The 80/20 Principle: It’s just a rule of thumb

not one of the ten commandments… Read on.

Ade’s blog just recently posted about the 80/20 rule and how it applies to bloggers. In this post, I would like to point out some of the reasons why I think the 80/20 rule may be flawed, and you’d be wise to consider NOT applying it to your blog’s readers.

An introduction: What is 80/20?

Wikipedia has a great article on the 80/20 otherwise known as Pareto’s principle. The principle was greatly popularized by a recent book called: The 80/20 Principle by Richard Koch. Good book, good reading. In summary, 80/20 states that the majority of results will come from the minority of inputs. In particular, 80% of sales in a bookstore will come from 20% of customers. There are many examples that you can find. While the numbers 80/20 are approximate, other variations have been seen, too, including 90/10, 70/30, etc. It is now being treated as a rule of thumb in many industries, and being applied in a number of diverse situations.

It’s a rule of thumb, not a rule!

The recording companies, principally the big 4, have been adopting this principle over the last few years with their back catalogues which have shrunk somewhat as artists have been eliminated who don’t reach certain mass market metrics. Now I was thinking about the 80/20 rule and it may or may not be true in some circumstances, but I would argue that in some situations, esp. like the CD industry, it’s a bad idea for a number of reasons.

Let’s examine CD purchases: logic dictates that you should only stock the top 20% of CDs. In some situations this may be fine if there’s limited stock space or some other important limitation. BUT a significant number of purchasers would probably buy a top 20% CD AND another CD of a lesser known artist. You then lose the CD sale for BOTH CDs not just one. Why? Well, as the CD companies are discovering: shoppers tend to buy multiple CDs at one time, and may shop frequently. With the top 20% of CDs on sale, such frequent shoppers would quickly buy the top 20% and then not have any more to buy. Result: they begin to shop elsewhere, where they buy the CDs that they can’t get in the bigger shop, and at the same time they’ll buy the popular CDs too.

For the shop, this is bad business: they lose the top quality purchasers who buy multiple CDs at a time. They therefore have to start increasing their advertising to attract those shoppers who only buy the top 20% of CDs, and those shoppers may only shop occasionally, may be more price sensitive, and may not be loyal to any particular CD store or chain of stores. Worse comes when even the marginally popular CDs are dropped as the store further refines its stock of CDs. Previously when third-tier CDs were dropped, sales may have risen incrementally, as some customers bought more second- and first-tier CDs. This effect would have been temporary as regular purchasers would soon find not much new to buy as most new artists would start out as third-tier or lower before being ‘discovered’ by shoppers.

So the store decides that with deteriorating sales in its CDs it has to boost its margins by shifting more copies of the top tier artists. It increases promotions, cuts second-tier CDs, and lo and behold, the sales and margins rise magically again. But worse is to come: customers begin buying fewer CDs (they either already have the ones they want or they don’t care for some of the artists) and regular customers become scarce. After the promotions are over, it’s difficult to get regular customers to come back, and the top spenders are now going elsewhere for their CDs.

So, it looks like the CDs/music market is declining, and the management is left with little choice but to scale back the CDs even more or close the store.

Of course, downloading (legal and otherwise) came along at a time when the CD industry was already in bad shape. Downloading and alternative mediums for music (online radio, ringtones, etc.), not to mention alternative sources for entertainment, all coincided to make things really difficult for CD companies. But to cut your catalogues and reduce your roster of artists is now looking to be one of the ways in which the big four cut their own throats.

The 80/20 principle sounds like a logical way of thinking until you realize that if you start to pursue the top 20, you will quickly lose a lot more incidental sales. And some of the incidental sales MAY just turn out to be the top 20% of purchasers in the future…

And for bloggers: should you follow the lead?

While the principle may be in principle correct, ignoring the 80% of your readers may lead to erosion of your blog income. Why? Because when readers click away from your blog, it’s usually through an advertisement. Hence, to maximize your blog’s income, you need to encourage your readers to love it, enjoy it (briefly) then click away to a Google Ad, affiliate link or other advertising. It’s likely that if you just focus on the 20% of your readers, your expenses will rise as a result of increasing usage your server’s power power, and your income will go down as regular readers become ad/affiliate link blind.

There are many people who do not seek to make any money out of their blogs at all. Power to them! Well done! There are bloggers like me who started before making money on a blog was possible, but have found the dollar signs an additional benefit. However, for both kinds, increasing readers is a great benefit, if the blogger can afford to pay for the hosting costs. If you cut into your revenue streams, then you’ll find that you will be paying the costs for your regular readers. If you are doing it as a hobby, perhaps that is appropriate for you. But perhaps not.

Overall, I am becoming a very anti-80/20 activist. I think focusing on such goals really doesn’t help much. I can cite several examples in Taiwan, where such short-term thinking led to very poor short-term results, muddied business plans, and withdrawal from the local market with a sullied reputation.

So I believe that the principle as a business principle is flawed, in many instances. I do recognize instances where it is a valuable ‘rule of thumb’ but it should not be treated as a law or rule in the absolute sense of the word. For the business world, which seems to be focused on the next quarter or next business year, it may seem to be a ‘golden rule’. In reality, it’s likely to prove to be fool’s gold. Unfortunately the 80/20 principle is fast becoming one of the canons of western business principles.

E-commerce: Why are some sites so unfriendly to customers?

Cindy, one of my colleagues at my school, has been helping us make some banners for announcements for our upcoming events and Chinese New Year Holiday. She highly recommended the software called 非常好色6是DIY美工創作的必備幫手 which translates roughly as “Very Colorful 6 is a DIY art and creative tool that is a necessary help”. The tool can be used to create pages like the ones in the image below.


In fact, she used the software to create the following Chinese New Year notice, that we are placing on our school website and handing out to students.

new year notice

In fact, she designed the funky notice. Then she exported the document using a PDF print driver called PDFCreator 0.95 (I think). The real problem came when we tried to order the software through the Interweb. I was quite surprised that the publisher called NewSoft which had an international website could run such a weird system. Rather than retype everything, here’s the email I fired off to the publisher.

Dear NewSoft…

I recently had a frustrating experience trying to buy Chinese language software from your company… Your Website for Taiwan is terrible…

1. it doesn’t work with Firefox? And that’s really not very professional…

2. when I opened it in IE7, I successfully managed to order, but the software CLOSED my browser, tried to popup a new window without my permission, and caused me to wonder why I bothered trying to order
anything from your site.

3. then when I accessed your website again, I was told that my browser (IE7) was out of date, and to download new crap onto my system… If you want customers to come into your store, do you really ask them to change their shoes and coat first… ?

I’m sorry but your e-commerce site is really awful, and I’ve done a lot of shopping online in the past: It’s not friendly to non-IE7 browsers (let’s not mention Linux!), isn’t friendly to people who can’t read Chinese fluently yet (and the buy button is so ridiculously small), and then crashed my browser, and left me wondering whether or not I had successfully completed the order.

Overall, it created unnecessary demands on e-commerce users… I wonder how many customers would bother to even try the second time, or the third time…. Like I did. Or how many would even bother to write this email… Perhaps I’ll just post it on my blog tonight…

Best Wishes

Unfortunately, in Taiwan there is a huge assumption for local websites that IE6 or IE7 is the ONLY browser in use. It’s like most companies are unaware of the need to develop websites that have core functionality that is accessible for non-IE6/7 browsers or systems. A kind gentleman called Frank that responded promptly to my email admitted as much. But he didn’t care to explain the sense of that.

Is your site browser friendly or browser neutral? Have you checked? With mobile blogging and e-commerce likely to become a big phenomenon, designing websites that are cross browser compatible is a necessity if you wish to be taken seriously in the e-commerce world. And Apple which uses Safari and Firefox as browsers is also growing its PC market share above 5% of late. Linux installs are also growing. Opera is also multi-platform as a browser, and is very standards-compliant. At the very least, functionality should degrade in a way that is not obvious to visitors.

But in the website I used, even the dropdown menus didn’t work in IE7 as well as Firefox. It just seems that if a company is serious about online business, the website needs to respect as many choices as possible, it needs to be properly tested, and it needs to be maintained. You can’t just build your website and forget about it.

error in javascript

There were other usability issues including the a javascript error, and popups to documents that can be printed out, but which may crash your browser.

So, do test your e-commerce website as much as you can before, during and after the launch. Keep it uptodate and make it as user friendly as possible. Otherwise customers will experience errors and simply close the browser, click away or enter a URL of one of your competitors, instead. All of these result in lost sales.

Can you save electricity? Is it worth it?

When summer comes hot, as it usually is in Taiwan, the local electricity company takes advantage of the extra demand by increasing the electricity price. At this time of year, everyone becomes more conscious of the electricity that their family or business use.

In Taiwan, domestic electricity consumption during most of the year is limited (domestically) to lights, occasional heating, refrigerators and floor fans. Entertainment appliances also comprise a part of the local usage patterns: including pcs, hifi and tv.

In our business, it’s a little different, though. Air conditioning, lights and pcs/printers consume most of the power. There is additional power required for the refrigerator and water machine. Other than that, there’s not much else.

In either case, saving electricity is a case of diminishing returns. Initially changing light bulbs to low-watt long lasting equivalents will reduce power consumption by about about 60%. Cleaning and maintaining newer ACs while replacing older ones will also help reduce power consumption somewhat. Perhaps even substituting notebooks for regular desktops will cut power consumption, as the LCDs use less power, and notebooks are typically designed with energy saving features.

Changing habits can also effectively cut power consumption. Again, though, there is a law of diminishing returns. Closing doors to retain cool air, making sure that obvious ‘leaks’ are reduced or eliminated can also help. Turning off ACs when no-one is in the room for more than five minutes, as well as lights, can help save power. Making sure that computers, or at least monitors, are all set to implement power savings, as well as printers and photocopiers.

But, and for a business, it’s a big but. If you wish to work effectively, and run your business effectively, managing your cost structure is a vital part of an effective defense strategy. However, should your energy policy start to affect your business in a negative way, then you really need to make sure that your priorities aren’t missing the point.

A good example we faced: we replaced all the old incandescent bulbs we could find. The result was a little more expensive than we expected, but it did control our bill effectively. Then we started closing the front door of our office to minimize AC loss. A VERY effective strategy to save power, BUT quickly we noticed that customers weren’t really coming into the office anymore. The customers typically waited to pick up their children after class was finished.

So we started to see that we were losing a vital part of our interaction with customers by closing the door. We compromised by limiting the hours for opening the door, so we could achieve some reduction in the waste, but we realized that we couldn’t eliminate that source of waste WITHOUT our business being affected in a negative way. Unfortunately, the layout of our office area is not optimal for us, but we can’t do anything to change that: it’s rented. More importantly, though, came the realization that the more effort we put into saving money, the less effort was expended on maintaining the business.

We could have gone much further in cutting our usage of electricity but it would have a tremendous impact on how managed our business. We might save about 50% or more of our power budget, BUT we might lose a lot more than the 50% we saved!  What is called for is a sensible policy of energy waste reduction, one that encompasses responsible saving, gradual implementation, and education on both the positives and negatives.