Nevertheless, the 20-80-50 formula means 80 percent of the company’s products are undermanaged, even though they account for the remaining 50 percent of profits. The approach is not surprising it makes good sense to devote sizable resources to the highest-selling products. As a result, these companies often follow a one-size-fits-all pricing strategy-what we call the 20-80-50 formula: 20 percent of an organization’s products receive 80 percent of the attention from sales and management while accounting for only 50 percent of the company’s profits. They frequently customize and repackage offerings that can be sold to only an extremely small number of customers, producing thousands of SKUs. However, long tails are common in many business-to-business companies. When many managers think of the long tail, they often picture an online retailer that sells a vast selection of products to consumers thanks to its nearly limitless shelf space. They largely neglect active pricing for the vast majority of products in the “long tail.” As a result, these companies tend to actively manage the pricing of only key products on the basis of value delivered to customers and competitors’ prices, reserving simple cost-plus approaches for the rest. For companies in business-to-business markets with sometimes thousands of products, it is a particularly complex challenge. Technology, Media, and TelecommunicationsĮffectively pricing products can be a balancing act.
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