Thoughts, resources, articles
Every business is built upon the same foundational equation:
Products + Customers = Sales

Getting the right product to the right customers is the foundational layer of every business equation.

Neither is sufficient alone.

Everybody in 2019 would agree that it is important to obsess about your customer.

Listening to your customer tends to be a good idea if you plan on building a large business based on customer love and loyalty.

But, what about the first variable in that equation?

How much is really invested into product strategy?

Not enough.

Emerging Importance

Everyone is providing 24/7 support.
Everyone is providing free shipping.
Everyone is providing 30-day guarantee.
Everyone is racing to provide 2-day shipping.
Everyone is racing to provide cashierless checkouts.
Everyone is providing 30-day guarantee.

Everyone is gunning to provide their best foot forward when it comes to the customer.

So what’s left?

Product.

Competing on product strategy.

Getting assortment mix right.
Getting promotions and pricing right.
Getting selection variety right

Breakdown of this Guide:

Feel free to skip directly to those sections that are more relevant:

  • Chapter 1: Introduction to Product Analytics for Retailers
  • Chapter 2: What can Product Analytics help me with?
  • Chapter 3: What metrics are important to track for Product Analytics?
  • Chapter 4: How do I determine if my product is successful?
  • Chapter 5: How does Product Analytics work with every function?
  • Chapter 6: How to use Product Analytics for E-Commerce

Introduction to Product Analytics for Retailers

Definitions

Product analytics is a specialised application of business intelligence that consumes data relevant to the product (consumer feedback, supplier notes, sales data, etc.) to monitor consumption in order to identify opportunities for product innovation and inform future product strategy. (Shortened version from Gartner)

Why is it important

At the heart of every great business, is great products; if you can’t get products right, nothing else matters.

It has now become trite to say that we, as businesses, are “customer-focused”.

Customers aren’t looking to shop for bad products and they definitely won’t return if their initial product experience was terrible.

You can layer on services like “Free Delivery” or “24/7 Support” later on but if you will still need to have a clear and concise product strategy to succeed in the long-term.

What is the difference between product analytics and the rest?

Taking Wikipedia’s definition:

Analytics is the discovery, interpretation, and communication of meaningful patterns in data and the process of applying those patterns towards effective decision making.

The decision behind the numbers informs the purpose of analytics

Here is a quick example:

  • Shopper Analytics: Inform Shopper Engagement strategy
  • Marketing Analytics: Inform Marketing strategy
  • Product Analytics: Inform Product strategy

Metrics to optimise:

  • Shopper Strategy: Shopper Lifetime Value
  • Marketing Strategy: Customer Acquisition Cost
  • Product Strategy: Assortment/ Product Sales Revenue

Sub-Metrics to optimise:

  • Shopper Strategy: Engagement Rates
  • Marketing Strategy: Click-through Rates
  • Product Strategy: Sell-through Rates

Why is this different now?

1. Evolving Role: From All Star to Team Manager
According to a Mckinsey Report about how analytics next-generation retail merchandising, they cited an evolving role of merchants.

Given the proliferation of automation technologies, Mckinsey posits that “traditional jobs” that had well-defined playbooks will eventually be left up to automated predictive analytics and better decision models.

So, what’s left?

Owning product strategy.

Rather than focusing on the reactive nature of actions, one has to instead focus on using automation gain insights more quickly.

A higher emphasis will be placed on the ability to interpret insights and implement them to achieve business objectives.

Merchants will operate like an “ owner” and lead a cross-functional team, as the role will evolve to be more strategic to free up capacity for new avenues of growth .

2. Shift in Shopper Discovery Process

Unlike a decade ago, a large population of the next generation of shoppers are much more well informed about the products that they are looking for.

Some of your customers might even know much about your products than some of your sales associates.


For the first time, the democratization of information across the web is allowing merchants to compete on the best product.

If retailers and brands don’t make good on their promises of a great product, the next option is just one click away.

“Differentiating on Product has never been more important to the consumer”

3. Saturation of marketing tech

The marketing landscape has become incredibly crowded.

Whether it’s webinars, blogs, content marketing or video production, everyone is trying to compete with one another to try to compete on campaigns and channels.

Every channel has now become so saturated that it is starting to make less and less sense to invest all your budget into marketing.

So how do you compete?

Product.


What does can Product Analytics help me with?

Before diving into the entire scope of product analytics, it would be useful to first understand the drivers of clear product strategy from the lifecycle of a product.

Working backwards from the customer,

  • How do the products get to the customer?
  • How does the channel get the product?
  • Where does the product come from?

After the purchase,

  • What did the customer like/ dislike about the whole experience?
  • How do we make it better?

Lifecycle of Product

We are going to divide the product life cycle into three distinct phases; Conception & Production, Retail & Distribution and Post-Purchase Insights.

Customer feedback and/or input is crucial to all these phases.

Conception & Production:

Depending on your specific strategy, vertical integration could mean that you are involved in the research and development of new products.

This strategy is much more capital intensive but could be much more rewarding in the long-term.

If you don’t have input into product development, your role will mostly be sourcing and procurement.

Retail & Distribution:

How do your shoppers buy your products?

Assortment planning and category management comes in at this stage where your focus will be centred around planning assortments, pricing and packing and fulfilling demand for your products.

This will be the majority of your scope of work.

Post-Purchase Insights:

After a purchase is made, what have you learnt?

Your first 1,000 sales is great but how do you replicate that success?

Most merchants will stop at looking at sales data and using that simply to inform inventory but many also know that that won’t be enough in the long-term.

Investments in marketing analytics help us understand what drew shoppers in and feedback tools help us understand how to improve the products on the dimensions that matter.

Some Concrete Examples

After going through the different phases of a product life cycle, I’m sure that you already have some ideas of what can be measured to better improve your internal product strategy.

Let’s run through some examples;

Conception & Production:

If you have your own manufacturing facilities, during the research and development phase, how much of that has been informed with;

  • Customer feedback
  • Sales data

Not just by customers, but by product attributes as well. Maybe you might learn that red is a terrible colour for jeans or that packing flowers only in bouquets of 3 isn’t what the market wants.

“These insights HAVE to inform your sourcing and manufacturing process else you aren’t actually getting better at your job.”

Retail and Distribution:

Retail: Products don’t live in isolation, whether you take the Ikea showroom approach or the Walmart “sell-everything-possible” approach, you have to have a measure assortment strategy.

Are products performing together as well as expected?

Moving on…

Distribution: Do your shoppers behave differently based on the sales channel? Well, duh.

(Image about online and offline)

You don’t expect a web-shopper to browse and feel the products the same way as someone offline.

So, how are they different?

  • Do they shop at different times?
  • Do they purchase different products?
  • How does pricing and packaging influence purchasing decisions?

“All these questions have to inform your product strategy”

Post-Purchase Insights:

The most you can learn from your shoppers is right after the purchase and whilst they are consuming your product.

Ask them for feedback.

Ask them why they haven’t recommended your brand to their friends.

Churn through that feedback the next time you are thinking about reordering that SKU or when you are thinking of sunsetting it.

Quick Summary

For those who have scrolled to this point. Here is the TLDR version.

There are LOADS of inputs that should inform your overall product strategy. The key is knowing which to focus on at every stage.

These are the main two

  1. Sales Data per SKU (brand, category, subcategory, product features)
  2. Shopper Behavior & Feedback

What are the quick return on investment gains in product analytics?

  1. Inspire new product ideas
  2. Prove the viability for new products
  3. Streamlining of assortments
  4. New customer shopping insights
  5. Increase shopper engagement
  6. Reduce friction at upsell and cross-sells
  7. Increase average order value
  8. Reduced time between visits
  9. Quick cash conversion cycles
  10. Healthier overall business

What metrics are important to track for Product Analytics?

TDLR: It depends on what you are optimising.

This actually links quite well to another post on how do you determine if a product is successful and how it fits in with the other functions in the company

Lets’ move onto product analytics and some of the associated metrics.

The Most Important Metric

Without a shadow of a doubt, if we are putting our product hats on, the metric that we are all trying to drive up is the Sales per SKU.

It represents the market demand for the product and how much you stand to gain if you are able to continuously fulfill that demand.

However...

As you might have already guessed, that probably isn’t enough to inform your whole product strategy.

What are the inputs to your product strategy?

Here is a quick pro tip:

These inputs into your product strategy change over time so learn to be flexible

What are you optimising right now?

If you are optimising Sales…

Level 1

When you are just starting out, you will only track two basic metrics every month and that will be alright as a starting ground. They are…

  1. Sale Revenue
  2. Quantity Sold

Once you have these numbers, it is not enough to sit on your laurels.

Start slicing and dicing your data with Excel or whatever analytics tool you have at your disposal to understand your metrics.

  • What was driving the sales?
  • What products did well?
  • What product attributes were consistent throughout the top sellers?
  • How did the poor performers do?

Level 2

With that data in hand, it’s time to move to level two and look at another two metrics

  1. Average Order Value
  2. Average Basket Size

Now that you have more data to work with, start figuring out a proper assortment strategy.

  • What products tend to be bought together > 20% of the time?
  • What products seem to be substitutes to one another?
  • Which substitutes seem to be cannibalising margins?

Level 3

After a couple quarters have passed (depending on your assortment mix), you should have a rough idea as to how long it will take for you to…

“Turn cash into product and product back to cash.”

This metric is the Cash Conversion Cycle and it is one of the core metrics that you will need to get a hold off.

This metric will basically determine how fast your company grows.

If you are optimising Cost...

Cost of Goods Sold

Loosely defined, this is the incremental amount of money required to provide one more product/ service.

Measuring and reducing this directly influences how much money if left in the bank at the end of the month that can be reinvested into growing the business.

Some examples;

  • Reducing probability of spoilage/ expiry of goods
  • Reducing man-hours to provide goods by switching to automation
  • Sourcing from most cost effective sources without a compromise on quality

Although these initiatives sound difficult, this problem only compounds in the future.

(Image about optimising brand/ reputation)

If you are optimising Brand/ Reputation…

Regardless of your product strategy, your brand/ reputation will eventually matter. It is just a matter of when.

The metrics to optimise at this point include

  • Reviews and Ratings from Shoppers
  • Text Sentiment on Social Media Channels
  • Shopper Feedback
  • Number of Returns/ Exchanges/ Refund request
  • Net Promoter Score: How likely are they to refer a friend to your brand

If you’ve cut too many corners to get to where you are today, you will eventually pay it back here.

Shoppers will leave you for the closest clone that serves their purpose and they won’t return because they have no reason to trust you in the future.

(Image about optimising shopper love)

If you are optimising Shopper Lifetime Value…

It is 10x more expensive to acquire a new customer than to retain an existing one

Don’t let this slip up.

Start measuring

  • Net Promoter Score: How likely are they to refer a friend to your brand
  • Trend of the Average Order Value over time
  • Frequency of Returns
  • Cohort Analysis of different months
  • Number of Returns/ Exchanges/ Refund request
  • Average Rating for products and services

(Image about optimising marketing)

If you are optimising Marketing Cost…

Does the product fit the marketing channel?

Marketing channels are not created equal, just like products, they appeal to a certain behavioral characteristic that your products have to fit in.

If your product appeals to a more a visual audience: Pinterest or Instagram

If you want to compete on commodity prices: Amazon or Alibaba

If lots of people are searching for your products: Google or Bing

The metrics to optimise include:

  1. Conversion rates between actions
  2. Impressions across channels
  3. Cost per acquisition after an actual purchase has been made

Summary

Your biggest takeaway should be

  1. Decide on what is important to your product strategy
  2. Measure those inputs

Honorable Mentions

There are many possible inputs to measure that could inform the overall product strategy so here are some honorable mentions:

  • Pricing and Package
  • Promotional Strategy (Revenue Contribution and Marginal Lift)
  • Warehousing and Inventory Limitations
  • Social Media Inputs
  • Email Feedback
  • E-commerce On-page Performance (E.g. Add-to-cart rate)

How do I determine if my product is successful?

Product success is a tricky concept but for the purpose of this, we will use Marc Andreessen’s post on the elusive term “product-market fit”.

The customers are buying the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can.

That's a high bar and most businesses never hit that stride, but it is still a worthwhile thought exercise.

Let’s try to break that down into a few scenarios with examples from the consumer world:

Best Case Scenario

With no marketing dollars spent, my best customers are queuing up for my product even before I’ve launched (Think Apple or Razer Gaming) and once the doors open, the products fly off the shelves.


Good Case Scenario

With some marketing dollars to acquire my initial group of customers, the incremental cost of acquiring the next customer is decreasing steadily over time.

Marketing is still required you can stop all ads for 24 months and people will still recognise the product. (Think Nike and Coca Cola)

“Okay” Scenario

The cost of acquiring the next customer is holding steady across channels and whilst acquiring customers seems relatively easy, once the marketing stops, customers will likely stop returning.

This is usually happens in highly competitive markets where brands have spent very little to build loyalty with their fan base(e.g. Some Fashion brands).

Note: You should be very worried if you are below the “okay” scenario because your growth will eventually start rapidly declining the minute you decide to turn marketing off.

How do you measure success?

(Image about product sales revenue and shopper love)

If it wasn’t evident in the examples given above, there are two main inputs into how to measure a product’s success: Sales Revenue and Shopper Love.

Neither is sufficient without the other.

Sales without shopper love will eventually dry out and Shopper love that you cannot convert into sales isn’t a sustainable business.

So, then begs the question, how do you measure it?

Lots of posts from tech articles have already expounded on how to measure customer love. (Read Superhumans’ Product Market Fit Engine for a comprehensive deep dive)

For the purpose of this post, I will run through some things that are consistently overlooked in Sales Revenue.

Deep Dive into Sales

Sales revenues are notoriously deceptive because unless you break down the data, you might not actually know what’s going on.

Sales Volume: Raw sales numbers
How “real” are your sales numbers?  Were they due to seasonality?
Perhaps they were due to heavy discounts to get rid of older SKUs.
If left unclean, an increase in raw sales numbers can be very deceiving.

Sales Variety: Variety of products that were sold
If, at scale,  > 10% of your sales still comes from only one product, you have to recognise that early. What are shoppers really purchasing? How do all your products complement?

Sales Velocity: Sell-through rates of products
If it is taking you half the time to sell the same number of units as this time last quarter, you have a winning product on your hands. Else, you should have a strategy to slowly sunset these units.

Sales Veracity: Accuracy for numbers that actually help predict future success
Imagine if you ran a store selling Pokemon T-Shirts that sold out due to the Pokemon Go craze.
You can’t count on an event like that happening ever again.
What drove sales during that period is likely unrepeatable and should thus be entirely discounted when planning next year’s assortment mix.


How to use Product Analytics for E-Commerce?

Advantages

There are some inherent advantages for digitally native players due to the built in tracking technologies that allow merchants to combine customer data, transactional sales data and marketing data.

Unfortunately, not everyone is taking advantage of the advanced feature sets.

For many just starting out, Google Analytics can feel like a confusing mess of technical reports and information that’s difficult to navigate and understand.

Setting Up Google Analytics Enhanced Ecommerce

There are tons of guides out but it you are using one of the three major website builders, you should probably just stick to their guides:

Lets’ move onto strategy.

Using Enhanced E-commerce to inform Product Strategy

Shopify has done an amazing summary of the basic feature for Google Analytics so if you haven’t fully explored the tool, give this post a read.

We will be focuses on features within the more advanced set.


1. Using Internal Site Search to Optimize Product Names

This feature requires you to turn it on in the Admin > View Setting tab.


After that, navigate to Behaviour > Site Search > Overview after 24 hours and you should see something like this:

These are the words that your shoppers are using to describe your products.

Start optimising tags and product descriptions to ensure that they find what they are searching for.

The third column (% Search Exit) should stab you in the heart because those were shoppers that you spent so much on getting to your site but couldn’t satisfy them because they couldn’t find what they were looking for.

2. Monitoring Add-to-Cart and Purchase Rates and Evaluating Views

Navigate to Conversions > Ecommerce > Product Performance and you should see something like this:



Click into whichever product you want to evaluate to see something like this:

Adjust the graphs to monitor how many product views the product has gotten over time and whether the conversion rates have held steady.

If they are trending downwards, it might be best to push other products to the main landing pages.


How does Product Analytics work with other functions?

Definitions

Product analytics is a specialised application of business intelligence that consumes data relevant to the product (consumer feedback, supplier notes, sales data, etc.) to monitor consumption in order to identify opportunities for product innovation and inform future product strategy. (Shortened version from Gartner)

Why is it important to work with other functions?

At the heart of every great business, is great products; if you can’t get products right, nothing else matters.

Forming a product strategy in isolation isn’t going to be useful.

Imagine if the marketing team ran fictional campaigns for products that didn’t exist.

Product strategy has to exist alongside the other functions.

Here are some examples...

Store Planning (Physical Store)

Visual merchandising isn’t just about making the collaterals and layout attractive, in-store sensors and heatmap technologies have now allowed retailers and brands to understand which sections of the store customers tend to visit most often and overtime, optimise the path to purchase.

E-Commerce Store Planning

On the desktop, you might have enough room to squeeze in 12 products at once but with the advent of mobile, pixel planning has now become vital to driving sales.

Start using free tools like Google Analytics to understand which products have to highest add-to-cart rates and which products should be prioritised based on likelihood of upsell and the average margin.

Customer Support

If you are selling a complex product and there’s a chance shoppers need to call/ email in to ask a question, you should have a plan on how you are going to address that.

For example: The initial IKEA self-service set-up

If it is too complex, have an easy way for them to find answers online, email for help or phone a hotline.

Overtime, if some of the queries are repeated, tackle them at the product design stage. (I.E. make it SO easy that no one can screw up the set-up)

Online Marketing Campaigns

There are numerous factors that come into play when evaluating the success of an online marketing campaign.

  • Copywriting
  • Video/ Image Format
  • Time of post
  • Channel: Social or Search

Yet few recognise the importance of including product as one of the factors.

Every campaign you run is probably to drive sales for a particular SKU.

If you realise that marketing is driving lots of traffic to your site and sales of every other SKU is increasing but not the one you thought, it’s time to change your strategy.

Email Marketing

If in 2019, you are still sending all your shoppers the same email campaigns every week and the click-through rate is consistently good. You are amazing.

If not, you can fix it.

Start segmenting your shopper list based on the products they’ve already bought and only send email campaigns for product that they haven’t.

“Pro Tip: Use a basic basket analysis to figure out which products to include in your emails”

Cash Flow Planning

The only unforgivable sin in business is running out of cash- Peter Drucker

You have to know how long it will take you to turn cash into product and back to cash again.


That’s the only sensible way you can properly forecast future growth.


Measuring the average sales velocity at the products level is essential long-term sustainability.

Wrapping Up

At the heart of every great business, is great products; if you can’t get products right, nothing else matters.

Product touches every single function in the business and it is of the utmost importance that one starts measuring its impact before things get out of control.