The Man Who Feared Analytics

A business owner had once been referred to me by a colleague with whom he had already been doing business. For many years, the businessman’s photography business had been sustained through direct mail advertising, and he often received a 5%-7% response rate, an accomplishment that would boggle most direct marketers. But the recent economic downturn combined with photography’s being a discretionary expense, he soon found his direct mail solicitations bringing in a puny 0.8% response rate. The business owner had a great product, a great price, and a great offer, but at that response rate, he was no longer breaking even.

My colleague and I spoke with the businessman about his dilemma. We talked through his business; we looked at his most recent mailer, learned how he obtained his mailing lists, and discussed his promotion schedule. We found that the photographer would buy a list of names, mail them once, and then use a different list, not giving people enough opportunity to develop awareness of his business. We also found that he didn’t have much information about the people he was mailing.

We recommended that analytics could help the photographer maximize his margin by improving both the top and bottom line. Analytics would first help him understand which customers were responding to his mailings. Then he could purchase lists of people with characteristics similar to those past respondents. His response rate would go up, since he would be sending to a list of people most receptive to his photography. He would also be able to mail fewer people, cutting out those with little likelihood of response. He could then use the savings to remail the members of his target segments who hadn’t responded to his earlier mailing, and thus increase their awareness. It all sounded good to the photographer.

And then, he decided he was going to wait to see if things got better!

Why the Fear of Analytics?

The photographer’s decision is a common refrain of marketers. Marketers and business owners who are introduced to analytics are like riders on a roller coaster: thrilled and nervous at the same time. While marketers are excited about the benefits of analytics, they are also concerned about its cost; they’re afraid of change; and they’re intimidated by the perceived complexity of analytics. We’ll tackle each of these fears here.

FEAR #1: Analytics could be expensive.

REALITY: Analytics is an investment that pays for itself.

The cost of analytics can appear staggering, especially in lean times. Some of the most sophisticated analytics techniques can run into tens – if not hundreds – of thousands of dollars for a large corporation. However, for many smaller companies, analytics can run a few thousand dollars, but still a lot of money. But analytics is not an expense; you are getting something great in return: the insights you need to make better informed marketing decisions and identify the areas in your marketing that you can improve or enhance; the ability to target customers and prospects more effectively, resulting in increased sales and reduced costs; and the chance to establish long-term continuous improvement systems.

Had the photographer gone through with the analytics for his upcoming mail, the entire analysis would have cost him somewhere between $1,300 and $1,800. But that fee would have enabled him to identify where his mailings were getting the greatest bang for his buck and he might have made up for it in reduced mailing costs and increased revenues. Once the analytics had saved or made the photographer at least $1,800, it would have paid for itself.

FEAR #2: Analytics means a change in the way we do things.

REALITY: Analytics brings about change gradually and seamlessly.
The photographer had been using direct mail over and over again, because it worked over and over again – until recently. In fact, having lost so much money on his recent direct mails, he’s probably leery of new approaches, so he stays the course out of familiarity. That’s quite common. But this is the nice part about analytics: change can be gradual! Analytics is about testing the waters, so to reduce risk. Perhaps the photographer could have done a test where half of his mailings were executed the traditional way, and half done the way the analytics recommended. Over the course of a short period, the photographer could then decide for himself what approach was working best.

FEAR #3: Analytics is “over my head.”
REALITY: You need only understand a few high level concepts.

Those complicated and busy mathematical formulas, in all their Greek symbol glory, can be intimidating to people who are not mathematicians, statisticians, or economists. In fact, even I get intimidated from those equations. We must remember, however, that these formulas were developed to improve the way we do things! With analytics, all you need to know is what approach was employed, what it does, why it’s important, and how to apply it – all of which are very simple. Analysts like me deal with all the complicated stuff – finding the approach, employing it, debugging it, refining it, and then packaging it in a way that you can apply seamlessly. And if you don’t understand something about the analytical approach employed, by all means, ask! And any good analyst will give you all the guidance you need until you’re able to apply the analytics on your own.

Forgoing Analytics Can Cost Your Business Three Times Over!

Analytics is one of those tools that many marketers know can enhance their businesses, yet decide to hold off on – either for cost, perceived complexity, or just plain fear. This inaction can be very dangerous. Analytics is not just a tool that improves your business decision making; it also helps you diagnose problems, identify opportunities, and make predictions about the future. Failure to do these properly costs you in three ways. First, you market incorrectly, wasting money. Second, you market to the wrong people; they don’t buy, and you lose revenue you could have made marketing to the right people. Third, you fail to recognize opportunities, and you forgo any sales those missed opportunities may have brought. Analytics is an investment that pays for itself, pays dividends down the road, brings about change in an easy and acceptable way, and whose benefits are easy to grasp and financially rewarding.

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2 Responses to “The Man Who Feared Analytics”

  1. Lyubov Says:

    You are definitely right in the ideas shared in this article! I have the same problem in Russia – business owners wait until it gets better, and lose clients, money etc. I’ll show this article to some of my friends. Thanks for it!

  2. Christopher M. Janney Says:

    Great article! As a Performance Consultant, I find that this is very true in many cases. In my line of work there are many situations where analytics come in to play, and whether it is internal or external business owners/leaders can potentially have reservations, especially with the perceived costs. Very well articulated!

    One of the things that I recently blogged about was utilizing the market/customer analytics to reverse engineer through the service objectives, and then work through the entire organization. You can read more at http://www.provativebizblog.wordpress.com if you’re interested in seeing another way that it can pay for itself!

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