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How Internal Data Can Cause External Damage

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The mantra, "check the statistics before you act" is repeated ad nauseam by SEM professionals, but what statistics are they talking about? They could mean Google Analytics, Google Keyword Tools, your company’s internal statistics, or secondary research.

Using just one statistic to make business decisions is like driving a car with only one eye open. Your entire perception of the situation will be skewed because you are only getting a portion of the available information.

In order to make prudent, data-driven decisions for your company, you will need to utilize both your own internal data as well as actionable, external statistics. When a company only uses a single stream of data to make decisions they can lose millions in unrealized revenue and allow other companies to profit from their mistakes.

Dead Loop Analysis

Here’s an example of precisely what I am talking about. Recently, Best Buy experienced a serious issue with the method they chose to analyze their product performance because it was based solely on internal data.

Basically, with millions upon millions of SKUs to analyze, Best Buy adopted a policy of locating the SKUs of the products that were the most successful and allocated more money to ensure that their landing pages were clear, concise, and correct. Also, more money was expended on advertising these higher performing items, while the products that didn’t perform well became orphaned children relegated to languish in desolate solitude.

OK, that was bit much, but you get the idea. Best Buy became their own worst enemy by only checking their internal stats for product performance and ignoring the widely available external data.

Best Buy’s method of analysis created a dead loop. When Best Buy would check their stats for sales of their online products, they would ignore the poorly performing items and pay more attention to the ones with higher sales volume.

By neglecting the poorly performing items, those products performed even worse. So, when Best Buy checked the stats again…You guessed it! They ignored the lower performing products and spent more time and money on products with higher performing SKUs.

Think of Best Buy like a family that has twin boys. Randomly, one of the boys starts to misbehave, while the other is well behaved and obedient. The parents lavish attention on the good son and give less attention on the bad one. The bad son resents his parents for giving his brother more attention, so his behavior becomes even worse. The good son receives even more attention and thrives because of it. The cycle continues over and over until the good son goes on to become a wildly successful entrepreneur and the bad one spends his days begging for change and drinking cheap wine.

This closed loop method of analysis led to laptop batteries being one of the lower performing products in Best Buy’s inventory.

What's Wrong With This Picture?

Look at this ad for a laptop battery that Best Buy offered through its online site. Look closely at the details, and put yourself in the shoes of the consumer trying to research a replacement laptop battery.

best-buy-laptop-battery

What's wrong:

  • The product picture is far too small and out of proportion, making visual identification of the battery virtually impossible.
  • The SKU and the item number listed are Best Buy’s own internal numbers and not the numbers listed on the consumer’s battery.
  • Where is the compatibility information? All it says is that the battery is for “Select Dell laptops.” Without any means to successfully match the product listing to their own laptop battery, the chances that the potential buyer will purchase this product are slim to none.

Those mislabeled and poorly managed listings on their site led to extremely poor conversion rates, so Best Buy looked to other large online retailers to see how they were merchandising their batteries. Here is an example of another major retailer’s page for laptop batteries.

dell-laptop-battery

This page exhibits some of the same troubles as the Best Buy’s listings, but this one is even worse. The listing contains this site’s proprietary part numbers and not the model numbers used by the manufacturer. There is no compatibility information given, and to top it off, there isn’t even a picture of the product.

The Blind Leading the Blind

Sometimes using data about your competitors is helpful, but it has to be the right data. From this product landing page, Best Buy would surmise that their laptop product pages are just fine. 

Let’s look at another source of external data. Take a look at the results screen when a consumer searches for their laptop battery through Google.

google-battery-for-dell-latitude-results

Do you see Best Buy’s ad? Do they rank organically for the item they stock? I’ll save you the time. Best Buy presence is nowhere to be found among a sea of niche providers and major retailers like Staples, Amazon, and Duracell.

What's the State of the Market For Selling Laptop Batteries?

Perhaps the amount of revenue Best Buy is missing out on is negligible. Let’s look at the numbers to find out.

This chart shows the overall money expended on PPC campaigns by all of the small battery retailers in the market.

money-spent-on-ppc-by-small-battery-retailers

We can see that there is a lot of money being spent on laptop battery PPC campaigns, so there is obviously a healthy market for this product. From January of 2009 to November of 2011, these companies spent between 35 million to 68 million per month advertising batteries online. Take a look at the graph below to see how much money Best Buy is handing over to their competitors.

best-buy-competition-lost-revenue

Here, we can see that Best Buy’s laptop battery revenue is a little more than $1 million. In comparison, a standalone battery store is making more than $24 million, and a single eBayer from New Jersey is making more than $17 million.

These are far from negligible numbers.

How Else Might Best Buy Have Caught This $41 Million Oversight?

Sometimes internal data can be helpful, but only if the separate departments within a company communicate. This pie chart shows the distribution of Best Buy’s revenues from the sales of batteries by department.

best-buy-revenues-by-department-laptop-batteries

Best Buy’s offline retail sale of batteries is only about $100,000 and their online retail garners about $1 million. The largest section of the chart is occupied by repair and warranty revenue. So, the majority of their battery revenue is generated by Best Buy’s Geek Squad service, who replace batteries for the consumers who cannot navigate the poorly written online battery descriptions.

These numbers are from Best Buy’s own internal data, so it appears that one department doesn’t communicate with the other. If they did, they might realize that the Geek Squad is producing 10x more revenue in batteries than their stores are.

Stop Throwing Good Money After Bad

So, how could Best Buy stop this vicious cycle? Simple. They could:

  1. Rethink their dead loop method of analysis and use more than just their internal stats to inform their online merchandising decisions.
  2. Compare their internal data with the right external data.

Best Buy could use inexpensive research software to research the keywords that they have in common with their competitors, the ads that their competitors are running, and the landing pages those ads lead to. Bingo. No more dead loop.

Analyzing what is working for their competitors will lead them to what is broken in their own operations. With this kind of actionable and relevant external data, Best Buy can identify sources of unrealized revenue. (And laptop batteries may turn out to be just the tip of the iceberg.)

Key Marketing Takeaway

So you might be saying, "I’m not Best Buy and I don’t care that they’re losing millions." Well, think back to that eBayer who was cashing in on over $17 million a year in laptop battery sales.

How did a single person make more money than a major retailer? By finding a niche market the big guys were overlooking. The idea here is that one company’s neglected product line could be a smaller company’s opportunity to specialize and thrive.

The eBayer was savvy enough to utilize external research tools that yielded actionable, relevant data in order to find the landing pages for all the ads that their competitors were placing. When they analyzed the big box stores’ product pages, they could easily see the problem of the poorly and mislabeled batteries. They then used eBay to list the same products properly and won all the conversions the big box stores lost.

Summary

Relying on data acquired from a single source can be extremely risky. It can cost a company millions, and their competitive edge.

By using both internal data and the right external intelligence you can monetize unrealized revenue and identify areas where your competitors are falling short, so you can capitalize on their mistakes.

Looking outside of your own statistics and using external tools can yield your company practical and, more importantly, applicable data that can help your company make better decisions. All for less than the cost of a nice pair of headphones.


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