The Pareto Principle, named after economist Vilfredo Pareto, states that 80 percent of the consequences come from 20 percent of the causes. In the business world, we often imply this theory referring to the benefits that the handful of major clients bring into the organization.
A simple way to put this would be understanding the fact that airlines don’t make more money out of the hundreds of passengers they put in the economy-class seat. Rather, they make more money from a few of the first and the business class passengers. According to a report by International Air Transport Association (IATA), in 2018, premium-class passengers accounted for only 5.2% of the total international flight passengers but generated over 30 percent of the revenues for the airlines. While airlines might value and prioritize these 5.2% of the passengers, they might be equally trying to give the rest of 94.8% of the passengers a taste of flying on premium-class tickets to lure them into the much profitable segment of premium-class passengers.
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A recent experience of working with a photography agency for personal work made me realize that perhaps many of the businesses in Nepal have failed to acknowledge the importance of this theory. I had booked a team of photographers and videographers through this agency for a family function a week before the event. I had found this agency while browsing through social media. We had a deal where the crew would cover the complete event and would deliver the work in 15-17 days. A day prior to the event the guy who was corresponding with us said that they would arrive at half-past-eight in the morning and asked us to be ready by then. As requested, all of us did get ready on time. However, the crew itself did not arrive on time. After they did not arrive for another 40 minutes, I made a call to the guy I was in contact with. He said that they are almost there and would be there in a couple of minutes. We waited but they did not show up. After several calls and a couple of “we are almost there” they showed up at quarter-to-ten. While I was pissed at these guys I had no choice to back them off. Having no choice we carried on with the work and the event.
The event went well, and the guys seemed decent and fun. By the end I just consoled myself thinking that they might have gotten into some real issue and it happens at times. After two weeks, I called the guy and asked if the work was done. He said the photos were ready but the video needed a final touch-up with the color, and asked me to wait until the next day. Upon giving a call on the next day, the call was not received. After a few days of losing the contact, the guy said that he would get everything delivered by the evening but did not show up again. This game carried on for over six weeks and the work finally got delivered. While the agency emphasized on the quality of the work they did (which really was upto the mark), they never bothered apologizing to the client.
What did the agency lose? The event, being a family function, had over 25 guests. Most of the guests including me were super excited to see the pictures and the video. However, the agency had killed our excitement by the time the photos and videos were available to us and so did it kill the agency’s reputation among over 20 “potential” customers it might have gained had it delivered timely work and provided better customer service. Further, it would not have lost a deal to cover two of the upcoming wedding events in our family and many more events to come had it been successful in establishing a long-term relation with our family through an impressive service.
This story might be relevant for many of the businesses in Nepal where businesses expect the customers to rely on the “Nepali style” of working - arrive to the work late, deliver the work late, and expect the customers to pay the price in full. A few years back, we ordered a kitchen shelf from a nearby carpenter. The owner promised to deliver it within a month. One fine morning, after two months, he finally showed up to our door with the shelf ready. While the deal was for fifty-thousand, I decided to pay him a thousand less and teach him a lesson of not valuing the time. The money we paid wasn’t just for the product. It was also for the time he promised to complete the work. Since then we never approached that very carpenter for any other work. He lost a customer and I’m sure he must have lost many others too.
Any customer who visits you for the first time or purchases from you for the first time might not be a part of the 20% of the customers who bring 80% of the revenue into the business. However, any customer who visits you first is a potential chunk of that 20 percent that the Pareto Principle explains. Thus, if you have a decent item or service that is not being rendered by your previous customers, it’s time to give a second thought about the care and the service you are providing to them.
