Picture this: you get into your car in the morning and notice your gas tank is almost on empty. You pull into the closest gas station and fill up your car for $2.73 a gallon. The problem is solved – until you drive a mile further and realize another gas station’s price is $2.22 a gallon. You’re mad that you could have saved a few bucks if only you’d known that a better deal was within your reach.
This is a highly simplified version of what data-driven decision making can do and why it’s important.
The decisions you make in your business are probably more important, with more money at stake and more details involved. Still, it’s not hard to see that making decisions based on facts and information can deliver better results than going with your gut.
What Exactly is Data-Driven Decision Making?
Data-driven decision making, or DDDM for short, is the process of using relevant data to inform your decisions. Before settling on a course of action, you refer back to the data to validate your choice before moving forward.
In the example above, DDDM could have consisted of comparing gas prices in your area and narrowing your search to gas stations along your route. If you wanted to get super technical, you could look at the ease of entry and exit of each station, the level of crowdedness, and whether there were any incentives for choosing a particular gas station, such credit card fuel perks.
In business, DDDM can take many forms:
- Conduct surveys to discover products or services your customers might like
- Offer free samples to get feedback on how users enjoyed a product
- Develop and launch a new product and test it in a small market before going mainstream
- Look at sales history to determine the popularity of a product or service
- Look at past ad campaigns to determine best results
- Check conversion ratios to see what may need optimized
- And much, much more…
You can probably find examples to add to this list, but it should give you an idea of how prevalent data-driven decision making and data-driven marketing is in business. Without data, you’re relying on feelings versus facts. But with data, you’re pushing perceptions aside and focusing on information that can help you make informed decisions that have a better chance of giving you the results you expect which is exactly how we run all of our ad campaigns for our clients.
Of course, this is only if you have data that is accurate and relevant to the objectives you’re trying to achieve.
Why DDDM is Important for Growth
Amazon is a prime example (pun intended) of what it means to make data-driven decisions in marketing. When you go to Amazon’s website, you’re presented with a number of product recommendations based on your unique browsing history. Amazon didn’t select these products at random but rather used the data it collected during your sessions to present you with products that are relevant to other products you viewed.
Now, consider for a moment how successful and profitable Amazon would be if it traded these product recommendations for ones that had absolutely nothing to do with your preferences. Do you think they would lose revenue? We can assume so, but only data can tell us for sure.
Data is critical for growth in any organization, especially in the age of digital technology and instant gratification. Because we’re in a state of constant evolution, demographics, trends, and other important factors can change unexpectedly. Data helps us avoid figuring out these shifts the hard way and instead gives us insight into a changing landscape so we can respond accordingly.
And thanks to the digital revolution, companies now have more data at their disposal than ever before. In fact, the amount of data we create on a daily basis is mind-numbing: more than 2.5 quintillion bytes, to be exact. And just in the last two years alone, we’ve created more than 90% of the world’s data.
Every company has data they can tap into, whether it’s their own assets or data collected by other companies. And by all means, you should leverage the information you have available to drive important business decisions.
Benefits of Making Data-Driven Decisions in Your Business
When you shift your decision-making model from instinct-driven to data-driven, two major benefits appear:
You Can Respond with Confidence
Once you start practicing data-driven decision making, you’ll become more comfortable with analyzing data and making decisions based on your findings. Whether you’re trying to launch a new product, tap into a new market, or figure out which trade shows to attend, using data and all of your most important decisions will start to become second nature.
When used in decision-making, data plays two key roles: providing a benchmark for the current situation and offering insight into a situation’s progress.
Looking at both of these roles, you can understand how data impacted your decision. This can help you gain buy-in from other decision-makers who may fear that a wrong decision has been made. All they need to do is follow the data trail to see how a decision was made.
You Become More Proactive
Data is often seen as a reactive tool. That is, you look at data of what’s already happened and use it to plan for the future. But data can also help you be proactive, particularly by identifying business opportunities before your competitors do.
Depending on the type and quantity of data at your disposal, you can use it to identify potential patterns and trends and take action on important issues sooner.
The right knowledge can empower your business and decision-making process. When you can rely on data vs. your instinct, you have a better chance of avoiding biases, opinions, and guesses that can prevent you from growth.