The 80/20 Rule and How it Applies to Auto Retail

The "80/20 Rule" is an idea that applies to numerous different things and situations. Originally introduced by management thinker Joseph M. Juran, it was named after Italian economist Vilfredo Pareto who observed that 80% of income in Italy was received by 20% of the Italian population. Thus this rule is often referred to as "The Pareto Principle."

The assumption is that most of the results in any situation are determined by a small number of causes.

For example, in most developed countries, 20% of the population controls 80% of that country's wealth. In business, 20% of customers will account for 80% of sales. In software design, 20% of code will account for 80% of bugs. On a farm, 20% of the crops will give 80% of the total yield. Dig into any system that involves inputs and outputs and you’ll run into this law sooner or later.

How does this apply to auto retail?

In my experience with the auto retail industry, I would argue that the Pareto Principle applies to how dealers embrace new ideas and technologies. 

That is, until at least 20% of dealers embrace an idea, the other 80%-plus will not. As we near the 20% threshold, the remaining dealers begin to follow suit.

Generally speaking, it takes at least 2-3 years for new ideas to reach that 20% threshold, and then another 3-5 years for the industry as a whole to catch on. I talk about this in a recent post on DealerRefresh about SMS Lead Generation. We’ve seen this in several key areas such as dealer websites, search engine marketing, BDC, CRM, chat, and now social media to name a few. 

I witnessed this personally in the early 2,000’s when the world was still prominently on 56k modem dial-up. The idea of dealership websites was new and most dealers didn't want one, or tried having one but it was a failure and so they rejected the idea. Most dealers then also hated "Internet customers" because they knew too much about their pricing and the cars.

Can you imagine this mentality today? 

This is but one of numerous examples I could cite. Others, for instance, would be the idea of BDC and online chat, both having clearly crossed the 20% threshold as more and more dealers embrace these once progressive ideas.

Which one are you?

With this in mind, can you answer this question about your dealership? 

Is your dealer one of the leading 20% that embraces new ideas and maybe even fumbles their way through things so that as the remaining 80% follow suit you have a leading edge, or does your dealer play it safe, keeping away from new ideas and technologies until the first 20% vet out the concepts, the best practices, the providers, etc?

I'm not posing the question to insinuate that only the 20% dealer can be successful, but as I spend the bulk of my day reaching out to dealers, what I'm trying to determine is who are the ones in the 20% bracket, because these are the ones I can count on to listen to new ideas, evaluate unfamiliar products and companies, and give new things a try without the fear of imperfect results.