A Beginner’s Guide To Cohort Analysis

Whether you’re doing it on purpose or subconsciously, it’s human nature to put things into categories. Maybe you organize your shoes based on color or your glassware according to their size. Whatever the case may be, by organizing your personal items into groups — also referred to as cohorts— you’re doing your very own cohort analysis.

Interested in learning more? Kissmetrics can help. Read on for our beginner’s guide to cohort analysis. 

What is Cohort Analysis, and What Is It Used For?

A cohort is a group of individuals with shared characteristics.

Therefore, cohort analysis is a type of behavioral analytics in which users are grouped based on shared traits so you can better track and understand their actions. This allows you to ask more targeted, specific questions, and make informed decisions that will help to reduce churn and drastically increase revenue. 

No matter your industry, cohort analysis could arguably be one of the most effective ways to gather information regarding your customers’ behavior and how they interact with your service or product. 

Okay, but what exactly is a cohort analysis good for?

Great question. 

Cohort analysis allows you to compare variables and changes between your digital marketing campaigns. You can test traffic, engagement and conversion rates of different cohorts; how one ad performs against another, which marketing channel is the most effective for which cohort, and more.

Even brick-and-mortar stores can test the effect of a website modification on user behavior. 

Here are some of the things you can test using a cohort analysis:

  • Ad content
  • Target audience
  • Channels
  • Experiments/campaigns
  • New product lines and service offerings
  • Website redesigns
  • Discounts, sales, promotion campaigns 

Understanding the Different Pieces of a Cohort Analysis

Cohort analysis allows you to segment your customers by the time and channel they were acquired and analyze the retention rate of each. You can then put your resources behind the channels that produce better retention as well as increase retention rates in poor performing channels

To optimize retention rates in this fashion, you’ll want to segment your users in either of the two following ways:

Cohorts by Acquisition

Divide up your users by how and when they first signed up for services or purchased your product. You can get as specific as creating unique cohorts by the week, month, or even the particular day they first converted. Your level of specificity may be determined by the number of users you have buying or signing up on each day.

In the case of an app or software, this will allow you to determine exactly how long customers use your services or product before their engagement drops off. It also helps you to focus your efforts on optimizing user engagement well before the dropoff point. 

Cohorts by Behavior

In addition to cohorts by acquisition, you also have the option to segment users by the behaviors they have or have not taken within a specific period of time. For instance, in an app, this could be anything from a launch, uninstall, or install to a combo of behaviors or transactions taken from within the app. 

Your behavioral cohort would be made up of consumers who performed the same action within the same time frame. 

Using the app example we mentioned above, this could be anyone who initiated an in-app purchase within the first seven days of download. You could easily use this and other unique distinctions to identify which segments of your users are most likely to stay and become long-term users. 

From this point on, you can work to optimize your users’ experience and increase their likelihood of long-term engagement.

How To Perform a Cohort Analysis

Now that we’ve covered exactly what a cohort analysis is and how it’s used, you’re probably wondering how to perform one.

Identifying Your Cohort

First things first, accurately identify the cohort you’ll be tracking. Here are a few steps to determine which cohort you will need to track:

Decide on the correct question to answer.

The point of your cohort analysis is to return actionable information which you can use to improve your own and your user’s end result. With this in mind, it’s easy to see how crucial it is that you ask the correct questions like: 

What do I want to learn? 

How will I use this information to increase revenue, prevent churn, improve the user experience, etc.? 

If you’re unsure how you’ll use the information on your cohorts, you might be tracking the wrong thing.

Choose the metrics that will best help answer your question.

Effective cohort analysis requires you to establish which event you’ll be tracking, as well as the specific properties related to that event. Ask yourself, what event will I be tracking and what insights will this help me to gather about my cohorts? 

Define your metrics once you have the questions you’ll be asking, and this will help you to better define your cohorts.

To create a specific cohort, it’s important to decide on whether to target all users who took a particular action within a specific timeframe, or to distinguish a defining characteristic among them, such as those who purchased less than or more than a certain amount — creating two or more cohorts. 

For instance, in gaming, one might choose to segment their lowest engagement users from their highest who signed up during the same timeframe. This way, they can identify how each cohorts’ actions, usage level, and purchasing behavior differs. 

Basic Cohort Analysis With Excel

One of the most popular methods to perform a basic cohort analysis is in Microsoft Excel. Given that you’ve been tracking the data needed to answer the questions you’re asking, Excel allows you to manually segment your cohorts, import the information, crunch the numbers, and answer many basic questions. 

Basic Cohort Analysis in Google Sheets

Another popular method to perform a basic cohort analysis is through Google Sheets. If you don’t currently have an effective behavioral analysis system in place and are looking for a way to crunch the numbers manually to perform your own cohort analysis, Google Sheets may be a good fit for you to help answer some basic questions. 

Okay, but is there an easier and more effective approach?  

As a matter of fact, there is. If you happened to look into Excel and Google Sheets, you’d find that cohort analysis without the help of a marketing analytics tool like Kissmetrics can be a bit cumbersome. Unless you have a data scientist on your team, answering anything but your simpler questions may be a challenge. 

Sure, it’s possible, but it all boils down to preference. Ask yourself: do you have the resources and time to perform regular cohort analyses with Google Sheets or Excel? 

Or would it be easier and more efficient to have a tool like Kissmetrics doing the work for you?  That way you can answer virtually any question with very little resource expenditure.

The Takeaway

The power of identifying trends in your users’ behavior is obvious, but it’s up to you to start implementing this powerful solution in your business. 

Always keep in mind that the key to effective cohort analysis is your ability to accurately collect information. 

While the basic cohort analysis through Google Sheets and Excel allows product managers, marketers and others to better understand the habits of their specific users and the patterns that appear in their actions, a powerful behavioral analytics tool like Kissmetrics is necessary to make the most of this revelatory analytics system.

 

Sources:

https://www.edglossary.org/cohort/

https://www.techopedia.com/definition/5430/microsoft-excel

https://www.thebusinesswomanmedia.com/spot-consumer-trends-early/

 

Powerful Behavioral Segmentation Methods to Understand

Whether we all like to admit it or not, our habits, emotions, and even our backgrounds play a large part in predicting our behavior. 

Many individuals have daily habits that compel them to do the same thing day in and day out. If you’re a caffeine drinker, for example, you know firsthand the impulse and daily requisite of having that morning cup.

In marketing, we want to understand who our metaphorical daily coffee drinkers are, and separate them from those who consume less regularly. 

Behavioral segmentation isn’t only about recognizing that people have different habits — it’s about optimizing marketing campaigns to match these unique behavioral patterns with a particular and eye-catching message. 

But what exactly is behavioral segmentation?

What is a Behavioral Segmentation Method?

In a nutshell, behavioral segmentation is a form of marketing segmentation that divides individuals into various groups who have a specific behavioral pattern in common. Consumers may share the very same lifecycle stage, previously purchased particular services or products, or even have similar reactions or attitudes to your messages. 

The objective is to identify customer segments to help you understand how to address the particular needs of a target audience, discover opportunities to optimize their customer journeys, and quantify their potential value to your business.

Once users are identified by their specific behavior, you can target messages and campaigns specifically tailored to these audiences. 

A few of the top benefits of behavioral segmentation include:

  • Personalization: Behavioral segmentation helps you to better understand what channels your customers and potential customers frequently visit and what type of messaging they respond to most so you can increase the number of conversions. 
  • Saves money: Behavioral segmentation helps prioritize marketing campaigns to help make your advertising efforts more cost-effective. It allows you to spend less of your time and fewer resources to generate leads in an attempt to communicate with an audience that’s not interested.
  • Makes it much easier to track success: You can easily track metrics inside each segment with an analytics tool like Kissmetrics to improve your results.
  • Forecasting: Looking at each segment’s patterns, you can identify trends to help you effectively plan marketing strategies for the future. 

Let’s take a look at some powerful methods of behavioral segmentation that you can use in your own business:

#1: Purchase and Usage Behavior

Purchase and usage behavior — or purchasing habits — refers to how customers approach the buying process. 

While there are many different ways we can classify purchasing habits, there are primarily four types of buying behavior:

  1. Complex: When a consumer is actively shopping and searching for the best solution to their problem. 
  2. Variety Seeking: When a consumer is satisfied with their brand and purchase but are open to other options. 
  3. Dissonance Reducing: When a consumer is satisfied with their purchase and despite some anxious feeling about making a change, think there is something a little better out there. 
  4. Habitual: When a consumer is loyal to their brand and isn’t considering other options. 

Purchasing behavior can help us to understand many things, such as the complexity and difficulty of the buying process, the role the customer plays in the buying process, as well as which behaviors are most and least predictive of a consumer making a purchase.

#2: Benefits Sought

Benefits sought refers to consumers picking products based on the features and solutions that are most significant to them. You can see which benefits are significant to consumers by simply viewing the types of products and services they choose. 

For instance, if customers consistently pick a low-cost option of a product or service, you might conclude that the price is important to them. If customers are engaged with a webinar about how a product or service can save them time but aren’t interested in a webinar about how the same exact product or service can help them improve performance, you could reason that saving time and workflow efficiency are more important to them. 

#3: Occasion and Timing

Some occasions are universal, like booking a suite for New Year’s Eve. Others are personal, like buying a monthly makeup subscription box. 

Occasion-based segmentation is more common than you may think. Take a look at some of the emails you’ve received in the past week. Chances are, you’ll see quite a few “occasional” emails from marketers. For instance, you might see that your beloved pizza delivery service sends out coupons or flash sale emails on Thursdays because people are more likely to order takeout over the weekends.

#4: Customer Loyalty

Keep in mind that just because a customer keeps purchasing your product or service doesn’t mean that they are a loyal customer. Customers that are constantly in need of the product or service you offer are habitual buyers, whereas loyal customers purchase only your products and services. This is a significant barrier to your competition. 

Loyal customers are important because they tend to generate most of your business revenue and are, generally, are less expensive to market to. As a result, it’s crucial to be able to identify who your loyal customers are from your regular customers. That way, you can focus your energy on building your relationship with them. 

#5: Engagement Level

Customer engagement is a valuable metric in both pre-and-post-purchase realms of the customer journey. To give you a quick example, you can use engagement-based segmentation to discover how engaged different consumers are in your pre-purchase funnel or how active existing customers are in your user community.

If a customer has a great experience with your brand, and as a result, is willing to interact more frequently and spend a little more time engaging with your company, this is usually a good sign of positive outcomes to follow. 

The more a customer spends engaging with your brand, the more likely:

  • A positive perception of the business’ brand is developing. 
  • Trust is increasing. 
  • They’re considering making a purchase
  • Their brand relationship is strengthening. 

#6: Customer Satisfaction

Are you accurately capturing how satisfied and happy your customers are at every stage of their buying journey? Doing this will give you a much better gauge of their behaviors and will help you increase conversion rate. 

Some brands make effective use of their social media channels as a customer support platform. They infuse their unique personality into each answer while also obtaining data on brand satisfaction, brand perception, and more. Others use CRM platforms or chat-based tech to create a real-time, always-open line of communication with their customers. 

By first segmenting your customers by satisfaction, you can decide on the best set of actions for each segment and then prioritize them by their potential impact on your business. 

#7: Customer Status 

Customer status, or user status, is another great way to behaviorally classify different customers by their unique relationship to your business. 

Below are a handful of the most common customer status examples:

  • Prospects
  • Non-users
  • Regular users
  • First-time buyers
  • Defectors (i.e., ex-customers who have switched to a competitor)

Besides the ones listed above, there are many other customer statuses that could be applicable to your product or service. For instance, a brand with a free-trial model might have a status for “free trial” users. 

The Takeaway 

Behavioral segmentation is an effective method for segmenting your customers by their behavior, so you can understand them better and engage with them in a more optimal way along their customer journeys. 

Using the powerful behavioral segmentation methods listed above, you can maximize your ROI, enable customers to reach their unique goals, and increase customer lifetime value. You’ll be well-positioned to build a deeper knowledge of your customer base. 

You might be asking yourself what kind of tool you can use to gather and analyze behavioral segmentation data. Kissmetrics has you covered.

Kissmetric provides advanced product and marketing analytics that can help you to get more customers, make smarter decisions, and generate more customer revenue. Don’t waste your time measuring data that won’t get you results — Kissmetrics helps you focus on the things that matter and the things that grow your business, like conversions, revenue, and, most importantly, people. 

Schedule a demo with us today and see how behavioral segmentation can help you.

 

Sources:

https://www.healthline.com/nutrition/what-is-caffeine

https://www.businessnewsdaily.com/4659-what-is-roi.html

https://marketbusinessnews.com/financial-glossary/habit-buying/