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How the 80/20 Rule and Watson Applies to Your Mysterious Clients

Enterprise Software | Posted on November 13, 2018 by Arnab Chakravarty

You’ve probably heard of the famous Pareto Principle, otherwise known as the 80/20 rule. The principle, quite simply, is that in many domains of life, 80% of the outcomes come from 20% of the causes. Applied to business, roughly 20% of your clients, your best clients, power 80% of your business.

This sounds like it’s a pretty simple insight: focus on your best clients and spend less time worrying about the rest. But there’s an unfortunate snag: it’s not always easy to identify who your best clients are. Any simple assessment of your customers will miss out on key insights. It’s true whether you’re a major retailer selling to hundreds of thousands of consumers or a B2B retailer with a few dozen accounts.

These insights can be provided by modern analytics, like those produced by IBM Watson. As the cases below illustrate, the right data points can give you a deeper understanding of how to sculpt your client relationships.

The Buried Segments 

Often, large enterprises rely on broad customer segmentation. It informs everything from product development to personalized offers. Simplistic data tells your bank who its favorite investor is. It’s Dave from Milwaukee, who has 1.4 kids and an undergraduate degree from Exampletown University. As a result, this is the person you target.

The problem is you may be missing out on other lucrative opportunities. Perhaps, based on your segmentation, women in their early thirties aren’t your best target. But, if you zoom in closer, you’ll find that there’s an interesting micro-segment. Women in big cities who take out a certain kind of professional loan later invest disproportionate amounts of money. Special offers targeted to that very specific demographic could drive big rewards.

This is what Dynamic Segmentation provides, one of Watson’s most powerful features. Rather than measuring segments that have performed well historically, it finds new segments in real-time.

The Hidden Frustrations

Your boutique software company has a client, Japonica Dynamics, that seems great. They’re model customers, at least at first glance. Yearly, they buy new subscriptions for everything. 

What’s not clear, though, is that they waste all your time. After your sales team works out a deal, they spend hours and hours with your solutions team, fussing over all sorts of irrelevant details. Then, they’re on the phone with customer service constantly, begging your support staff to clarify things that are already clarified in your beautiful online documentation.

By focusing on sales as the primary dimension of client valuation, you’re missing out on an important piece of the picture. It turns out that your best clients are actually smaller firms that give you a steady trickle of money with very little input. You should go after finding more clients like that.

You can find this out with Watson’s integration with Salesforce—or, at the very least, you can develop a more accurate perception of your client relationships.

 The Silent Burnout

There’s an important dynamic in any client relationship that high-level staff can sometimes miss. What is the impact of on employees who deal with challenging clients? Maybe clients are rude and abrupt. Maybe they cancel a lot of meetings. It could be anything. If you’re a consulting firm, and one of your big accounts is making your employees miserable, you need to know this information. It’s not always forthcoming from your staff, who may not feel at liberty to say “hey, this client is really hard to deal with” to their VP.

You can get that information from an unusual source: Watson Analytics for HR. It lets you compare prediction models of employee retention, which allows you to determine whether a given client reliably messes with worker happiness. Once you know whether a client is troublesome, you might be able to make them into an ideal client with a simple intervention, whether that involves discussing protocol or coaching the relevant employees.

The Wrong Side of the Pareto Principle

Unless you have the right insights, there’s no guarantee that you understand which clients are most valuable to your business. You may think you’re following the Pareto Principle, but you might be falling victim to it, instead.

Learn more about Watson’s capabilities at our IBM AI Hub.

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