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The Pareto principle, also known as the 80/20 rule, can significantly impact promotions and investments in business. It suggests that 80% of effects come from 20% of causes. In the context of business, this could mean that a majority of profits come from a minority of products or services. Therefore, businesses may choose to invest more in these profitable areas and promote them more heavily. This can lead to reduced costs and increased efficiency as resources are not wasted on less profitable areas. For example, a company may choose to reduce the range of products it offers and focus on promoting and investing in the ones that generate the most sales.
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How do you better organize your priorities to make stronger decisions backed up by data? With this collection of decision-making frameworks, you’ll le...
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Coined by Italian economist Vilfredo Pareto, the Pareto principle states that for many events, 80% of the effects come from 20% of the causes. This means a minority of inciting incidents lead to a majority of outcomes. For example, in 2018, 93% of all EV sales came from just 12 models, of which the Tesla model 3 sold 4x as many units as its next closest competitor. Tesla not only led the electrification of the industry but changed its peers' business models. In addition to going electric, Ford announced earlier this year it will permanently reduce the range of vehicles carried on dealership lots and transition to a build-to-order model. Ford is taking the Pareto principle to heart and will spend less on promotions, reduce manufacturing costs and complexity, and invest more in the models' buyers really want.
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