“Inflection point” is a data analytical method that Business Intelligence people can use to find a point that can change the user behaviors and business performances. It usually applies to make decisions, design business and marketing strategies or plans in short and long-term.
Introduction
In mathematics, Inflection Point refers to a point in a graph showing the change of a curve from concave to convex. An inflection point occurs when the curve goes from concave downward to concave upward and vice versa.
In business, an Inflection Point refers to a point where a company, economy, industry or sector experiences a significant change resulting from certain events. The change can either be positive or negative depending on the underlying events. The vital points to know about an inflection point are;
- An inflection point is a point on a graph that shows the change of a curve from concavity to convexity.
- An inflection point also refers to the turning point in the progress of a company, industry, sector or economy in which a significant change occurs.
- The significant change could give positive or negative results depending on the situation.
The importance of “Inflection point” in business
Inflection Point is used as a charting model to show the direction or turning point of a curve in response to an event. Inflection Point is a part of decision-making progress.
Inflection Point is not a decision point itself, it helps decision-makers to have a look at the changes and predict the outcome afterwards.
To apply Inflection Point to data analytics, Business Intelligence Analyst must understand the business context of the questions or requests and identify the exact problems or root causes from the information gathered. Data is the starting point and BI needs skills to analyze the rise and fall of trends, recognizing inflection points versus outliers in the data.
Beside inflection points, information about the market, industry and competitors is parts of the decision-making process, making the decision-making process clear and balanced between internal and external factors.
To start making decisions with the “Inflection Point” method, you need to follow the steps below:
- Data preparation and analysis: based on the business context of questions, BI has to determine which data needs to be collected, select the methodology to process data, formulate, visualize, figure out the inflection points and demonstrate the rise and fall of trend around those inflection points.
- Support decision making: present and communicate “Inflection Point” analytics to Stakeholders, provide business scenarios when implementing Inflection Points so they are aware of the business impacts.
- Support execution: observe and take notes of the new trends or variables then adjust or build new models when implementing Inflection Points to evaluate business impact and results accurately.
Case study
It’s supposed that you’re a Business Intelligence Analyst for Company X.
Problem: Company X sells 3 products A, B, and C. The prices of the 3 products are $10, $15 and $20 respectively. The average D-30 retention rate is 15% (percentage of users who return and transact in 30 days from previous transactions). A C-level wants to increase the retention rate to 30%. The question is which product needs to be focused and promoted, what the Marketing and Sales department should do?
Approaching the problem through the S-T-A-R model
- Situation: Current the retention rate is 15%
- Task: Collect and analyze data to find “Inflection Points” to increase the retention rate by 30%.
- Action: Collect data related to the purchasing behavior of three products A, B, C. The data sources that can be collected are sales data, web surfing data, advertising interactions, price comparison with competitors in the market. After collecting the data, proceed to remove the outliers and analyze the data. Then, present the results of the analysis to the sales and marketing department to help them make decisions to adjust sales and marketing plans.
- Result: Measure the retention rate after implementing sales and marketing plans according to the inflection points to evaluate results.
The inflection point is the core of the Action part. BI has to figure out the inflection points in consumer behaviors to increase their retention rate. BI will determine the inflection point through comparing the purchasing behavior of different consumer groups.
- Step 1: Divide the current consumers into different groups according to the following criterias: monthly spending, the number of product types purchased (1, 2 or all 3 products), quantity purchased within 1 month…(RFM model)
- Step 2: Compare the retention rate between consumer groups
Example: The chart below showed the retention rate of consumer groups by product type. According to the chart, 28% is an inflection point when a customer consumes 2 or more products.
Then, divide customers into groups by how much they spend on products by month
The chart below shows the retention rate of consumer groups by spend per month. According to the chart, to achieve the desired 30% retention rate, company X needs to drive consumers to spend up to $50 per month. $50 can be considered the second inflection point.
After finding 2 inflection points: buy 2+ product types and spend more $50 per month, BI can move on to gathering more information to evaluate business scenarios when implementing inflection points.
- For consumers who only buy one product, where are the inflection points for them to consume a second and third product (upsell)? What is the inflection point in terms of price, promotion, convenience…?
- For consumers who often buy 2 products, do they prefer to buy in 1 order or split into 2 orders? Is it possible to sell 2 or 3 products into 1 combo? What benefits do consumers get when buying combos? Do competitors in the market sell such combos?
- If company X gives a price discount to consumers who buy a new combo or consume a second product, how will profits and revenue be affected?
- How much Sales and Marketing expenses incurred when implementing a plan to sell new combos?
- What are profits when the retention rate increases from 15% to 30%? Does it cover enough the additional costs of implementing a new sales and marketing plan?
After answering the above questions, BI can present the results of analysis and assessments related to the inflection points, helping Sales and Marketing departments to make decisions easily.
An inflection point is not a “decision point”, it helps decision makers see what will change and predict what will happen after those changes.
Hopefully, the above sharing will help you to have an analytical method and approach to the problem when analyzing data.
