TRUTH IN CONCENTRATION IN THE LAND OF (80 20) LAWS/

Among the more prominent truisms in marketing are 80/20 type laws, e.g ., 20 percent of the customers account for 80 percent of the purchases . These kinds of statistics indicate a certain degree of concentration in customer purchases; i.e., the extent to which a large portion of t he product's total purchases are made by a small fraction of all custo mers. Such concentration levels, suggesting that markets can be segmen ted in various ways, are often reported in basic marketing texts. We s how that a meaningful interpretation of these concentration statistics is not nearly as easy or immediate as it is to compute them. The key factors influencing the degree of apparent concentration in purchases are reviewed, and we present a modeling approach for estimating the tr ue level of relevant concentration among customers.