Sep 1, 2025 | Analytics, Marketing
Goodhart’s law tells us that when a measure becomes a KPI, it ceases to be a good measure. The full text of his observation appeared in the footnotes of his presentation at a conference in 1970 held by the Reserve Bank of Australia: “Whenever a government seeks to rely on previously observed statistical regularity for control purposes that regularity will collapse’
That observation is as relevant to every enterprise as it is to government.
Every dashboard produced by CRM systems I have seen makes the mistake of trashing Dr. Goodhardt’s insight.
Customers are subjected to all sorts of profiling as marketers do another iteration of their ‘ideal customers’ and ‘customer Journey’ maps using a different set of assumptions.
One set rarely used, at least rarely in my experience is the ‘inert’ customer.
Most analyses of customers I have seen use some variation of the pareto distribution. A few customers are deemed heavy users, with a decreasing level of usage down to light and occasional. The only alternative to one of these descriptions is ‘Lost’.
Any examination of ‘lost’ customers will reveal that a significant percentage of them are those that simply went ‘inert’ following a failure of customer service to meet their expectations.
For some, the expectations are unrealistic, for others, it is more like a metaphorical shrug of the shoulders. These customers are not lost, they may be just inert, and possibly able to be reactivated by a demonstration of the customer service they expected being available.
Figuring out who in your lost customers list is really just inert may just require asking. This is always far cheaper, and in my experience, more effective than hunting for new customers.
A former client had an extensive list of what they deemed ‘lost’ opportunities. They sold (and still do) a complex product that did a specific job much better than the alternative standard product. When they interrogated that ‘Lost’ data base they discovered that a sizeable proportion had not bought elsewhere. They had gone ‘inert.’ Some were just waiting for a ‘nudge’ which was often just the information and reassurance that the product they initially enquired about was the most appropriate for the job that they had put on the back burner.
Header: Charles Goodhardt speaking to a large audience.
Aug 27, 2025 | Demand chains, Management
Have you ever thought creatively about inventory, beyond how to physically manage it?
Logically inventory is held to ensure smooth process flow, and to ensure you do not run out of finished goods to meet customer demand when it emerges.
However, inventory is a rabid consumer of resources. Cash, time, space, management attention, added complexity, and warehouses full of stuff retained because the ‘Boss’ is reluctant to write it off and take the loss in the accounts.
Tough problem.
Inventory has two dimensions:
- Its legitimate place in a smooth operational chain.
- The purpose for which it is held.
Often, the same item of inventory serves both purposes.
Finished goods. Ready for immediate sale.
Raw materials. Ready to be fed into the production processes.
Work in progress. Part way through transformation.
Buffer stock. Better called ‘Just in case’ stock. Sometimes confused and used interchangeably with the term Safety stock. The former is to enable the peaks and troughs in a production cycle to be smoothed out, the latter is in case of a screw up.
Understanding the volume and purpose of each type of inventory is the first step in addressing the challenge of freeing up the cash. I speculate that the purpose is never to tie up cash, and add to costs, complication, and workload.
Figuring out how to reduce inventory without compromising operational flow and customer service is a huge challenge for many of the manufacturing businesses I see. Getting their hands on the cash to leverage for success, rather than having it tied up in non-productive inventory is a key driver of success.
Inventory is an ‘opportunity killer’ as it consumes the cash that would enable you to chase opportunities for greater profit.
The supreme irony is that in traditional accounting, inventory is an asset, so accountants are often content to leave sleeping dogs asleep.
Aug 25, 2025 | Uncategorized
The NDIS has become the Gordian Knot of Australian public policy. Everyone at the roundtable last week agreed it’s unsustainable in its current form, but agreeing how to rein in spending will be a whole lot harder.
Minister Butler’s announcement of the Thriving Kids initiative is a move in the right direction, but it’s a single thread in a tangled ball of string. When you only pull one thread in a tangle, the rest of the knot tightens with unanticipated and always politically uncomfortable consequences.
This is not a system with one broken part. It’s a complex tangle of eligibility creep, opportunistic providers, diagnosis-driven funding, undercooked systems, inconsistent oversight with some fraud thrown in. Reforming just one part, no matter how well-intentioned, leaves the rest to fester. Every action taken to fix one issue nudges another out of alignment.
The OODA loop: Observe, Orient, Decide, Act, is built for this kind of problem. However, it will not be a single elegant cycle spinning at the centre of government. Rather, it requires dozens of loops running simultaneously, each targeting a separate piece of the mess, but in alignment with the objectives and activity going on in other loops.
Reforming the NDIS means defining the core issues to be addressed, managing priorities, ripping apart compounding complexity, and tackling the revealed challenges transparently, and one at a time.
The NDIS was created to support people with profound and permanent impairments. That mission is too important to be lost in mission creep and misallocated funds.
Observe: See the system, not Just the symptoms
The blowout in costs has become impossible to ignore. Nearly 10% growth year on year, with a target now of 4 to 6%. The Thriving Kids pivot aims to rehouse children with mild developmental needs in a different support stream. It addresses one of the most visible distortions, but it’s just the tip. It is also relocating those with mild learning challenges back to the states, who abrogated their responsibilities when the NDIS funding pool was opened for business.
Over the last few years, eligibility rules have stretched beyond recognition, plan managers are profiting with minimal oversight, administration systems are still working like it’s 2008, and there is enough friction between state and federal responsibilities to make any real-time response slow and clumsy. Fraud may not be rampant, but it’s visible enough to damage public trust.
Orient: Understand the performance barriers, drivers, and objectives
We are dealing with a big system in urgent need of a tune-up. To do the job properly, it must be broken into the component parts, and given the ability to evolve. Trying to reform the NDIS in one go is like jumping off a cliff and trying to build a glider before you hit the bottom.
Each major component: eligibility, fraud controls, provider oversight, participant experience, administration architecture and processes needs its own OODA loop. That will be how you handle complexity, not by centralising decision-making, but by decentralising learning.
The political reality is that every decision will create losers. Some of those will be legitimate cases who fall between the cracks. Others will be families who have relied on NDIS support, but whose circumstances were never quite aligned with the original intent of the scheme. Still others will be those who learned how to play the system.
The danger lies in pretending there are no trade-offs. You can’t trim billions without someone yelling. But you can explain why you’re doing it, and who benefits when the system works better.
Decide: Trade political safety for effectiveness
Reform doesn’t have to be elegant. It has to work.
The launch of Thriving Kids should be treated as a testbed, not a destination. Start small, measure obsessively, and be prepared to change course. At the same time, the government should quietly empower an oversight taskforce with real teeth. It must be able to audit, freeze funding, publish outcomes, and prosecute where necessary.
Eligibility needs rethinking. Not through the lens of diagnosis alone, but through function and long-term need. Payment structures must reward value, not volume. Plan management should be transparent, capped, and linked to performance.
The back-end co-ordinating processes must talk to each other in real time, not through some bureaucratic or political committee which obscures and compromises outcomes, as well as being friction in the system. Each decision here needs to trigger a loop. Decide. Test. Measure. Refine. Then decide again.
Act: Move with purpose and learn
Forget big-bang reforms. Focus on sequencing. Stabilise the pressure points. Target the areas with the fastest runaway costs. Act on what you’ve learned, not what the headlines say.
When those making the changes act, they need to ‘own’ the story and tell it creatively. Don’t let it be told by those who feel short-changed. Make the case publicly and repeatedly: this isn’t about austerity. It’s about protecting the integrity of something Australia needs for the long haul.
Jeff Bezos uses the analogy of ‘batwing’ doors. For some, and probably most decisions, you can move ahead, and if it looks good keep going, but if it looks dodgy, back away through the batwings. Only a few decisions will be ones that are not able to be reversed. Public institutions are lousy at admitting error, explaining the reasons, and moving ahead in a slightly different path. To properly ensure public trust in the NDIS, they need to get better at it.
Rinse and repeat. Treat Reform as a process of continuous improvement, not a political slogan
Reform is not a one-shot fix. It’s a process of continuous adaptation and learning.
Nested loops allow the system to flex and adjust without collapsing. The eligibility loop refines definitions as new cases emerge. The provider loop weeds out inefficiencies. The fraud loop works in real time to prevent erosion of trust as well as preventing funding being misused. The IT loop upgrades infrastructure to handle the load. The communications loop ensures the public stays informed and supportive.
These loops aren’t hierarchical. They’re interdependent. If one fails, the pressure leaks into the others, which is why each loop needs autonomy, clear reporting lines, and real decision-making power.
The NDIS funding problem will not be solved with a single grand plan. It must be outpaced by a smarter system of reform. That means moving faster than the problems emerge. Responding in weeks, not years. Watching data and acting, not waiting for headlines and doing a review.
This is a race against complexity, not ideology. If we get it right, the prize isn’t just a healthier budget, it’s a fairer, more sustainable system for Australians who genuinely rely on it.
I wonder what the chances of that happening are?
I suspect the can will be repackaged, and kicked down the road, again
Perhaps the hardest bit will be political resilience and determination to deliver the original objective of assisting Australians with profound and permanent disability.
Aug 22, 2025 | Analytics, Branding, Marketing, Uncategorized
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.
Header by AI
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.
Derek de Solla Price was a British physicist and scientific historian perhaps best known for his work on the Antikythera mechanism. After researching scientific papers and their authors, he proposed that in any field half the ground breaking work comes from the square root of the number of participants in the field.