What is product analytics?
Product analytics tools help product teams, and especially product managers, to measure and assess the success of their teams’ digital products. With product analytics, teams can understand exactly how large user segments engage with a product. This information makes it easier for companies to scale while still empathizing with customers.
By providing crucial insights that help teams to optimize current digital channels, product analytics platforms help teams reduce churn rates, identify problems and their underlying causes, and quantify the impact of customer activity in terms of revenue and conversion rates. Thanks to advances in data science & analytics, these tools make it easier for teams to set business goals, such as setting Key Performance Indicators (KPIs), understanding target demographics, and more.
Qualitative data from support tickets, focus groups, and other qualitative measures sometimes isn’t enough to build products that scale. With product analytics tools, teams identify how specific features are being used, and which ones are being ignored entirely. Results are based on data, so teams do not need to rely on random guessing or on customer interviews.
Small companies and startups usually conduct simple user tests and develop a minimum viable product (MVP) to validate their idea for market fit. Mid-sized companies tend to use product analytics as they scale up. And large enterprises must be so well versed in product analytics data that they continue to evolve with the latest market trends and technology
Startup guru David McClure of 500 Startups created Pirate Metrics, a way of categorizing different performance metrics and KPIs, to help product teams succeed. They include the following:
- Acquisition helps teams understand where customers come from so they can find the best prospects, as well as optimize their digital channels.
- Activation occurs when your prospect finally converts to a paying customer.
- Retention is a measurement of whether customers are staying on your app/site or leaving.
- When it comes to spreading the word about products, referrals on social media, by word of mouth, and elsewhere are essential for tracking customer loyalty.
And finally, teams can use product analytics to evaluate how their current sales funnel is impacting revenue. This helps lower acquisition costs and boost the value of each customer.
What are some product analytics platforms?
Some popular platforms that include product analytics tools include:
How do you use product analytics?
While each team leverages product analytics differently, most teams take the following steps when using product analytics platforms?
- Automatically capture data to create sets
- Prove or disprove a hypothesis by setting up a specific event
- Perform cohort analysis to understand how different users behave at a specific time
- Ensure that data is safe, clean and organized by dividing sets into events, segments, reports, and staging environments
- Break down behaviors by demographics so that you can understand each user segment
- Integrate datasets, APIs, CRMs, email marketing, payment tools, account software, and other third-party tools to capture even more data
- Set up a data warehouse system so that you can keep track of your data.
- Make sure that your tools are secure and compliant, especially when handling sensitive information. Data should be protected by authentication, and all cloud databases should come with encryption tools.
Who uses product analytics tools?
Product managers use product analytics tools to run experiments & evaluate the results, as well as make data-driven design decisions that drive activation, conversions, and retention rates. Real-time product analytics makes it easier for product managers to identify problems before they impact a large user segment.
Growth managers, for instance, can use product analytics tools to get a 360-degree view of user engagement and create retention strategies that dovetail with crucial KPIs.
For marketers, product analytics tools are crucial for evaluating the success of marketing campaigns, emails, social posts, and other marketing forms. They make it easier to analyze conversion rates and rethink long-term retention strategies that boost relationships with clients and customers.
Product analytics tools benefit Dev teams by helping them to fix hard-to-find bugs, fine-tune features, and identify & address user friction.
Similarly, UX designers employ product analytics tools to learn how people navigate through the features, which makes it possible to identify clumsy designs, user pain points, and features that are lowering conversion rates.
What features do product analytics platforms have?
While product analytics platforms vary, they generally share the same core features:
- Tracking enables teams to follow user activity across your digital channels by capturing visits, events, and actions. This provides insights into the typical user journey and behavior flows through your websites and applications.
- Segmentation helps you understand who your users are, how they arrived at your digital products, and when their interactions occurred. Product managers can segment the most profitable users so they know how to invest their development efforts and marketing resources. Segmentation helps answer questions such as, “What actions do high paying customers take? How do the most engaged users behave?”
- Profiles let you develop categories based on demographics (such as age and geography) and other criteria.
- Notifications alert product teams when a notable event occurs, such as surges in conversion rates or an API failure.
- Dashboards and reports help teams to visualize data in useful ways, especially for non-technical audiences.
- Measurement tools assist teams with evaluating each feature’s user engagement.