Analytics: Frequency Distribution & Bell Curves

8 11 2010

A statistical method we often overlook is the distribution curve.  I think most of the time it is dismissed because people get nervous about using statistics if they are uncomfortable with math.  While there are some advanced concepts around using a frequency curve, it can also be used visually as a simple tool to explain results.

A simple stats lesson….

Normal Bell Curve – roughly 68% of the population is within 1 standard deviation (measure of variation) of the average and 95% is within two standard deviations. Below is an example of IQ scores.  The average score is 100 and 68% of the data is between 85 & 115.

While this visualization doesn’t do a tremendous amount for us, this is what we assume when we think of populations, like customers and employees.  And because of our limited statistical training we make a large number of assumptions based on averages.  We love to look at average revenue: average revenue per employee, average revenue per customer, etc.  This thinking also gets us looking into the outliers (that <5% that sits way out to the left or right of the chart).  How much time do you spend on less than 5% of the business?

OK, so back to thinking of this in terms of running a business….

Let’s map out our revenue per customer.  I would be willing to bet it looks something like the following:

If this is the customer revenue distribution, if we use the average number in our analyzes we can quickly generate a number of wrong assumptions.  First and foremost, our typical customer is larger than reality.  It might lead us to think we are serving mid-sized businesses than more likely smaller market customers.  I am also willing to bet our profitability per customer has a similar curve to it.  In this case we are likely spending money on the wrong customers and aligning our better services to a lower profit generating customer (or more likely a profit destroying customer).

Do we need to use it in everything? Of course not, but it might help everyone once in a while to challenge our overuse of the mathematical average to reassess perspectives of our business.  A great place to start is map out the customer base in terms of revenue (profitability is better, but takes a lot longer to do).  It might just lead you to understand your customer (think customer segmentation) better.

Real life example…I was once part of a research project to understand discounting to one side of the outliers (<1% of the business).  The outcome was to focus on reducing discounting to that <1% of the business.  What I argued was to focus on the larger part of the business, where the same efforts would have resulted in millions more in terms of profits.  It was a clear lesson is where to apply process improvement.





Lessons from the Vegas ecosystem

1 11 2010

There is nothing like Las Vegas. Suits and sweats sitting beside each other sharing risk. Long confusing mazes of machines that clank and spin and take more than they give.

We can point to a number of great brands in this age, yet in many ways Vegas might be the strongest brand of all. Its current tagline “what happens in Vegas stays in Vegas” may also be one of greatest slogans.  It is the perfect pitch that both captures the spirit of the place as well as tap our primal instincts.

Perhaps we can’t create the same type of offering as Vegas, and it may not be our cup of tea, but we should admire it and learn from it for what it has created. What was once a desert, an airport, and a couple casinos is now one of the most interesting consumer ecosystems. Now there are limitless entertainment options at all price points for all audiences.

Above all things, Vegas is all about innovation. They are focused on the customer with unrivaled focus. They test, they listen, and they learn. Vegas is a 24×7 incredibly well lit human lab.

What can we learn:

  • Test, move, learn. Most companies are stuck in ruts.  They do the same things over and over again.  New ideas are forced into ill fitting old marketing programs.  Customers are hit with the same message in various mediums. We fail to hypothesize and test any more.
  • Create and/or leverage communities. Vegas is all about mustering resources around the customer.  Bring more and unique services to your customers so they never have to leave.
  • Fill in gaps. Vegas is always looking at ways to fill in the seams around the business.  How often do you look for ways to not only increase the product offering, but look to enhance the ecosystem around you?  How well do you use the partners whose products depend upon you?
  • Be unique. Where else can you find a castle, a pyramid, a two story lion, and a replica of New York city all on the same street corner.   What is interesting here is that this is where I think the casinos are starting to fail a bit.  Clearly, Vegas is unique but I think the experience is starting to become too similar.  Every casino has a hip dance club, a comedy routine, high end shopping, and now there own Cirque-du-Soleil shows.  Needless to say, the unique stuff is what helps us differentiate ourselves from the pack.  Without it, we start to compete on who is cheaper.  That is a game only a few can win.




Breaking down Profitability

12 10 2010

One of my favorite bloggers / writers, Seth Godin, writes about “When the long tail is underwater” on his Oct 10th blog.  He actually touches on a couple of interesting points, how much time and energy is created that generates no value, and how do we filter out all of this information to understand what is relevant.

Take for example the Droid/iPhone app market…Apps are everywhere, and try to do everything.  Apple and Droid both claim wildly unusable numbers of apps.  With all of these potential apps, ask your friends what Apps that they can’t live without and people get strangely quiet.  I had a few people respond Urban Spoon and one guy mentioned Wolfram Alpha.

Seriously, hundreds of thousands of apps out there and we can’t create a list of “gotta have” apps? Yes, I know there are hundreds of those lists.  Read one of those lists and ask yourself which one will you be using a month from now.

Sorry back to the point…Compare this to your company’s information:

  • How much data do you have?
  • How many reports do you have?
  • How much of it is relevant?
  • How much old stuff is out there that no one has any idea of its worth?
  • How often do you clean up the environment?
  • How quick do people respond?

AND how often do you hear people say… I don’t have the data?  OR I am not sure where I can find the information I need?

 

 





Apple & AT&T – Picking the right partners!

19 07 2010

OK, so I upgraded to iPhone 4.  I had to do it…it was like an addiction.  For some reason, the iPhone has a tremendous amount of cache to it.  How do we create brands with this much power?  And how do we use this for our own advantage for the longest time?

From a Strategy standpoint, we can discuss and debate a great deal about their relationship with AT&T….

AT&T Exclusive….

From the very beginning the AT&T thing has been called out and questioned.  Apple has always been about propriety…and while somethings work it is clear that others do not.  I think in the Cell Phone market, this tactic is about to hurt them.  By creating the exclusive arrangement with AT&T Apple created motivated competition.  Verizon, whom most feel is the superior cellular network, was extremely motivated to come up with a competitive plan as was Google who was just entering the mobile market.  It created a substantially sized hole for Google Droid to take advantage of.

What Apple felt was a compelling advantage with the App Store, is now just a “me too”.  The Android market is coming on fast, and momentum (prior to the iPhone4) was clearly leaning to the Droid.  It is also being argued that the pressure from the Droid momentum had pushed Apple to rush the iPhone 4 to market, thus causing it to make some well known missteps and product issues.

By making a conscious choice to go with the weaker carrier, it created a vacuum….and in the business world vacuums don’t last long.  Verizon and Google have created a very viable competitive piece to the iPhone legacy.

Data Hog

With the iPhone 4 and its video functionality, it is going to need a much better network than AT&T can offer.

AT&T has already leveraged the iPhone platform to change its terms and conditions which the user community is less than thrilled with at this time.  The first change was the cloaked ‘Smart Phone Cancellation Policy.’  To cancel a smart phone account, the penalty fee has now doubled.

The second main item was dropping the unlimited data plan.  Users are now going to be hit with overage penalties, though AT%T claims the fees are not going to be excessive.  While AT&T is offering two levels of data plans, one which allows minimal usage (200 MB per month) for $15 and the other which offers 2GBs per month for $25.  The third option is for tethering but is still limited to 2GBs per month.

While I have been told the fees were primarily geared to get people to be smarter with when they were downloading, this is really a ploy to offload the supply and demand issues that AT&T is having with their cellular network.  This tells me that AT&T expects their dropped call issue to either continue or perhaps get worse.  When you combine this with the unprecedented demand for the data hungry iPhone 4s, I think AT&T is going to have some issues.

So how does AT&T deal with this mess, they are arguably a year behind in launching their 4G cellular network compared to Verizon.

I am sure in the end that Apple has to be less than thrilled that their cellular carrier is the weakest link in its product.  It was embarrassed during the iPhone 4 launch when the demo could not find a connection (arguably not an AT&T issue), when a member of the audience responded to Steve Job’s delay in what to do with “try Verizon”.

So in the end by choosing the weaker of the cellular carriers…

1.  They created a vaccum which Google Android has exploited extremely well.  Apple iPhone may struggle over the next few years as the Android market continues to expand.

2.  It created a faulty product due to poor service, and in some ways product and marketing snafus due to the increased competitive pressure around the iPhone 4 launch.

3.  Strangely they have become what they once fought against – they are the machine (see video below).

4.  If they Apple iPhone market is over taken by the Droid market in the next couple of years, it is perhaps fair to blame the relationship with AT&T.  If they would have worked with all markets the Droid market would have materialized much slower.

And for even more entertainment….





Clients are Impatient

3 01 2010
  • How much time do we spend making the customer experience simple?
  • Is the customer on-boarding process painful, or straight forward?
  • Do customers get lost in our beauracracy, our legal needs?
  • How many customers do we lose in those final steps?

We spend tremendous time developing technology – whether externally for paying customers, or internally for process improvement.  Yet, we often spend very little time planning for the adoption phase.

What do our customers want – stuff just to work the first time, to be easy to use and provide the value they paid for.   If we are spending millions, if not billions on product development, why do we not start with the end in mind (see Jonathan Becher’s – Manage by Walking Around blog)?  Especially in the age of the internet, people need to be able to sign up and get started without complexity, nor mind-numbing data entry.  There is a time and a place for each of those, and it is not necessarily right after “hello”.

One great shiny example is Apple.  Most of their products are far more simple to operate than their competitors.  Think of how easy to use each of their products are, then think about using them as part of a network of parts and it gets even more simple to use.





Telling a Story

28 12 2009

“What we’ve got here is a failure to communicate” Luke in Cool Hand Luke (played by Paul Newman)

A friend of mine sent this video along to a number of friends in the Business Intelligence space, saying we need to be better story tellers (Thanks Katie McCray).  We do spend an enormous amount of time talking about data structures, common data dictionaries, ease of use, speed, consistency, etc.  What we typically fail to do is tell our clients how to create information, to tell the story in a convincing enough manner to create attention, and more importantly, enable action.

As analysts we typically spend more time talking about data discovery, and the calculations we used than starting off by making our point.  We try to create 50 charts to explain everything, and not the one chart that most simply illustrates our point.  This not only wastes time, but we lose our audience.

Watch the next couple of presentations you sit through and watch the number of slides that build up to the point trying to be made.  What happens is that with each slide our listeners pay less and less attention as they have lost the point trying to be made.  As learners, we need the point to be made first.  We need to see how it all comes together, then have it explained how to get there.  It provides the context for the point to be made.  People now understand what to listen for and why they are listening.

On a slightly different note, last week I wrote about the housing market and the Dangers of Leading Indicators.  I had to update the post due to a new story with a different viewpoint that ran in the Globe on the 23rd.  Amazing how story tellers can tell such dramatically different things.





People will…

25 11 2009

People will do what they like, or what is easy if they do not understand priority or value.  The hard stuff is messy.  There is too much risk in the hard stuff…