Web Analytics: How deep should you dig?

Nothing is more important than knowledge in professional life. Contextual knowledge, knowledge of usable networks, sources and future developments. Nothing should be more important in a company (apart of course from the people who work with the data) than data. Only reliable data sources can provide managers with information on historical successes and current and future target achievements. Only data provides a usable, combinable and valid source of assessable decisions.

Web Analytics is an integral part of this vital data flow for entrepreneurs, managers and experts. Web Analytics may act as primary and/or complementary source of knowledge and is therefore indispensable, especially in the future.

Analytical Benefit

How much benefit can be derived from web analysis that provides optimization options based on metrics and analytics reporting? The general answer is certainly “a lot!”, although subjectivity will always augment final decision making.

However, in this process of analysis remember to apply the law of Gossen. We all know Gossen’s law of diminishing marginal utility – even in terms of web analytics and conversion optimization Gossen’s Law comes into play.

A redesign of email format might lead to increased newsletter registrations. Avoiding getting lost in the minutest detail, probably also helps the conversion. Even a minimal chance of synergy between two campaigns may have a positive effect on sales.

But at what price?

At what cost?

Gossen´s law

There is the law of diminishing marginal utility of the economy (or First Gossen’s law), which is based on the assumption that the magnitude of a given pleasure decreases continuously as we continue to satisfy it until, at last, saturation occurs. Applying this in a digital context, it can be represented, albeit simply, here in this chart:

Gossen Law in Digital Analytics

The more investment a web analyst makes in a project or a general optimization, the smaller the benefit over time. A quick optimization change is often the beginning of a project; leading to more continuous improvement or conversion increases which are only achievable with significantly higher costs. This law of diminishing marginal utility is universal enough to be frequently observed in practice with users!

In order to make the available (though often necessary) small steps, requires a maximum effort of the staff. But – and here is the crux of this model – in most cases it is necessary to accurately perform these minor improvements, or to gain a competitive edge through detailed work, in order to become a successful online store rather than a less successful one. Human effort is required to succeed in taking a confusing, not goal-orientated, search and redesigning it to create a perfectly designed internal search tool – so that you might achieve that essential digital competitive advantage.

The real challenge is that we have long since arrived, in many areas of the knowledge economy, at the point of the minimum marginal utility, so that the difference is small, but crucial. Relevant optimization and targeted increased conversion that can identify a market difference – can only be achieved with great effort. This effort must always be set against the potential benefits. Economic models that are applicable across a range of sectors and which have stood the test of time are becoming increasingly popular. Be it the phenomenon of over-optimization or the Six Sigma DMAIC cycle (Define, Measure, Act, Invest, Control). 

Nowadays a lot of companies still struggle with the benefits of using Web Analytics software. This will change and more and more departments will see the value of data-driven decisions. So, do not only feed your software with data – feed your brain with knowledge and experience. As soon as you come to a border and remind yourself on Gossen´s law; you need to decide if it is worth investing the additional efforts to get close to perfection or if you should concentrate on parallel projects within Digital Business. 

Comments

  1. says

    Nice article Ralf! I would like to add two more things:

    – In addition to this statement “Even a minimal chance of synergy between two campaigns may have a positive effect on sales.” When talking about synergies, I have seen quite often that optimizing for a new project outcome (let’s call it project B) positively influences you ealier optimization project (project A) as well. And thereby the overall outcome. This might influence your decision to move on to a new optimization project or not. On the other hand a new project might have a negative impact on the overall impact as well. It’s important to take this in mind as well.

    – When deciding where and what to optimize, I tend to look at three different things: the amount of resources that are needed, the expected level of impact and the amount of time it will take. I normally use a 5 point scale for each item to compare different projects.

    Thanks, Paul

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