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The 80/20 Rule© 2002 Brian Martell Last month, my wife attended a fashion show; one of those glitzy affairs with all the trappings of glamour surrounding impossible outfits swaying down the catwalk. I never understood the purpose of these shows as, in reality, no one ever buys these clothes, which are more improbable than the models wearing them. A friend, who was on a trade mission to the fashion industry, illuminated this part of the industry that before remained an enigma. In essence, the fashion industry knows there will never be a mass market for the catwalk stuff. What they are trying to promote is the style or “look” a particular designer is capable of producing. By designing a dress on the edge of fashion, the haute couture trade rounds off the degrees of product offerings. In that sense, the outrageous dresses might have an economic impact of less than 1% on a design house’s revenues, but by virtue of their existence will entice the larger market to buy the more conservative cuts associated with the off the wall oddities. Further, they will cater to a larger market by covering opposite ends of the fashion spectrum and everything in between. The principle behind such marketing is not very different from that of other industries where individual companies try to promote quality and exclusivity as their paramount tenets. It is quite possible that this marketing behaviour is responsible for the famous 80/20 rule. Simply put, the 80/20 rule suggests that 80 percent of a company’s sales are generated by 20% of the products sold. In the coffee business, this may mean that out of the 10 blends offered by company X, two of them account for the lion’s share of the revenues. The obvious reaction to a pragmatic operations manager confronted with this scenario is to de-list the other 8 items and sell only the 2 items that move well. Why then would a company actively promote items that are small potatoes to its overall operations? Look back at the fashion industry. Their marketing strategy is to appeal to its customer base on a higher level than just keeping warm. So too does the successful OCS provider who is selling more than hot brown liquid to be quaffed between 10:00 and 10:15. By positioning yourself as a high end, high quality operator, your market appeal will transcend more segments than operators targeting the discount market. When building a product mix, several factors should be taken into account. Infrastructure and logistical constraints will definitely dictate the maximum SKU’s an OCS can carry, but the completeness of offerings to your customers will send a message to existing and potential customers. Some of the sexier and exotic varietal coffees added to your roster may never make the A team in terms of sales performance, but do have an impact on the way you are viewed by your customers. While the majority of a new account’s personnel may have chosen your House Blend over the Guatemalan Huehuetenango Estate, knowing that it came from the same supplier of such exotic coffee will have an impact. As always, there is a caveat to be observed; more SKU’s does not always mean better. The choice of the product mix should not remain static, as there will always be marginal lines deserving of de-listing. New trends in coffee should be paid attention to; as OCS consumers become more and more savvy, this becomes all the more true. What was considered an attention getting product 5 years ago may now be in need of re-marketing or eliminating. Product consolidation, new introductions and sometimes re-inventing old products that still carry good value to you and your customers will help to keep sales motivated and a healthy balance between catwalk and comfortable.
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