Almost everyone has heard of the Pareto Principle, or the 80/20 rule. In marketing, the principle could be acknowledged as 80% of your sales come from 20% of your customers, or that 80% of your profits come from 20% of your products. If we expand on this rule, we can arrive at a strategy for increasing your sales and profits called “Concentric Offerings.”
Briefly stated, your marketplace can be viewed as a series of concentric circles. The outer ring is the entire marketplace for your product or service. Let’s say that you will be able to transact a purchase with 5% of this marketplace. You have thus IDENTIFIED from a mass market a series of SUSPECTS, qualified them as PROSPECTS, and finally transacted them as CUSTOMERS. The entire process nets you a sales result of 5 people out of 100. If you stop at this point, your whole effort has only generated a return of 5%.
The most expensive part of the marketing process is …
The most expensive part of the marketing process is this identification of customers and the processing of the first-purchase transaction with them. If you only do this much, you have conducted a costly promotion, and not fully realized the profit potential of this market. The Concentric Offerings strategy states that you must now make a more exclusive offer to these 5 out of 100 people, as they are the most interested and likely people to become the most profitable REPEAT customers.
Theoretically, through the more exclusive offer, you should now be able to convert a much higher percentage of these five people than just 5%. Perhaps the conversion rate is 60%. You are now at the third concentric circle, and you effectively have 8 transactions (2 people have bought once, and 3 people have bought twice). The process doesn’t stop here, though. You can now make a more exclusive offer to those people that have bought twice. If your conversion ratio is still 60%, you may sell two more items. You are now at the fourth concentric circle, and you effectively have 10 transactions (2 people that have bought once, 1 person that has bought twice, and 2 people that bought three times). This process could go ad infinitum, especially if you re-offer the original prospect list with another item.
Let’s use an example of a marketer of collectible porcelain figurines:
- First Offer: 1 million direct mail pieces for the figurine set, “Southern Belles.” Price $29. Response: 14,000 orders.
- Second Offer: 14,000 direct mail pieces for the figurine set, “Southern Gentlemen.” Price $29. Response: 8,400 orders.
- Third Offer: 8,400 direct mail pieces for the figurine set, “Southern Manors.” Price $49. Response: 5,000 orders.
In this example, we have now transacted 27,400 orders with a value of $894,600* simply by applying the Concentric Offerings strategy. Theoretically, the innermost circle can be worth much more in profits (because of its higher margins), than all of the outer circles put together. By employing the Concentric Offerings strategy you can dramatically leverage your sales and profits.
*for simplicity of calculation, we have not included marketing or fulfillment costs in this example.