Driver Analysis: It's not about "What", but "Why"

With a large amount of completion in every industry, there is hardly anyone who does not keep a close watch on the basic financial parameters of a business. Some of the key parameters that every business measures include volume, revenue, profitability, investments, return on investment, volume growth, revenue growth, conversion rates or trial rations, retention and more. This aspect of the task takes care of the measuring and monitoring of the business parameters. Tracking these parameters over time gives the managers an idea of the progress of the business.

However, despite this level of analysis there is an element that is missing. While these reports help in understand the state of the business as it is, they do not provide any insight into what steps should be taken if the sales are low. Neither can these tell you the specific parameters to be changed so as to ensure better acceptance of the product or service in the marketplace. This aspect of managing these parameters can only be achieved if you know the factors that affect these parameters. Basically, you need to know the key factors that drive purchase to be able to ensure higher sales for your product.

What is Driver Analysis?
Key driver analysis is a statistical tool that uses multiple regression to identify the specific parameters of a product or a service that drive a particular action. Some of the questions that driver analysis answers are:
  • What aspects of my restaurant business results in higher customer retention?
  • What are the specific product features that lead to purchase?
  • What are the specific areas that I can choose to ignore without losing out on my current clientele?
  • Is recommendation for my brand occurring due to the product performance or service satisfaction?
The interesting aspect of key driver analysis is that you could use it to understand any of the variables that you need to understand. This means that you could understand what drives loyalty, purchase, repeat purchase, satisfaction or recommendation.

It is important to understand that direct questioning does not provide accurate results all the time. While some respondents are likely to give politically right responses, there are other issues too. Direct responses result in hygiene factors being confused as drivers. This is mainly because these are factors that are never really stating as 'not important'.

How does Driver Analysis work?
Driver analysis should be used with care since inadequate understanding of the manner in which the statistical tool should be used can result in wrong deductions. It is extremely important to ensure that all the relevant parameters for the product or service are covered in the overall data collection. In addition to that the wording of the parameters is also important.

Driver analysis includes a dependent variable and various independent variables. The dependent variable is the aspect that you need to understand better. So when you want to check out the factors that drive purchase, the response to purchase become the dependent variable. Other variables that you have captured data on like performance on specific attributes can be considered to be independent variables. It is assumed here that these independent variables shall in some way drive the dependent variable. The whole idea is to understand the manner in which these factors drive purchase and the extent to which they do.

The key output of a driver analysis that uses regression models is a score out of a total of 100 indicating relative importance of each of the independent variables that have been tested. A table of importance that immediately allows you to understand the features and parameters that are truly important helps you in deciding where to focus your monies.

Benefits of Driver Analysis
The main benefit that key driver analysis lends for your business is an understanding of the factors that you need to tweak to make things turn. For example, an understanding of the features of a product that drive purchase can help you devise a communication strategy around the feature ensuring better sales. If you are concerned about customer retention for your business, driver analysis to understand the factors that drive retention can help you better service levels.

It is practically impossible to allocate funds towards improving all areas of product features or service in a business. Careful prioritization is essential. Driver analysis helps you prioritize the aspects that you need to concentrate on for short term and long term success.


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