The new digital reality serves us with an abundance of data. In an online world, data about consumer behavior is probably one of the most important assets to have. While it is true that online companies have all sorts of data at their disposal from multiple sources, not all companies are levering this data in the best way.
In the last few years, we have heard a lot about data-driven strategy. Companies who have started to utilize this approach have not only improved their performance but also managed to optimize their costs and become more efficient with their marketing activities.
However, while some companies have integrated data-driven strategy into their business models and are very much benefiting from it, for others this is just another buzzword. Now, if you are asking yourself why data-driven strategy is important I am going to outline few reasons, as well as offer some approaches which will hopefully help you understand the importance of this strategy.
Why is it important to utilize a data-driven strategy?
As you own an online store you are probably already aware that you can track and get insights into all kinds of data (e.g. basic data, behavioral data, engagement data, etc.) and as an owner of an online shop you are in all likelihood constantly aiming for higher sales, higher conversion rates, lower costs, etc. Well, the power of data can be a crucial factor exactly when we want to increase online sales and conversion rates, and lower costs. For that reason, it is important that your eCommerce sales are not just aware of the data that exists but also know the power of utilizing this data.
So, what exactly do I mean?
Let’s say you are trying to address a few challenges in your online store, such as:
- problems in selling
- sales forecasting
- profitable marketing activities
- top or underperforming products/categories
A data-driven strategy can help your business to make more well-informed decisions. In practice this means you will first look at data and analyze where the challenges are for your business (e.g., what is over performing, underperforming, etc.) and based on this you will make conclusions.
Once you have formalized your insights and conclusions based on the data, the next step is to define the strategy either for increasing the sales, increasing profitability of marketing activities, or whatever your goal is. So, basically with a data-driven approach instead of relying on guesswork you will utilize data to help make crucial business decisions.
Data-driven strategy decisions will, amongst other things, help your business to:
- maximize your ROI
- improve user experience
- forecast future sales
- identify and fix performance issues
- increase profitability
How do you incorporate a data-driven strategy into your business model?
As a first step I would recommend defining what the main KPIs are that you want to measure/monitor. These are usually highly dependent on your business goals. Once you have defined the KPIs you want to monitor, the next step is to define a dataset that will help you measure these KPIs.
In eCommerce there is all kinds of data to collect and it is easy to get overwhelmed by it. So, instead of overanalyzing make sure you acquire only the relevant data: the data that can help you achieve your business goals. For that reason, it is very important to clearly identify the metrics important to your own eCommerce shop.
For example, one of the sales data matrices I would usually monitor is revenue by products/category, or revenue by demographic, etc.
Once this is defined you need to start regularly monitoring and collecting data. The next step is to analyze this data and to provide insights into sales analytics. The latter is what can actually really empower your business.
How can sales analytics help your business?
With sales analytics you can get insights into the sales funnel, which will help you to uncover sales patterns and trends. When you have uncovered these trends you can utilize them to increase your customer satisfaction and revenue.
Furthermore, once sales analytics have given you insights into sales patterns and customer behavior, you can convert these into actionable strategies. These will help you not only to increase your revenue but also increase your understanding of customer behavior.
Let’s say you have data insights and analysis into your top selling products. With these insights you can build an up-sell and cross-sell strategy. In addition, with these same insights you can plan your inventory, as we all know the costs of either not having enough stock or the other way around.
In a nutshell, a data-driven strategy is important because it gives you an opportunity to have a process with fully informed decision making rather than guessing. Moreover, it enables you to get insights into performance and the main KPIs, which helps then to decide on further steps such as how to improve sales or whatever needs to be improved.
Utilizing data will help your business to increase its actionable insights and offers strategies which will ultimately lead to better business performance.