located in his desired area. One would assume the buyer would have a difficult time deciding between the houses. But no matter how similar they may seem, no two houses are exactly alike. Let’s say that one out of the five houses has a pool. The buyer is unaware of this feature, however, because the agent didn’t bother to mention it. The buyer tours the four houses without pools and isn’t particularly interested in any of them. Then he sees the fifth house with the pool. Suddenly, he is ready to make an offer. He might even pay full asking price, even though this house is more expensive than the others. Here’s where something called the “80/20 rule” comes into play. The 80/20 rule, also known as the Pareto principle (suggested by Joseph M. Juran and named after Italian economist Vilfredo Pareto), states that for many situations, approximately 80 percent of results, or effects, will come from roughly 20 percent of efforts, or causes. While it does not always come out to be an exact 80/20 ratio, this imbalance is often seen in various business cases: • 20% of sales reps generate 80% of total sales. • 20% of customers account for 80% of total profits. • 20% of the most reported software bugs cause 80% of software crashes. • 20% of patients account for 80% of healthcare spending.
BUYERS FOCUS ON UNIQUE FEATURES
In the above example, the buyer’s offer wasn’t based on the 80 percent of features this house shared with the rest. Instead, his bid was based on one unique attribute: the pool. The 80/20 rule predicted the sale of this house. Unfortunately, a lot of time was wasted in finding the perfect house. Had the buyers known to look for the 20 percent difference, this might have been their first stop. 5
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