Segmentation Applications in Telecommunications - Data Mining Techniques in CRM: Inside Customer Segmentation - page 305

The Pareto Principle

Quite often, when developing a value-based segmentation scheme, we will
come across the Pareto principle. This principle, also known as the 80-20
rule, states that in many cases 80% of the effects come from 20% of the
causes (Figure 7.6). In business, the principle simply means that some

Figure 7.6 The Pareto principle and value-based segmentation.

customers are more valuable and more important than others. Keeping
this part of the customer base satisfied and loyal is vital for the company's
sustainability and growth.

These vast differences in revenues, as expected, are also reflected in the
intensity of usage of the different services. Table 7.5 summarizes some of the main
usage KPIs by segment.

Table 7.5 Value-based segments and usage of services.

Total out Voice out SMS out Voice out Days
calls calls calls minutes out

Value-based
segments

First class (PLATINUM Top
1%)

719 715 81 645 28

Second class (GOLD Top
4%)

447 426 72 423 29

Third class (SILVER High
15%)

265 251 33 233 28

Fourth class (BRONZE
Medium 40%)

136 123 19 103 25

Fifth class (MASS Low 40%) 69 65 7 55 18

Total 147 137 19 122 23