Managing Business Analytics in Times of Uncertainty
By Greg Silverman, March 9, 2020
Almost every company hits a sales plateau at some point—even the most respected and buzzworthy businesses reach a tipping point during their journey. Sometimes they are slow gradual shifts due to poor decision-making. Other times it is due to a sudden market shift. The stock market drops dramatically. Supply chain is affected due to illness. Consumer fear or a PR crisis changes buying behavior. During times like these, it’s important to focus on the strategy that will get you out of that plateau. To do this, it’s important to identify the root of the problem, taking a closer look at the complex economic and behavioral influences at work. When you have a better understanding of what influences consumer decisions within a given market, organizations can better tailor their products and services to meet needs and win out over the competition.
Of course, a deep understanding of consumer behavior can be difficult to achieve. By nature, humans satisfice—picking alternative that are close enough. “Close enough” has to find its way through a number of factors that influence a given decision, especially as markets become more complex and competitive. For the most part, companies are successfully tracking observable influencers such as the impact of a change in pricing or an increase in website traffic driven by a targeted marketing campaign. But there are other variables at play—variables that aren’t as easy to measure, yet hold the key to truly understanding consumers and driving sales.
Look beyond observable influences.
There are variables hidden in plain sight that offer insights beyond our observable economic system, and they can be goldmines for navigating how today’s consumers analyze and consider purchases. In statistics, these are defined as latent variables: “variables that are not directly observed but are rather inferred from other variables that are observed.” So, what does that mean for business?
Latent variables are the “invisible” influences on observable decision drivers we encounter every day. With observable factors like the cost of goods, marketing metrics, and digital advertising touchpoints, we can clearly see how variables, either alone or together, result in a positive or negative result. Latent variables, on the other hand, fill gaps between the observables and provide a qualitative explanation of results. These include sentiment around a detail, message or decision, word of mouth and population swaying as well as other rules of behavioral economics.
They’re incredibly valuable and can’t be ignored but until recently, were difficult to analyze alongside other datapoints. Thanks to advances in machine learning and computing power, market simulation is now making it possible to account for latent variables. By translating these variables into datasets, and analyzing them with standard observable outcomes, business leads can better understand how and why their market is behaving the way it is.
Account for the complex nature of consumer behavior.
Consumers today have greater access to information than ever before. As such, consumers are more dynamic than they’ve ever been, and markets are becoming more complex to navigate. Today, people simply think smarter and harder about every purchase and with seemingly constant product updates, are less inclined to have the latest iteration.
It’s important to note that people rarely act alone. They live and operate in societies where friends, family, and acquaintances change the minds of others and influence actions. Very few decisions are immune from the forces of outside communication. This is exactly why latent variables are so important to account for when assessing a market.
Expect the unexpected.
Aside from the massive influence consumers have on each other and the vast number of latent variables that must be accounted for, it’s also important to account for the unexpected. Consumers don’t always behave rationally or in a way we might expect.
Human behavior is episodic and inconsistent. There are feelings, emotions, and hidden motivations behind decisions. Opinions and biases change and shift under different occasions and circumstances. When recreating or simulating your market, behavioral science is critical.
This intel helps companies eliminate unnecessary investments, and instead, focus on the features and innovations that consumers want and expect from new products. As companies look to avoid plateaus, there is an opportunity to connect with their consumers and apply that sentiment to plans moving forward. Across industries, there's a wealth of untapped information about consumer behavior that’s being left out. Collecting, understanding and properly analyzing these variables will help businesses more strategically plan and navigate the unknowns consumers present, in both times of struggle and success.
Uncertainty is part of everyday business decision-making. But when dealing with a significant emotional event – either a dramatic market shift or a significant decline in organizational performance, the pressure to be able to quickly make decisions is even greater. In order to do this effectively, a process is needed that allows you to quickly and easily run what-if scenarios to build confidence and create greater certainty around the best strategy moving forward.