The Pareto Rule in Marketing Revisited

Abstract

In a recent paper, Kim, Singh, and Winer (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.

Keywords: Pareto rule, customer concentration, empirical generalization