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Metric Normalisation

When running experiments across regions with different price levels, imbalanced user allocation can create spurious effects. Normalisation reduces variance by putting all regions on the same scale, leading to tighter confidence intervals.

The Problem

Consider an experiment measuring order value across regions with different price levels. If randomisation happens to assign more users from a high-priced region to treatment, that group will show a higher average even if the treatment has no real effect.

The raw data has high variance because values from different regions are on completely different scales. This inflates confidence intervals and makes it harder to detect true effects.

Moreover, when treatment effects apply proportionally, a +$5 absolute uplift might represent a meaningful 20% gain in a low-price region but only a negligible 2.5% increase in a high-price region. In raw aggregation, the signal gets dominated by the high-volume, high-price market where the percentage effect appears smallest, potentially masking significant relative improvements in smaller markets.

The Solution

Ideally, you would run separate experiments within each region and randomise within region to ensure balanced allocation. However, this isn't always practical - you may lack sufficient sample size per region, or operational constraints may prevent stratified randomisation.

When you must pool across regions, Z-score normalisation transforms each region's data to have mean 0 and standard deviation 1. This:

  • Removes the scale differences between regions
  • Dramatically reduces overall variance in the pooled data
  • Produces tighter confidence intervals for the same sample size
  • Prevents regional imbalances from creating false positives

Normalisation Methods

MethodFormulaWhen to UseNotes
Z-score (Standardisation)x' = (x - mean) / stdAggregation across regionsWidely used; centers and scales distribution
Min-Max Scalingx' = (x - min) / (max - min)Fixed, bounded rangeFast and intuitive; sensitive to outliers
Divide by Maxx' = x / maxQuick comparison, values greater than or equal to 0Simpler; depends on max stability
Percent-of-Meanx' = x / meanRelative effect matters moreMore interpretable in business settings

This simulator uses Z-score standardisation, highlighted above.

Simulation Parameters

Each region has a different baseline distribution due to local price levels and market conditions

Southeast Asia
North America
1005,000

The same relative effect is applied to all regions

0%+10%

Regional Imbalance Impact

Shows the spurious lift created when treatment has more users from one region vs control (with no true treatment effect)

Example: +10% shift

If treatment randomly gets 10% more users from North America, it appears to win by ~15.6% even with zero true effect.

Why this matters

With baseline means of $25 vs $200, small allocation imbalances create large spurious effects that can mask or mimic real treatment impact.

When to Use Normalisation

Good Use Cases

  • Multi-region experiments with different price levels
  • Cross-market analysis with currency differences
  • Geographic regions with varying cost of living
  • Markets at different maturity stages

Caution Needed

  • When absolute revenue impact matters more than relative
  • If regions have very different sample sizes
  • When region-level effects need separate interpretation
  • If normalisation parameters can be influenced by treatment

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