Products & the 80-20 rule of marketing

-Jake

Through any entry level marketing class you learn of the four P's of marketing. These are Price, Promotion, Product, and Place. Within these, the largest category by far is product. Having good quality and high demand products is important for a company to continue to operate well. Simply put: if companies didn't have products to sell they would make no money. 

It is very common for people to know, or at least know of the four P's of marketing. But it is very uncommon for an average person to be knowledgeable about the 80-20 rule. Although this is not a well known rule, it plays a crucial role in how executives in a company should think about the other three P's of marketing. The rule states " 80 percent of a typical company's revenue is derived from 20 percent of its products or services."(Writer)

As you know from my previous blogs, I have previous experience working with State Farm agencies. For consistency, I will use the example of State Farm again. State Farm is a massive fortune 500 company with many products that they provide. These include insurance (vehicle, homeowners, health, life, renters, recreational vehicles, &boats), financial products (such as credit cards and certificates of deposit), vehicle loans, and mortgages. But within these products, vehicle insurance is by far the largest component. According to State Farm's financial records from 2015, auto insurance alone accounted for 62% of the companies gross revenue earning $36.3 billion for the company.  

Out of every single policy that state farm offers one product alone accounts for 62% of their revenue. This is very standard among companies. Because of the way the products are weighted, companies should shift their other P's, specifically price and promotion, in order to maximize there revenue while still staying competitive in the marketplace. It is much more effective for companies, and people, to focus on growing their strengths as opposed to diversifying their weaknesses, so large companies like State Farm should focus their  promotions around their large items like auto insurance. After this has happened and they have a large customer base they can focus on growing their brand by up-selling their current customers with more products. 


Sources

Branded, Purely. "The Four Ps of Marketing." Purely Branded. N.p., 01 Aug. 2016. Web. 16 Apr. 2017.

State Farm® Announces 2015 Financial Results. N.p., n.d. Web. 16 Apr. 2017.

State Farm Distracted Driver Detection | Kaggle. N.p., n.d. Web. 16 Apr. 2017.

Writer, Leaf Group. "What Is the 80/20 Rule of Marketing?" Back. Azcentral.com, 24 Sept. 2012. Web. 16 Apr. 2017.