Know Correlation Won’t Tell Causation

Retailer’s Edge is now in the resource libraries of about 80 U.S. Small Business Development Centers around the U.S. That’s great. SBDC services fill in a set of skills essential for retailer profitability, such as the abilities to develop a business plan, deal with regulatory requirements, and monitor operating indicators.
     One skill SBDC clients might pick up from the book is the ability to recognize that correlation isn’t causation. When two indicators in retailing are related to each other, this doesn’t tell you which one causes the other or even if there is causation. Do the chickens cause the eggs or the eggs cause the chickens?
     Okay, here’s an example more fitting for retailers: Research by Envirosell, the international retailing consultants, noticed a direct link between the percentage of shoppers using a shopping basket or shopping cart and the total amount of the customer’s purchase. Higher frequency of shopping cart usage is correlated with higher amount of money spent.
     But does this mean that if we pressure more of our customers into using a shopping cart, the average transaction amount climbs? If we double the size of the cart, will the amount of the average transaction double? No. At least not necessarily. The direction of causation isn’t clear. Maybe people are selecting a shopping cart because they plan to buy more. Force a gigantic shopping cart onto somebody intent on buying only enough to carry in their hands, and you might irritate them. Envirosell says that as cart size at Wal-Mart, Target, Carrefour, and Auchan ballooned, the popularity of carts dropped.
     [Please note that I attribute the use of Retailer’s Edge by the SBDC libraries to their decision that retailers might find the content useful. To my knowledge, Retailer’s Edge hasn’t been endorsed by the United States Small Business Administration.]

For your profitability: Sell Well: What Really Moves Your Shoppers