August 31, 2010

Analytics Fail

If you follow me on Twitter, you already know about my mistrust of services like Groupon ... no, not a mistrust of Groupon and their business model, but rather, a mistrust of the marketers who see a one-day spike in promotional sales and feel like they've grown their brand in a healthy manner.

The failure, of course, is the analytics used to measure promotions.

You see, more than 95% of what we analyze surrounds a day, a week, a quarter, a season, a year, an item, a department, a division, or a campaign. Marketers, in particular, want to know how a promotion worked.

"Worked" is a wonky word.

Take the Chicago Bagel Authority (thanks @choltan!).

Most analytics tools measure if we sold a lot of merchandise on any given day. It's easy to find a report that says we sold $x on Monday.

It's not easy to find a report that says we generated $y profit on Monday, is it? Seriously, go ask any person in your company if there is a report that tells how much profit was generated on Monday.

Seriously. Go ask somebody.

Last week, I asked 1,970+ followers on Twitter to tell me if they measure the percentage of customers who purchased last year and then purchase again this year. It turns out that this is one of the most important metrics you can measure.

Not one individual said they measure customers in this way.

Every day, we experience an analytics fail. We measure what is easy. It's easy to measure sales, so we spend our time optimizing sales growth. It's hard to measure profit, so we generally ignore it.

In Web Analytics, we've trained a generation of analysts to look only at what Google tells us to look at. Did you ever stop and think about that, the ramifications of a generation of individuals who look at what Google tells them to look at, a generation of individuals who haven't written a line of code, code that allows them to investigate and answer their own questions?

Back to Twitter. When I expressed my frustration with services like Groupon gouging retailers (like Gap) of all of their gross margin, the analytics and marketing community fired back with every conceivable marketing theory.
  • "They will make up the gross margin dollars in repeat business."
  • "Not all Groupons are redeemed."
  • "The promotion increases the number of new customers, and don't you always talk about the importance of new customers?"
  • "You obviously don't think like a retailer, it's about getting butts in the store."
  • "Gap will make money by increasing comp store sales which increases market share which drives up the price of stock which increases shareholder value."
When I asked our community on Twitter to provide the customer metrics that prove their theory, Twitter went silent.

Analytics Fail.

We simply don't measure what matters. We almost never look to see if the customers who purchased via a Groupon promotion ever decide to repurchase. We almost never look to see if we generate profit when we create spiffy marketing promotions ... and if we are one of the rare few who measure short-term profit, we seldom follow-up with measurement of long-term profit.

We act so smart, and so advanced with our trendy, real-time analytics.

And in doing so, we damage the businesses we work for.