Introduction to Product Analytics. Why is it needed and where to start implementing it?

I will tell you what product analytics is, how to build it, and what tools are needed. It will be useful if you are looking for growth points for a product or want to solve problems with its metrics.

What is product analytics and why is it needed?

Product analytics is an approach to product development that is based on the collection, analysis and interpretation of data. As part of product analytics, a company studies how users interact with a product and evaluates how convenient and effective it is in solving their problems.

Product analytics began to be used more than 20 years ago. The pioneer and now the flagship of this approach is Google. At the beginning of the century, the company analyzed data on small businesses in the field of marketing and realized that businesses needed a new advertising tool. Based on this data, Google launched a service for launching online advertising, AdWords, now called GoogleAds.

Over 24 years, the service has been constantly improved based on data received by product analysts. Today Google Ads – the main “fuel” of the company. In 2023, Google's advertising revenue was $237.86 billion.

Product analytics consists of several pillars: team, tools and processes. And the result of the work of this mechanism is insight – useful information for making a decision.

Product analytics – a team game

Product analytics is the main driver of business performance growth. But despite this, it is still not available in all companies. It happens that managers in general are not aware of product analysis. Or they simply underestimate its benefits because they strive for quick results.

Product analytics is a long game. It is important to understand that impressive results can only be achieved with a systematic approach.

The core of any product department is a professional team. There are several roles: product manager, analyst, data scientist and development team.

Comparing the team playing field and the grocery department, the ideal distribution of roles would be as follows:

• Product Manager. The captain who determines the game strategy and coordinates the actions of all players. He is a leader who interacts directly with the “coach” – the management – and evaluates the “rivals” – the market.

• Product Analyst. The goalkeeper, who anticipates and repels shots, covers the weaknesses of the product. He analyzes growth points and makes a successful “pass”, which sets the beginning of the next half.

• Data Analyst. Player on defense. By confirming or disproving data, it helps the attackers – that is, the development team – to create a new breakthrough solution.

• Developers, including designers. Players on offense who actually implement the captain's strategy and instructions. They develop products based on the “pass” of the product analyst.

Product Analytics Tools

Another important pillar of product analytics is advanced tools. Here are examples of some of them.

Amplitude

Behavioral analytics system. It records user actions and independently visualizes critical indicators. Amplitude can help identify anomalies that impact a product's financial metrics.

For example, the system may signal problems with registration. Registration is the entry point to the product. Problems with registration can be reported to the support service, which will receive messages. But this may not happen immediately and it is unknown how much money the business will lose until the problem is fixed. With Amplitude you can see this faster, fix everything quickly and not lose new users.

Hotjar

Interface analysis tool. It allows you to understand user behavior on pages, determine the most frequently used functions, button clicks, and interactions with elements. Using Hotjar, you can regularly improve the product interface – this increases sales figures and reduces user churn.

For example, you can move the “Add to Cart” button to a more visible place and thereby increase purchase conversion.

Product Analytics Processes

Quite often, companies resort to the experience and knowledge of internal specialists to organize the work of the product department. Their ideas and developments play an important role, but it is important to follow modern practices.

We in the company work on the following processes:

• Monitoring. Using visualization tools and user reviews, we monitor the current state of the product and look for areas of growth.

• Analysis. We take the found anomalies and growth points into action. We put forward assumptions about the reasons for the drop in metrics and possible options for improving the product that will increase the indicators.

• Testing. When there are several hypotheses, you need to confirm them through an A/B experiment. We create a modified version of the product and test it on a certain number of users – for example, 10% of all current ones. After the experiment, we analyze the alternative and main product options using mathematical algorithms. If it is clear that the new option is better, we decide whether to make this change to the main product.

• Release. After the experiment, we calculate the costs of fully developing the solution, as well as the profit that the product will receive after implementing the solution. If calculations show that the solution will be beneficial, we transfer it to the main product in full.

This approach protects against unnecessary development costs and possible deterioration in performance.

Results

To start implementing product analytics in a company, you need to do the following:

1. Assemble a team. Start the analytics infrastructure implementation process with a product analyst. Gradually expand your team and clearly break it down into roles to maximize efficiency.

2. Use advanced tools. For example, those that I described in the article. Or trust the experience of specialists – they will select tools for the specifics of the product.

3. Organize processes according to the diagram: monitoring → analysis → testing → release. Pay special attention to the testing phase. It will help to more accurately determine the effect of introducing new solutions.

Product analytics is a broad topic, so I will tell you more about it in the following articles. In the meantime, ask questions in the comments if something is unclear or you want to know more. I'll answer everything 🙂