Saturday, October 27, 2012

Death by Sneezes

I liked the example used in Six Sigma instructional material I edited: they showed how sneezes increased at the same time deaths were increasing in an anonymous community. The correlation between sneezes and deaths was quite strong. Obviously, there wasn't a cause-effect relationship. There may have been some other common factor causing both the sneezes and the deaths, however.

Likewise, there's been some news about aspartame causing blood-related cancers. Some studies have found a correlation between diet soda use and an increased risk of those cancers. However, additional questions have been raised. Why does the increased risk only affect men? Why does drinking naturally sweetened sodas show the same correlation?

The causal link seems weak. The correlation may be strong, but so what?

This happens a lot in business too. Often we don't have a thousand points of data to analyze. We have a few anecdotes that staff members share in relation to a problem. "My customer didn't order the new product because the price was too high." "Our competition's prices are lower." These two bits of information get correlated. But are high prices the cause of a lack of sales? Maybe, maybe not.

I've seen a lot of situations where higher prices were justified through better value in the manner of better features, service, quality, delivery, etc. The fact that some customers are still buying from you even though you're prices are high (or your delivery is slow or whatever challenge you think you're facing) could be an indication that there's another X factor of some sort. It might be interacting with the high prices in such a way that certain market segments won't give you orders. In some cases, it was the technical sophistication on the part of the customers: if they already understood the product, they were shopping for the lowest-priced supplier be it a different manufacturer or an online retailer. Without more information, you won't find it or the potential interaction.

Don't start panicking because you sneezed or stop drinking diet soda because of the sweetener...or drop your prices. Get more information.

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