It's the law

One of the first things you learn in retail buying is the 80/20 rule but that's not it's real name - somewhere along the line people stopped calling it 'Pareto's Principle' or even 'the Law of the Vital Few' and started calling it the '80/20 rule.'

Why? Because rules can be broken but laws are inviolable.

Pareto's Principle (when applied to retail) says that you will make 80% of your sales from 20% of your products.

But what happens when you try to break the law?

In the near duopoly that is the Australian grocery industry, Coles and Woolworths have seen off all almost all competition and now slug it out for market share. If one introduces a new idea, you can be sure the other is not far behind.

Over the last few years, both of them have introduced private label ranges which seem to expand on a daily basis and they're both trying to break Pareto's Law.

Several years ago, supermarkets carried a range of cordial brands and flavours - orange, lime, raspberry, lemon etc.... and the customer had choices until some bright spark noticed that orange cordial outsold everything else so they introduced private label orange cordial and increased the facings of branded orange cordial for every one of their brands at the expense of the less popular flavours.

Surely, increasing the range of orange cordial would mean that people would buy more orange cordial.

Well er no....it doesn't work like that.

Firstly, customers may have been tempted to buy two bottles of cordial when they had a greater choice of flavours but it would be rare for anyone to stockpile orange cordial without significant discounting and that leads me to the second flaw in their cunning plan;

Given the extra competition created by having so much choice in orange cordial, the buyer has to start discounting their best sellers in order to maintain the rate of sales.

This continues to be a spectacular own goal for the supermarkets and it's happening in every category - not just cordial.