The price of light is less than the cost of darkness

This article, written by Neil Mason, was originally published on Clickz.com on 13/08/10 and is republished here with permission.

I don’t know whether the number is right or not but a while back I heard that sophisticated marketing companies such as the world’s leading brands spent about 10% of their marketing budget on research and measurement. Irrespective whether the number is accurate or not, it’s a good benchmark I think – 10% feels about right. These leading companies have been marketing brands for over a 100 years and so over that time they have come to understand the importance and relevance to their business in investing in understanding the effectiveness of their activities.

I wonder what the equivalent proportion is for leading online businesses? How much do online businesses invest in measuring and tracking the effectiveness of their online activities? I don’t know the answer to that question but my suspicion is that the answer is generally “too little, too late”. We all know of companies that have a reputation for using analytics as part of their strategic armoury and have invested heavily in analytical technologies and also have built up formidable analytic teams. These are the companies that people travel to see and hear from at events like Emetrics and Exchange. However these companies are the exception rather than the norm.

What I write in these articles is often triggered by recent events in my consulting activities with clients. Customers and potential customers are a rich source of content! I went to visit one company last week where they had recently appointed a user experience manager and given him responsibility for web analytics and site optimisation. The client had been busy over the past six months implementing a solid and robust web measurement tracking programme. This had involved completely re-implementing their web analytics tool, hiring in a web analyst, revisiting all the business requirements and producing new reports and dashboards. He had also hired someone to specifically focus on site optimisation and to run their testing and experimentation programme. They had been busy laying the foundations and investments had been made in people, processes and technology. I could see how quickly they would begin to reap the rewards.

At the other end of scale I’ve also been working with a client who is developing a brand new site. New sites don’t come cheaply but all the way through the senior stakeholders in the business have been reluctant to invest in the appropriate measurement and analytics. The new site is close to launch and we’re now trying to shoe horn in the analytics requirements into the tail end of the development process. They use one of the free tools which can cope with most of their needs but not all of them and despite the significant investment in the new site itself, getting a relatively modest budget released to develop the data collection specification and the reporting configuration has been difficult. For me these two experiences highlight the difference between companies that “get it” and those that don’t.

For those companies that struggle to recognise the value of investing in decent measurement and analytics, I’m reminded of one of my favourite quote from A C Nielsen. Arthur Nielsen used to say that “The price of light is less than the cost of darkness”. The point is elegantly made – it’s not a question of whether you can afford to invest in measurement, it’s a question of whether you can afford not to. For me the point of measurement and analytics is to increase the effectiveness and efficiency of decision making and to reduce the risk of failure. It also leads to better accountability, which is possibly why sometimes it’s not welcomed with open arms!

Determining or justifying the return on investment in analytics can be hard. In some cases, like multi-variate testing, the ROI can be very explicit and indeed that’s how the technologies are often sold. However, working out the ROI on an analytics team and general analytics technologies can be harder, particularly in non-transactional environments. But there is always “a cost of darkness” and the trick is to try and work out what that cost might be. For transactional environments it might be not knowing how to improve the conversion ratio, for media environments it might be around not understanding how to monetise the traffic more effectively and for service environments it might be about not understanding which content is helping to deflect calls from the contact centre.

Although hard to prove I believe that even small investments in measurement and analytics can return a significant ROI particularly in the early days of adoption. Perhaps “The price of light is less than the cost of darkness” should be in the footer for every business case for investment funds for measurement and analytics.