What is a business experiment?
Technology helps businesses collect data about sales trends and customer habits to the point where the info becomes overwhelming. Analytics can still be beneficial, but many companies find it easier to run a business experiment instead.
Business experiments help companies find answers through data-generating actions. These actions can be as simple as mailing catalogs or pamphlets to target demographics and seeing what happens. Business experiments may also involve changing product pricing, store layouts or marketing campaigns.
Experiments can be intentional or accidental. A test and learn experimentation test works well for companies that prefer to learn through trial and error. A/B is a popular testing method where companies test drive two versions of the same thing, such as an app or website, against each other. This helps businesses understand what customers prefer so they can proceed accordingly.
The purpose of running business experiments
Many business professionals love compiling data, but what’s the point? Business owners don’t always know, and that’s where the problem lies. Monitoring your customers’ behavior around the clock isn’t helpful if you don’t know how to use the information.
Business experiments help prevent this problem by offering a targeted approach for data collection. Rather than collecting extensive data that may or may not be helpful, companies can search for specific answers and test simple theories. A well-run experiment can also help you establish clearly defined business metrics, which are quantifiable measurements for areas such as inventory, sales revenue, overhead or gross margins.
Depending on the tests you run, key benefits can include:
1) Increased sales
Business experiments can result in sales increases when the changes benefit customers. This may occur if you move items in a store, change product pricing, update your company’s website or tweak your company’s app for a more user-friendly experience.
2) Higher profits
Increased sales don’t always equal higher profits, especially if you have to hire more employees or pay higher utility bills as a result. However, your profits may increase if you run a business experiment where you change store hours or experiment with labor or inventory costs.
3) Decreased expenses
This benefit often goes hand-in-hand with higher profits. During your business experiment, you may discover multiple ways to cut costs without sacrificing quality. This may mean maintaining your store with cheaper cleaning supplies, buying fewer products on a certain day of the week or offering a seniors-only shopping hour where elderly adults can move freely through the aisles.
4) Improved customer satisfaction
You can’t keep customers happy if you don’t truly understand what they want, need or expect from your business. Business experiments provide essential information so you can tailor your company’s habits toward current and potential customers.
Through the experimentation process, you may learn that customers are more likely to visit your store if you use air fresheners in the bathroom, hire additional cashiers or create dedicated shopping hours for specific groups. Sensory-friendly shopping hours are one example of this. Some companies have implemented special times, such as a 2-hour period once a week, where lights are dimmed and music is muted. This helps shoppers with sensory issues such as autism or ADHD shop without becoming overstimulated, which benefits your customers as well as your business.
Steps for running a business experiment
There’s no foolproof way to run a business experiment, so be kind to yourself if issues arise. However, you can improve your chances of success by trying these steps:
1) Keep it simple
Don’t overthink your business experiment, and consider sticking with one or two experiments at a time. If you run too many experiments at once, you may find it difficult to pinpoint which changes produced the intended results.
Choose something you can easily implement and track, not an experiment that takes years to launch or requires a hefty investment. If your experiment is successful, you can expand your testing at a later date.
Perhaps you want to see how store layout influences customer sales. Instead of rearranging every aisle from top to bottom, start small. This may mean moving a product display from the frozen foods aisle to the self-checkout area to see if it boosts sales or changing the clothes on your mannequins to reflect current sales.
2) Consider consumer reactions
Many customers hate changes, especially if your company has been doing things the same way for a long time. Expect some pushback during your experiment, and plan your responses in advance.
In fact, it may help to notify customers about changes before they occur or place signs throughout your store if you move products. If you move all of the bread from aisle 39 to aisle 57 because you think it will boost sales, consider a stand that says, “Looking for bread? We’ve moved your favorite baked goods to aisle 57.” This sign uses a friendly tone, and it also provides helpful information. Without this sign, customers may become angry and leave without buying bread.
Some companies also notify customers about price increases ahead of time. A utility provider may send a notice that says, “Effective January 1st, we are raising our rates by 1.5% to better serve our community.” This notice should go out at least 30 to 60 days in advance so customers can budget accordingly. Notifying customers in advance shows that you respect them and understand the challenges they may face after an expense increases.
3) Collect and track results
A business experiment isn’t helpful if you don’t collect results. Without data, you have no way of knowing whether your experiment was successful.
Before you launch a business experiment, ask yourself the following questions:
- How often will I collect data?
- What methods will I use to compile information?
- What will I do with the information I gather?
- How will I know if my experiment was successful?
- What will I do if I run into an issue during data collection, such as an office fire or a system crash that damages files?
- What date will I begin collecting data, and what date will I stop?
Discuss these questions with your team if you are unsure how to proceed. You can work together to create a plan that works well for your business.
4) Use a scientific approach
Think back to your 9th grade science class when you develop a business experiment for your company. Your experiment needs a testable hypothesis, not just a random idea and good intentions.
A hypothesis is basically a statement that explains why you believe something happens or what you think might happen as the result of another action.
If our company sends 12 catalogs instead of 10 per year, sales will increase.
If we place gourmet chocolates at eye level instead of on the top shelf, more customers will buy them.
If our business opens the store one hour later every Sunday, we can decrease labor costs without reducing product sales.
If we increase prices by 5%, our company can increase profits without losing customers.
These are all theories you can test via business experiments. They work because they have ideas business owners can easily implement and track. For example, if you rearrange the gourmet chocolates in your candy aisle and sales increase by 27% that month, you know that product placement can impact your customers’ buying decisions.
5) Make sure your tests are ethical
Ethics are important in the business world, but it’s easy to violate your company’s code of ethics as you experiment. Keep this in mind as you create a business experiment that involves price changes or marketing techniques.
Let’s say you work at a family-owned retailer and want to increase sales. You currently charge $20 for hand-painted wall decor, but you’re wondering if customers would be willing to pay $25 for each piece. It’s okay to temporary raise prices and test this theory, but it becomes unethical if you only charge certain customers the new price. For example, you should not charge male customers $25 and females $20, nor should you charge higher fees for customers who are unpleasant or high-maintenance.
Collecting extensive analytics can benefit your company, but it can also be tedious or overwhelming. Instead of flipping through lengthy PDF files or piles of paperwork, search for answers via a business experiment. Executing a business experiment helps you narrow your focus and get quick, easy-to-understand results, whether you run a small cafe or a popular boutique.