The Pareto Effect (80:20 rule) in consumption of liquor: A preliminary discussion

Abstract

This paper considers two performance issues for several types of alcohol – category penetration and consumer concentration. Consumer concentration is addressed using the performance measure of “Pareto Share”, which is defined as the percentage of category sales to the top 20% of its consumers. The beverage categories of beer, wine and spirits are first compared for their observed 1-week time period. The categories are then modelled, using the Negative Binomial Distribution in order to extrapolate market behaviour to longer time periods of observation – in this case a month and a year. Findings of this study are that the Pareto effect varies considerably across alcohol types and that the apparent Pareto effect increases as the sample time increases. The implications for managers are discussed and areas of further research highlighted.