19
Apr

The Challenge Of Online Data

Data generated by online retail is very different, and much more difficult because the ‘inputs’ of online retail are both more numerous and more changeable. Online there are fewer upfront constraints on scope or reach. Combine this with the almost limitless possibilities for adjusting the hundreds of day-to-day activities – keyword bids, navigation, delivery charges, sort orders, prices, marketing, promotions or customer emails.  The consequence is that the data is considerably more complex – there is more data, more often, from more interconnected sources.

The ‘outputs’ – sales, conversion rate, average order value – are as a result unhelpful, as each can be affected by a wide variety of causes. The outputs online tell you what’s happened but give no clue as to what’s actually going on.

Moreover, there are few accepted norms on eCommerce metrics – no one really knows what ‘good’ looks like. And the variable cost structure of online means that optimisation is multi-dimensional and more complex. These challenges manifest themselves across every aspect of an eCommerce business.

Digesting the data
It is extremely difficult to get a holistic view of online performance.

A typical retailer will create more data in a day from its online operation, than its stores would create in many years. Unfortunately, the data is typically from different systems and often does not reconcile.

The ‘physical retail’ approach treats the website as a ‘store’ and sales-by-category would be the primary dimension for analysis. Unfortunately, this gives no sense of the performance of customers, marketing and the site itself.

Online retailers are either faced with an overwhelming amount of spreadsheets or they choose the ‘easy’ route of focusing on simplistic outcomes like sales, traffic, average order value and conversion which give no insight into what is actually going on. Net sales – which tells physical retailers so much – is affected by the phasing of orders, shipments and returns, and can be easily battered by promotions and marketing spend which are not readily visible.

Diagnosing the problems
The interconnection of product, site, marketing and operations means that it is rarely obvious what problem you are trying to solve, and mathematically complex to work it out.

So, for example, when conversion rates fall everyone assumes the site is at fault, yet the most likely culprits are the traffic mix, product availability and price competitiveness. Similarly, if a product isn’t selling it may be because no one is looking at it, or people are looking but not buying. Identifying the real cause is not something that should be left to gut instinct!

To add to the challenge, in most organisations the varying causes are owned by different departments which can stymie the diagnostic process. Even once the issue is identified, diagnosing the right action is difficult. Online marketing constructs mean that visitors, and therefore each product view, has a cost. This is completely different to physical retail, where the marginal cost of a store visitor is zero – you pay your rent and traffic is free. As a result online product and traffic are intertwined.

A retailer can now decide to give a product more or less traffic depending on product stock levels.

If a product is overstocked, reducing the price is a blunt (and potentially ineffective) lever if the cause is lack of traffic. The optimisation challenge is whether overall product profit is maximised by:
• Increasing or reducing stock (to drive turn/sell through);
• Increasing or reducing the traffic to the product (to drive volume); or
• Increasing or reducing the product’s price (to drive margin/conversion).

Doing something about it
The real challenge in execution is getting visibility on what is being done and to what level of quality.

There are thousands of small actions online that are worth doing, and ironically many are easy to execute from the comfort of a desk and a screen. Conversely this makes it very difficult to track what is being executed effectively.

Having identified the issue, the challenge is to ensure high quality and consistent execution. For example, if a retailer identifies that a thousand products are receiving no traffic from Google, it is often resolved by manipulating bid rules in a keyword management system. It is extraordinarily difficult to give a retail CEO visibility that this task has been executed, and that the problem will not repeat. Now multiply this across the hundreds of daily and weekly activities of a mature online business and the scale of the challenge becomes obvious.

Making online data work
Navigating online retail data requires a new approach. To make the data work for you, to ensure it drives your business growth, requires the following:

1.  A single view of profit (digest):
A new data model providing a holistic view of your business is required. This will allow you to quickly understand whether a performance delta is driven by customers, geographies, marketing channels, categories, site or something else.

2.  New algorithms (diagnose):
Making good decisions requires a new set of algorithms and diagnostic tools. It is vital to look at the new mathematics of retail – for example, the fully allocated profit per product, customer attrition rate and marketing sensitivity to attribution.

Expect new formulas – traditional retail metrics simply don’t make sense in the online world.

De-averaging is critical to understanding what is driving performance.

3.  Manage by input (do):
Most importantly, online retailers need to track inputs across their organisation. Managing inputs is the only possible way to understand what has happened in your business and what you can do about it.  There are literally hundreds of inputs to measure.

Focusing on the right inputs in the right order is one of the key management challenges online and – critically –the number and specificity of inputs to be tracked evolves with scale.

The complexity of online data is challenging for all retailers – both in how to make sense of the vast mountain of information now available, and also in how to use it to make the thousands of potential decisions daily.

Online retail is data. The data required to make almost every decision is available with very high on track offering the greatest insights on what is happening to an online retailer’s business. However, retailers doing £20m+ sales online should expect to be monitoring over 100 inputs.

The complexity of online data is challenging for all retailers – both in how to make sense of the vast mountain of information now available, and also in how to use it to make the thousands of potential decisions daily.

Online retail is data. The data required to make almost every decision is available with very high quality, in near real-time. The way forward for those wanting to grasp the opportunities of eCommerce is to re-instrument around inputs.  I once worked with an online retail chairman who used to bang the table and shout: “What are we doing to drive conversion rate?” The business didn’t thrive, and nor did the table.

www.ecommera.com

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