Occam's Razor by Avinash Kaushik

We have more web metrics and data than there are stars in the universe (slight exaggeration!).

Yet we stink at informing decisions. Our reports are ignored. Sites & online marketing continue to suck.

A large part of the reason is that a large part of our job seems to consist of glorified data puking, hoping someone will be impressed. After all there is so much data in those reports!! #fail

This blog post encourages you see the forest, the much hyped big picture, and shares a framework that will help you ensure that every single moment of your day is spent on activity that will be:

1. of value to your organization, hence appreciated and acted upon

2. has a clear line of sight to the one thing that matters: profit

If you don't want your professional life to be frittered away then please come along this short journey.

First some context…

If you have seen one of my keynotes recently then you have heard my near evangelical fervor when it comes to trying to convince you to compute Economic Value.

If you have Web Analytics 2.0 then you already know who much attention is paid to this concept in the book (jump to page 159 for how to compute it for your website).

The reason for this emphasis is to help fix our miserable failure at at creating data driven organizations.

To steal your energy away from being just in the report / data production business.

To encourage you to do better than spend a lifetime implementing analytics tools, building data warehouses, chasing the next shiny object.

My recommendation has been:

That last one will get any organization to sit up and pay attention.

Why?

Because for the first time in their young and passionate life they'll see the complete value your website is adding to the business. And because my dear it will be a huge number that no one can ignore! You are going to tie your work to the bottom line!

Revenue = Good. Economic Value = God! [Also slight exaggeration :)]

Professor Ken Wong's Magic Potion

Prof. Wong is the award winning Commerce '77 Teaching Fellow in Marketing at Queen's School of Business (and an awesome speaker, you should hire him for your next event!).

He took the stage after my talk and said, I am paraphrasing here, "Avinash did not go far enough in his keynote. Economic value is important but the only thing that matters is Profit!"

That was awesome!

One of Prof. Wong's key points was how the success of our work, as Marketers, is measured based on a lot of things but not often enough based on perhaps the most important metric of them all: Net Income.

Prof. Wong covered a lot of key points (as a MBA with a minor in Marketing I wanted to take off my clothes and jump for joy when he said the 4P's of Marketing are killing Marketing!).

I wanted to share two of his slides that left a lasting impression on me.

They are particularly applicable in the web analytics context. In sharing my interpretation of them my hope is it will change a little bit how you think about your work and success.

The very first slide, "Profit: The Ultimate Client Need", shares the key elements that need to function for the outcome (ROI) that causes companies to remain in business.

My interpretative points.

Net Income is driven by two important variables:

Unit Margins (how much you make on each X you sell or Y service you provide)

Unit Volumes (how many of X or Y you sell)

Margin times Volume gives you the golden metric Net Income!

[Keep this formula in mind, your life should be revolving around it else you are wasting everyone's time.]

Peel the onion back one more.

Unit Margins is in turn driven by two more variables:

Price (how much you charge for X product or Y service)

Cost (how much it costs you to make X or provide Y)

Price minus Cost equals Unit Margins.

Get it?

So if you want to have very high Margins you have two variables you can control. You can charge lots for your product or service (think of a Vertu phone).

You can also make it at the cheapest possible cost (no phone costs $100k, you make it for $300 and sell it for $100k).

You can of course also charge lots and lots and it costs you a lot to produce (think of a Tesla car). But give some thought to how you'll stay in business.

Continuing the onion peeling…

Unit Volumes, our other variable to have high Net Income, is driven by two variables:

Market Share (is your share 90% or 5%?)

Market Size (is that share of a market the size of Maldives or China?)

Both share and size are important.

You'll sell lots of X or Y if you have a high market share and the limit you'll hit is the size of the market (you can then play in the current size or grow the pie).

Line of Sight.

Having a clear line of sight means that you are able to map every metric you report on (or better still torture with segmented analysis to find insights) every single day directly to the strategic objective of the company.

Prof. Wong is suggesting, rightly so, that that strategic objective is Net Income.

And you have only one of four things that you'll move through actions your company takes: Price. Cost. Market Share. Market Size.

Here's my crystallizing question for you. . . .

When you report the metric Page Views Per Visit which of the four are you solving for?

How about with Bounce Rate? Or Time on Site? Or % of New Visits? Or Visitor Loyalty? Or…..

Is there a direct line of sight between what you as a Marketer are being incented on, or you as an Analyst are spending time analyzing?

If not, are you surprised that no one loves you? Sorry… I mean… no one loves your work?

Here is a simple exercise you could go through: Pick out all the metrics you are reporting today (on your dashboards and top reports). Try to put them into one of the four important buckets from Prof. Wong's slide.

The clear line of sight exercise. . . .

Were you able to cleanly bucket all metrics you currently report? Time on Site and Conversion Rate and Task Completion Rate and % Internal Site Search Exits and Cart Abandonment Rate and % of the Page Scrolled and % of Visitors Refreshing Pages and all the other sweet things.

Some of the metrics in the above paragraph are complete crap, you are wasting your time and everyone else's time with them. And you'll now discover that very quickly because you won't have a place where you can bucket them.

Other metrics will make you think harder. Where do you bucket Conversion Rate? Are you impacting Price or Cost?

What about Customer Satisfaction? Or Page Rank!

Not every metric will map cleanly, and that is ok. I had to think really really hard to bucket each of my metric in the above picture. Some of the metrics were controversial. But bucket I did.

If it turns out your web metric has no line of site then it might be time to kill.

If the work you do can't be mapped into Price, Cost, Market Share or Market Size then why are you doing it?

Before you dip your hands into Omniture or WebTrends or Surfaid, :), answer that question.

I know it seems like a lot of work for a "lowly" Analyst to do. It is. But without it there is little hope for your personal success (promotions / bonuses) or your company's success (higher Net Income).

"What Matters Most" Fishbone Analysis

As you look at the picture above it is amply clear that the metrics I have chosen in each of the four buckets are perhaps unique to me/my business.

The reason is simple… they are a reflection of the strategy my company is currently executing, i.e. our "world domination via an effective data driven online marketing plan".

This simple truth, that metrics should reflect current business strategy, is the reason I loved another slide from Prof. Wong's presentation.

It leveraged the same framework, but added "what matters most". . .

[Click on the image above for a higher resolution version.]

The focus is still on Net Income driven by, hopefully, improved Margins and Volume which in turn are driven by much beloved 4 levers of Price, Cost, Share and Size.

What is awesome about the "fish bone" above is that it drills down to the 14 specific strategies that most businesses will use to become great (or simply survive).

You Ms. Web Analyst now have a framework you can take to your Marketing Directors and CMO's to discuss which of the 14 strategies they are currently executing to drive the 4 beloved levers.

Ask any Web Analytics "Guru" or "Professional Speaker" or "I am so important you are paying me $5,000 an hour to give you generic advice Consultant" and they will always tell you that all good journeys in web analytics start with asking your bosses this question: What are the goals of the organization?

The advice is sound (and well worth $5k/hr). The problem is that we never get an answer from the customers of our data / our management. You are $5k x 8 hrs short and still none the wiser.

Get off the slow train to nowhere…. You now have a new BFF: Prof. Wong's "What Matters Most" slide!

Don't ask the generic "What are the goals" question. Ask "Of these 14 specific strategies which are we currently executing".

Once they tell you which ones (be patient, it might shock them that you are giving them something tough and specific to think about), you'll be in business.

The 5 strategies they pick from the right-most column will help guide you in terms of picking the right Key Performance Indicators / Web Success Metrics for your business.

And you know why a win now is guaranteed?

Because each metric you identify starts with a specific business strategy which has a direct line of sight to the 4 beloved levers which will have a impact on Net Income!!!

Minorly orgasmic right? [Trust me, you do this and you'll agree. :)]

Summary:

Recommendation #1: The Web Analytics Maturity Mandate!

For far too long we have been like toddlers… bumping into things, having a limited vision, working just what we know (which is little).

What I love about this approach is that it forces us to grow up. It forces us to understand what we are solving for: Net Income. It forces us to have a line of sight between our work and the ultimate goal: Net Income. It forces us to not live in our dungeon but rather take a well defined framework to enable the discussion that will yield wins all around.

No lip service to how important process is. This blog post shares what you specifically must do to succeed!

Recommendation #2: Win With Web Metrics: Steps

Here are the specific steps I recommend you follow for optimal execution of the recommendations.

A simple but effective 7 step process.

:)

Good luck.

Ok now it's your turn.

Do you agree that a focus on Net Income and a focus on "what matters most" is key to success in web analytics? Can Web Analytics tie the work they do, the metrics they report, into Price, Volume, Market Share & Market Size? Or is our work simply not that important? In your job today how do you ensure line of site? Will you change anything based on the recommendations from Prof. Wong?

Please share your feedback / critique / ideas.

Thanks.

[UPDATE]

Zach Olsen, who blogs at By Data Be Driven, has taken the Clear Line of Sight framework outlined in this post and applied it to a medium sized eCommerce website. It is so wonderful, take a look:

[Click on the image above for a higher resolution version.]

Zach's effort is awesome for these key reasons:

• Really clear line of sight from Business Objective to Net Income.

• Clean flow from What Matters Most to 4 beloved levers (Price, Cost, Share, Size).

• (This one I love the most…) Identifying of Targets for each metric! You can't be serious about Web Analytics without doing this!

I hope you are as impressed by Zach's effort as I was.

He has also done something sweet for all of us… he has created a excel spreadsheet that you can download and customize for yourself, and hence get a jumpstart! You can download it at this blog, bottom of this post: Web Analytics Framework Example. Please download it!

My thanks to Zach for his effort and for his permission to share it here.

[/UPDATE]

PS:
Couple other related posts you might find interesting:

• Six Web Metrics / Key Performance Indicators To Die For
• Analyze This: 5 Rules For Awesome Impromptu Web Analysis
• Actively Avoid Insights: 4 Useful KPI Measurement Techniques
• The "Action Dashboard" (An Alternative To Crappy Dashboards)
• Barriers To An Effective Web Measurement Strategy [+ Solutions!]

The world of the intertubes should be a lot more data driven and awe-sexy than it really is.

Yet for all our collective efforts at writing and tweeting and kvetching online marketing is still based mostly on faith. Not data.

Surprising at so many levels right?

Last week I had the privilege of being invited to deliver the keynote at the annual CMA President's Dinner. John Gustavson, President & CEO of the Canadian Marketing Association, invites a hand selected audience consisting of the crème de la crème of Canadian executives from a vast array of industries. This year they were joined by senior Canadian government officials.

It is difficult to choose something for an address to such a diverse, accomplished and senior audience. My choice was the above thought, faith & data.

My plan was to challenge the status quo, deliver tough love, and inspire transformation.

There were no slides, no notes, just me up on the stage talking. Ok there were around 10 or so bullet items, the talking points. On the flight to Toronto in order to prepare I also wrote down the speech (though I don't read my speeches, so it stayed on the computer).

I wanted to share the speech with you in the hope that it helps you accept the challenging reality we face. I hope it also provides you with a practical set of recommendations to kick your work up a notch or two so we can all win at this web thing.

TV. Internet Marketing. Faith. Data. Problems. Solutions. . . .

__________________________________________________

CMA President's Dinner Keynote.

Good evening.

It is a pleasure to be here tonight and address such a beautiful audience. I want to thank John for inviting me.

My plan tonight is to present some thoughts on how to transform people and companies in the age of the Web, for about 15 minutes, and then address your questions. You are welcome to ask me questions about my talk or anything else connected to the web, companies – marketing – opportunities.

I must admit up front that I am as hard core as any evangelical born again Christian in my passion when it comes to the web. The raw innovation and empowerment that a connected digital world has unleashed is the reason I lovingly refer to it as "God's gift to humanity".

To truly appreciate some of this let us consider the world where marketing is done on faith. Television. Or for that matter magazines or newspapers or radio. All wonderful channels, that are needed and will be around for a long time! But when it comes to measuring success of our marketing efforts all of these channels are largely faith based initiatives.

Consider how we measure success of our TV campaigns.

At a time when there is massive fragmentation of channels and content consumption, where the head is becoming ever smaller with each passing day and the tail becoming really really loooooong, it is amazing that we rely on a measurement system of sampling a handful of viewers who help determine success of tens of millions of dollars of content and millions of dollars of advertising spend. It is outright mind blowing that we use a system whose own legal disclaimers essentially boils down to: "Our data is massively suspect".

Now think of how thin the ice is when it comes to measuring the impact of our precious marketing dollars in magazines and newspapers and other offline channels.

Yet we accept it.

We continue to use faith rather than data to make decisions on $120 Billion (!!) of advertising spend because we don't have much of a choice. We chalk it up to: "It is just the way things have always been." Or: "TV is really hard to measure, those boxes just don't connect or share." [It is rare that we blame the fact that we have not carried out our duty to demand more from both the channel and offline measurement systems.]

All that should explain why I have minor mental orgasms when I think of the online marketing channels and measuring actual business value delivered by our ever more precious marketing dollars.

Just thinking of all the data you can get is enough to put give you a temporary high. With 90+% accuracy you can measure the number of impressions of your ads. You can measure interactions with the ads. You can measure how many people end up on your websites. You can understand how many of them puke and leave! You can measure every facet of success (micro and macro conversions!!). You can measure revenue and economic value! For every dollar you spend! Oh my!!

And to think I have not yet started to talk about how finely you can tune your marketing by leveraging geographic and demographic and psychographic targeting. Leverage powerful metrics like Loyalty, Recency, Brand Perception, Task Completion Rate, Size of Second Level Network, Competitive Share of Voice and more. These are not "loser" metrics like visits and pageviews!

Oh, oh, and you can run experiments! You can fail faster! You can involve your customer in helping you choose the look and feel of your site or the prices you should charge for maximizing profit. You can run controlled experiments to measure incremental online/offline impact and balance the portfolio of media channels you are exposed to, rather than getting distracted by sideshows like "attribution analysis".

So much promise. So exciting. And these are all things you can do today. Don't get me started on the future and what lays ahead, the excitement of it all might cause me to faint.

Yet.

Yet if you look around you on the web you'll see that we swim in a sea of mediocrity. We still see irrelevant blinking banner ads. You'll see astonishingly sucky websites, belonging to come of the best companies in the world. You'll bump into advertising that is remarkable in how irrelevant it is to customer intent. You'll see horrid landing pages. You'll experience missing calls to action, rambling text, and waterboarding through Adobe Flash.

All of it largely driven by faith.

It breaks my heart.

If for no other reason than because your employees are frustrated (they want to be, and can be, so much better) and your customers are being tortured each and every day.

So in a channel that is so full of promise, so full of data, so empowering when it comes to relevance and creativity… why is it that we suck so much?

Based on my humble experience I have boiled it down to three important things:

1. The web has been around forever and yet it is not in the blood of the executives who staff the top echelons of companies.

Make no mistake, they are smart, they are successful and they want to do better. But the web is such a paradigm shift that if it is not in your blood it is very difficult to imagine its power and how to use it for good.

How do you demand innovation & creativity & radical rethink if you can't imagine it?

2. We still believe in and live in the world of "shout marketing", the thing we have practiced on tv and radio and magazines all our lives.

It is not that we don't mean well. But our mental models are jaded.

We still believe in getting lots of impressions. We want to interrupt. We don't despise irrelevance enough. We care about "eyeballs". Because that is all we know. Unfortunately the web (/interactive /digital /social) mandates new mental models, and we are the old dog that won't learn new tricks.

3. Our lousy standards for accountability.

Pause and think of how we measure success today. We measure "reach", we measure "exposure" and other such lame metrics. Partly because that is all we have been trained to expect.

We never say: "Here is a 100,000 for my search campaigns, please come back and report on task completion rates across the top three primary purposes and the economic value added." We never say: "Don't try to fool me with page views generated, did we impact page depth on our content site?" We rarely push hard by saying: "I don't care how frequently our content was updated, what was the impact on visitor loyalty." Or say: "Fine we improved online conversion rate by two percent, but what was the impact on the sales in our retail stores?".

Our bar for accountability is less than low. It is almost non existent.

So…. It turns out the problem is not the web, the problem is not the opportunity, the problem is not measurement.

The problem is you.

The problem is every person in this room.

Our raw understanding, mental models and expectations.

I am sorry. It is kind of a bummer to hear that.

But if you are the problem then the nice thing is that you hold in your hands the power to change your companies and bring about the promised revolution of data driven customer centric online marketing.

Problem identified, how do we fix it?

At the risk of being booed out of this impressive ballroom let me say that the solution is to Embarrass Management!

People who report to you and ask people who report to you to embarrass you.

Why is it awesome?

Turns out no one likes to have their egos bruised. Leverage this powerful force to start to address the three problems I had just outlined.

There are two specific strategies I recommend.

1. Leverage Your Customers.

They want to help. You just have to politely ask.

Not being polite is popping up a 35 question survey on your site. Being polite is inviting them to answer just a couple of questions about their experience when they leave the site. Being polite is uploading your latest "oh my god they are so going to love this (!)" design into fivesecondtest or usertesting and letting your customers share feedback at the cost of a few Tim Hortons coffees. Being polite is running a/b tests on your site so your customers tell you which call to action, piece of content, navigation structure or even product price will yield highest customer satisfaction AND revenue!

Leveraging customers means that when the HiPPO / Boss (perhaps you) opens her mouth to say: "I don't think that will work" or "I like that other way better" or "No one will buy a toothbrush priced $299" or "Twitter is dumb"…. you can say: "Why don't we mock up a quick experiment / online survey / media mix model to validate your hypothesis?"

Allow your customers to help you evolve your mental model. Allow you customers to teach you new and effective marketing strategies. Allow your customers to complement your existing intelligence and savvy.

And if it is hard to get to the above point…. leverage embarrassment!

I recently spoke at a major conference about how one of the top camera companies was disappointing its customers by stinking at the long tail of search. I searched for a digital camera, wireless printer and digital camcorder as a normal undecided customer would. None of my 18 or so searches threw up a single link for this company (not organic, not paid). And yet I was ready to spend $500.

Then I copied exact text from their website for multiple products and searched for them another 20 times. Result? They still would not show up.

Trust me nothing hurts like that raw view of massive failure of your online marketing on the single best acquisition channel on the web today.

Caused embarrassment. Forced a rethink at what is a glaring football field size hole in their marketing strategy.

Who wins? Customers. And the company, they will reduce acquisition cost and make more money.

When there was an argument at a top financial services company about what the home page, the holiest of holy properties per this company, should look like what do you think the company was going to do? Go with the version the President & CEO of the company liked. One smart person interjected to say: "Why don't we take your instinct and convert it into a HiPPOthesis?".

The CEO smiled. They tried three versions. The CEO's performed worst, on goals he had chosen. He still smiled after the test because 1. They made more money. 2. Avoided a big mistake. 3. Created happy customers. 4. He learned something new.

By involving customers companies have figured out that garish zebra print bed sheets are a perfect fit for being sold in their offline stores, identified the perfect song for their tv commercial, designed the best selling dvd covers, discovered pricing / discounts / product bundles that they would never have thought would have worked.

All faster and at a lower cost, with a higher impact on the business. Mental models evolved. Accountability increased.

2. Leverage Competitors.

I have rarely found a strategy that works better at elevating the game of any company than contrasting their efforts with those of their competitors.

It is astonishing that in a medium where your competitor is just a click away, the experience is absolutely frictionless, that we still live as if the burden and hurdles of the offline world exist online.

It is in comparing to competitors, known and unknown, that you can truly get the management to pay attention. Something about the size of the hit to the ego.

Here's an example.

Recently I visited the Sr. Executives of premier technology company and showed two sets of numbers. The ACSI has been measuring customer satisfaction for more than a decade. During that decade Apple's customer satisfaction went from 77 to 84. During that exact time period this tech company's numbers went from 78 (one point higher than Apple!) to 74.

Ouch. That hurts. Especially because they have poured many millions into "improving" the site (and a few million on analytics!).

Sure they don't have the "fanboyism" of Apple, yet Apple had that 10 years ago too. It is painful to realize that Apple started behind them and moved so far ahead, during a time where they not only did not defend their lead…. they actually regressed.

What do you think the management is doing now? Yep, questioning key things like who makes decisions, what the org structure looks like, how can they replace current hyper matrixed accountable structure with something that forces the right behavior at all levels.

Here's another example.

Rather than showing a CPG company how one of their sites was doing I took the liberty of comparing their tea website with their detergent website with their shampoo (personal grooming) website. It was astonishing how each was doing. For example the much smaller tea business was doing better than their key personal grooming business.

But I did not stop there. I compared them to an external benchmark.

What do you think I used? Their direct competition? No. I compared them to my blog's traffic.

It turns out I get two times the traffic when compared to all three of them combined!

Now my blog has nothing to do with a large multichannel CPG company. Yet I write a blog on an esoteric topic (I know that no one really cares about web analytics) and I write twice a month.

Yet I can get more traffic! Part time. With no marketing.

And they spent a couple of million dollars building their websites. To deliver what outcome?

Can you guess the result of this effort?

If you guessed a massive evaluation of their online strategy, ordered from the very top, then you would have guessed right.

Competitors provide a great contrast to your lameness or awesomeness. Be it leveraging the full power of online marketing channels. Be it creating optimal customer experiences. Be it bringing a new layer of imagination and accountability to your existence.

Embarrassment works.

Of course you have to do it right and be absolutely transparent that comes from a place of deep love and from a desire to to be better.

Because you see the goal is not to embarrass. The goal is not to be rude.

The goal is simply to provide context, fast. The goal is to get you, and your companies, to move beyond faith. The goal is to see the obvious potential in front of us. The goal is to throw away the shackles that have for far too long weighed us down.

That is what I mean by, now in quotes, "embarrass".

I hope you take away the passion I feel for making sure that advertising on the internet has to be magnificent and accountable. I hope you'll go empower your organization to "embarrass" you and that you'll do the same to them. I hope tomorrow will be the first day of a revolutionary transformation for your business.

Good luck!

__________________________________________________

The speech was received better then I expected (never easy to tell your audience they are the problem, or lay out tough to swallow solutions). I was profoundly grateful for that. The Q&A session following the speech was a of fun as well (always nice to get a chance to give my "It's not a OR world we live in, that's for super lame folks, it's a AND world!" mini sermon).

It's your turn now.

I would love to get feedback. What are your thoughts on the promise, the three problems and the two possible solutions to jump start a magical revolution?