Adam Gartenberg's Blog

Business Analytics and Optimization, IBM and Social Marketing

The big law of small numbers, Part II


I thought I'd continue on yesterday's post with a little more about the way numbers can add up in unexpected ways.

One of my favorite stories from business school comes by way of my Advertising professor.  Prior to joining the faculty, she had worked on the McDonald's account at Leo Burnett.  She was relating a story about a focus group she had conducted with some of McDonald's most loyal customers - people who ate at McDonald's at least 10 times a week.  While the main point of her story was about the findings of this particular focus group, I found myself distracted by the customer segment they had brought together.

Overlooking the health angle for now, think about that number for a minute.  Ten times a week is a lot, but for the most part our brains are wired to just look at that and go "that's a big number."  To really get at the implications from a business and marketing standpoint, let's translate this over to an apples-to-apples (Big Mac-to-Big Mac?), dollars and cents comparison.

Let's begin by contrasting this with my own McDonald's eating habits.  Being married to a Weight Watchers leader means we don't eat a whole lot of fast food.  I'm going to be really generous and say that I'll eat McDonald's once a month, maybe when traveling.

If we assume that the average meal comes to $5 for simplicity's sake (breakfast might be a bit less, lunch or dinner a bit more), those focus group attendees will spend on average $50 a week, or $200 a month at McDonald's.  Now contrast this with the $5 I will spend there over the course of that same month.

In other words, McDonald's is getting 40 times as much money from that set of frequent diners than from customers like me.  This is considerably higher than would even be implied by the old 80/20 rule, where the difference between the top and bottom quintile averages out to a 16x delta in revenue.

Think about the marketing implications for McDonald's.  If they needs to make a menu or pricing change, which customer segment should they cater to?  When it comes to listening to feedback, whose voice should be given more weight?

And now think about the marketing implications for your own business.  Do you know who your 40:1 customers are?  If not, what do you need to do to identify them?  Are you viewing feedback through the appropriate lens, keeping relative priorities in mind?  Are you targeting your solutions toward the right segment of customers?

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