Amazon gives businesses plenty to emulate. The global leader in e-commerce is dedicated to the customer service experience from selection to returns.
According to a report, Amazon is tightening its grip on the total US retail market with its shoppers now so loyal that they're less inclined to make purchases from competitors at all.
However, one of Amazon’s most enviable traits, its massive selection, might not be best for your business.
“When you look at the e-commerce companies who are succeeding, a lot of them have a small number of products,” said Todd Staples, Director of Revenue Optimization at Muhlenhaupt + Company. “It’s the ones who have found those critical few things they can specialize in that they can do better.”
The concept stems from the work of Italian economist Vilfredo Pareto, who noted the 80/20 connection. Pareto developed the principle by observing that about 20% of the peapods in his garden contained 80% of the peas. Today, it is used as a principle of business management where:
of sales come from 20% of clients/visitors
of profit comes from 20% of product categories
of your problems come from 20% of your customers
The Pareto Principle has interested Staples throughout his fifteen years in marketing because he enjoys identifying things that have the most leverage. He finds the 80/20 principle “shockingly accurate” when looking at different systems.
Staples says it’s also the answer to the most common problem that cripples businesses when they are trying to grow their company – focusing on too many things.
Businesses try to check off every box on a to-do list that is long enough to wallpaper their headquarters and in turn, are spread thin. While trying to do everything, an impossible task for even the best leaders, nothing gets accomplished effectively. Every business needs to be looking at how much time they allot to improving, promoting and marketing specific products and services.
“It’s a mathematical occurrence that is visible when analyzing the number of products or services you have that are bringing in the most revenue. A small number of input produces a large amount of the output,” commented Staples who helps companies with multi-million dollar turnover achieve revenue growth and increased profitability.
He gives examples of websites with high amounts of traffic. People not in the industry don’t realize how dismal conversion rates are and that a one-percent conversion rate can actually be considered good.
“Identify the few key things on your site or missing from your site that make the biggest impact, for example, a guarantee. If that gets one more person out of a hundred to do what you want, you have doubled your revenue,” Staples pointed out.
It’s easier for an e-commerce company because of the amount of transactions. One of the pitfalls Staples sees e-commerce falling into is they think they are going to launch a store, identify things people like and keep adding.
“It can work if you are Amazon and you just want to have everything. But you have to have deep pockets and a lot of time,” said Staples. “Since it’s virtually impossible to compete with Amazon in terms of selection and speed of delivery, I suggest my clients specialize and create an experiential ecommerce scenario.”
Instead, Staples has seen companies prosper when they eliminate products that aren’t profitable or driving sales to focus their efforts on the things they are doing well.
It is imperative to identify the emotional and analytical hooks for why people are taking action. “Use the 80/20 principle on those and hyper-focus to get big results,” Staples urged.
Today, the Pareto Principle goes well beyond peas, but if you are specializing in risotto or roofing shingles, specialization is key.
“The specialization is memorable. It makes you stand out,” said Staples.
Here are some examples of the Pareto Principle in action:
Amazon reviews ask, “was this helpful?”
The reviews that were most helpful rise to the top. Amazon knows if they show you the ones with the biggest impact it will enhance the user experience.
“Amazon’s goal isn’t just for you to buy the product, it’s about finding the product that is right,” said Staples. “By prioritizing things based on the impact they have had on people, they have done a good job of focusing on the things making the biggest difference.”
Specialists in the medical industry will charge 5 to 20 times what another doctor would charge.
“It is what they do best and better than anyone else in the world. It is their focus,” Staples explained. “They are more desirable and what they produced has a more perceived and real value.”
Are you ready to hyper-focus on your 20 percent and get big results? Contact Todd Staples to learn more.