The Pareto principle, the 80/20 rule with variation in the numbers, works in every situation I have ever seen.
Almost.
It is the exception that makes the rule.
Marketers use it extensively to allocate marketing budgets across competing arenas. Define your ideal customer, understand purchase cycles and habits, recognise different behaviours in different channels and circumstances, and allocate accordingly.
It always seemed to both make sense and work well.
Until it did not.
Research done by Andrew Ehrenberg, Gerald Goodhardt, and Chris Chatfield in 1984 produced a statistical model called the ‘Dirichlet Model‘. It is a statistical reflection of how consumers actually behave across FMCG categories. The model showed that rather than repetitive brand loyalty, most consumers buy from a small repertoire of acceptable options.
The model reveals that many people purchase a brand only now and then, yet collectively they represent a huge share of total sales. This counters the popular pareto model that assumes 80% of profit comes from the top 20% of buyers.
Hovering around supermarket shelves in the eighties, observing consumer behaviour, and interacting where possible, the truth of this counter intuitive behaviour was clear. However, the pull of Pareto was powerful, so we often had a foot in both camps.
It is the mid 1980s, and yogurt is the new category growth star. Ski and Yoplait dominate store shelves. Shoppers have their personal preferences, some lean strongly toward Ski, others swear by Yoplait, and many have their flavour favourite across both. (they prefer Ski Strawberry to Yoplait, but the Yoplait apricot to Ski) A few smaller regional players also vie for attention, but if there’s a promotion, most consumers happily mix it up.
As the marketing manager that included Ski in the brand portfolio of responsibility during these heady growth days, it was easy to assume the Pareto principle held: 80% of profits come from 20% of devoted buyers. Focus on those heavy consumers, turn the moderate fans into loyalists, and watch the profits roll in, right?
The Dirichlet model exposed the paradox, although at the time I had not heard of it. However, the numbers coming from store sales data and simple observation of consumer behaviour in stores confirmed the consumers disassociation from the theory of Wilfredo Pareto.
So, how does the Dirichlet model suggest fast moving consumer marketers build their brands against competitive brands and the power of retailer ‘pirate’ brands?
Acknowledge Mixed Brand Buying.
Even if you’re proud of your loyal fans, don’t be blinded by them. Ski-lovers might switch to Yoplait for a flavour your brand doesn’t offer, or vice versa. The data shows people happily shop around, even if they have a ‘Favorite.’ Acknowlede that behaviour while creatively giving consumers reasons to buy yours in preference to others.
Look for Wider Reach.
Heavy users are part of the story, but broad availability is often the bigger deal. If your products aren’t visible, buyers won’t remember you at that decisive moment.
Keep Things Distinctive.
You’re not just building brand awareness, you’re building mental availability. That’s how you stay top-of-mind when the shopper sees a new promotion or wants a unique flavour. Whether through catchy ads, recognizable packaging, or fun limited-edition variants, it’s all about creating mental triggers.
Rotate and Refresh.
Both leading yoghurt brands tested new flavours and replaced underperformers regularly. This strategy not only sparked interest among loyal buyers but also tempted the light or occasional buyer who came for the novelty, and might just pick you again next time. It also pleased retailers to have a supplier that explicitly had a ‘one in one out’ brand policy.
Ultimately, the Dirichlet model teaches us that brand loyalty isn’t an all-or-nothing affair. Even with strong preferences, people jump around.
Consider that next time you’re rethinking a marketing campaign. It might feel odd to invest in those who buy you only once in a while, but that large group can deliver a collective boost that keeps you on top.
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Pareto killed by Dirichlet in blogs
The pareto principle holds in every domain I have ever seen, except one.
To build a brand, you must keep existing customers, increase their preference for your brand, and attract new customers.
A pareto allocation of marketing funds would imply that most of your budget should be aimed at the 20% of customers that produce 80% of your profit.
That allocation would work against you.
Truly loyal customers are less likely to go elsewhere than light or occasional buyers, and such an allocation does nothing to attract new users.
In this case, Pareto was wrong.
