attracted to you facility for whatever reason. Often, when we run this analysis we notice that most restaurants are wasting 75%+ of their marketing budget. In other words, they could cut their budget by a whopping 75% and only notice a very small decrease in response.
Three Evergreen Strategies to Use When Applying the Pareto Principle
While the really detailed, guerilla marketing-style programs vary from market to market, there are a few evergreen marketing strategies that always seem to fall into the good 20% category.
Put bluntly, if you're operating a restaurant in today's age and not capitalizing on these items, you're leaving untold fortunes to your competitors.
Internet Marketing Since its inception, the Internet has been used to connect people globally. Email, online forums, chat, etc. we have quickly become reliant on the Internet as an everyday communication device.
Over the past five years, LOCAL search has become much more relevant and proven. Which is exactly what needed to happen for restaurant operators to really benefit from Internet marketing since our best consumers are usually so localized.
To be successful at Internet marketing, you must master these three principles:
• Be seen by those searching for you online. This means being represented on the first page of major and local search engines when consumers search for restaurant in your local area. • Attract traffic to a highly conversion oriented landing page. Most operators drive traffic (through their search engine rankings) to the homepage of their website. While this is better than not driving traffic to anything of yours, it is proven to be ineffective when compare to driving the traffic to a location specific landing page with a strong offer and several convenient methods of contacting your restaurant..
• Convert traffic into customers. All of this is worthless if the person going through the process doesn't convert into a paying customer. Your conversion ratio should be better than 50%.
To do this, have a conversion friendly landing page created as an extension of your website and optimize it on popular search engines. Google obviously has this market cornered, but don't ignore the other sites, their traffic can really be substantial too. Especially since many of your competitors will ignore them.
Your existing customer database is ripe with opportunity to connect with your current customers, and get them to visit you more often, and spend more money when they do visit. (Don't have a customer list yet? Then make it a point to start creating one this week…yeah, it's that important to your success.)
Our rule of thumb that has proven to work best is to make certain you're contacting your customer base at least monthly with an offer. I know it seems like a lot, but believe me, it works!
A word of warning on database marketing; do not abuse this privilege. The things you send your customers must be friendly, interesting and focus on THEIR needs, not yours. I'm sure you receive communications that really interest you and you look forward to getting. Keep that in mind when beginning your database marketing programs.
The last time you bought a new PC you experienced Integration Marketing first hand. Remember turning on your PC and taking a look at your desktop for the first time? And what do you see?
Free trial offers for ISP's, Antivirus Software, etc. Already installed and just a few clicks away from being functional. You're going to need these services anyway, so it's awfully convenient that they're already installed and ready to go.
And you already know Coca-Cola has built the largest soft drink company in the world through this technique. How many "Coke" stores do you see? None!
Both the antivirus software guys and Coke are doing the same thing; they integrate their product in with another and do so better than anyone else.
In the restaurant business, the concept is the same. There are other companies, organizations and events in your market that can integrate your products into their offering:
• Local Schools and Colleges
• Local attractions
• Real Estate Agents
• Car Dealerships
• Community Events
• Sporting events
When a potential good customer visits one of these organizations, or participates in one of these events, they should be systematically be presented with an offer just for them. They can certainly refuse (just like some do with a new PC) but many won't!
This reduces price shoppers and drastically increases the number of new cusotmers you get from outside sources (integration partners).
Negotiate whatever commission or other arrangements you need to so your integration partners become excited about the program and the economics work for you.
I guarantee you won't be disappointed in the results from these programs if you execute them properly.
Between these three evergreen strategies and capitalizing on the inequality within your customer base, 2013 just might be your best year ever.
Rod Brant is president of Your Restaurant Profits!, a full-service, results-oriented marketing and advertising agency dedicated to the success of Independent Restaurants in North America. For a free subscription to his e-newsletter, call 866.535.8948 x 705 ; e-mail: rbrant@YourRestaurantProfits.com, or visit http://www.YourRestaurantProfits.com
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