According to the 95-5 rule, the market is divided into two parts – companies that are ready to invest now (the 5%) and the remaining 95% who does not have a need now, but we want to buy from us tomorrow. To win customers from the ”tomorrow group”, there are certain things go consider in our approach.
The concept called ”the 95-5 rule” originates from a study from 2021 by John Dawes at the Ehrenberg-Bass Institute. He found that most markets are characterized by only a small portion of the total group of buying customers actually being ”in the market” right now — meaning they currently have a need and are in some stage of a purchasing process.
That said, the idea of the market divided into ”interested now” and ”interested later”, is not new. It was introduced by Anderson & Lembke in the 1980’s where the ”Role of Advertising” was to make the 5% react and respond. Later it became one founding principle of Pyramid Communication, and even our logotype where the red dot in the top marks the 5% we want to reach right now.
5% is of course a generalisation. The share is typically 2-8%, but the exact number is less important than the relationship between those currently in the market and those who are customers or potential customers but not presently interested in buying.
The percentage is based on the relationship between two factors:
- How often the average customer buys in the product category
- How long the decision-making process typically takes for each purchase
In practical terms, if a category’s products are purchased every ten years and the buying process takes four months on average, then the share of buying customers each month is 4 (months of decision process) / 120 (months between purchases) = 3.3%.
The potential market of buyers in fact rotates. After a purchase, the customer is going to the bottom of the pyramid, and then slowly moves upwards when a new investment is approaching. The same for our competitors’ customers, which we have to win on their way towards initiating a new purchase process.
One challenge is how we communicate to the different categories. Many campaigns are developed and targeted towards the 5%, and as such based on decision-making information and sharp call-to-actions. We even have targeting options in Google called “in market”, trying to identify this group for tailored communication. That is all fine. We need this type of campaigns to generate business right now.
But using the same content towards the 95% does not work. This group is not ready to buy, so instead we want to create “mental availability” ie the day they are in the market they will talk to us and hopefully even see us as the preferred alternative (also often called “getting on the buyers list”). This demands another type of communication that builds the preference for our brand rather than a specific offering and product. The communication should inspire, educate and create insight in how challenges can be adressed and solved. To achieve this, we need more emotional and inspiring communication targeted to different decision-maker levels. Video is one channel that normally works really good for this purpose.
Interested in how to win today and tomorrow, just reach out to ulf@sfinxconsulting.se
