How cohort analysis and behavioral segmentation will increase your Magento store revenue

Behavioral targeting will not only increase your sales, but will also help you build a community around your brand, and thus make your brand more loved. For e-commerce marketers, cohort analysis is a unique opportunity to find out which clients are the most valuable to their business.

Cohort analysis can help marketers answer questions like:

• Do my marketing campaigns improve my conversion rate?
• Should I focus more on retention rather than acquiring new customers?
• Are my customer nurturing strategies effective?
• Which marketing channels bring me the best results?
• Are my customers seasonal shoppers?

How to build behavioral segments for your Magento store

After applying cohort analysis, you can break your Magento store customers into segments based on their shopping behavior, which makes thinking of offers and calls to action a lot easier. The basis of personalized marketing is acknowledging the differences in your clients’ behavior and working with them instead of against them.

Sounds pretty easy, right? Let's get started!

There are many different behavior patterns that you can use to segment your clients.  Let’s look into the most common ones.

1. Loyal customers

This segment is every marketer's dream because it steadily brings you revenue. These customers are also extremely likely to recommend you to others, are continually visiting your website and engage with your brand through multiple channels. 

To keep them happy, you should:

• Reward them (if you don't have a customer loyalty program yet, it's time for you to implement one).
• Offer them special discounts.
• Constantly reach out and ask for feedback or advice (this will not only make them happy but, in a long-term perspective, will help you attract more customers like them).

How to spot loyal customers? Of course, you can use customer engagement metrics, NPS (Net Promoter Score) and CLI (Customer Loyalty Index) to determine who your most loyal customers are. But you will also want to keep an eye on customers that advocate for you, invite you to industry events or display any other similar behavior.

2. High spending customers

You may mistake this segment for loyal customers, but they're different. While loyal customers are very engaged and make regular purchases, their overall spending might not always be that high. High spenders, on the other hand, can regularly purchase from you or make large orders. Either way, they spend BIG money.

Every online store should have a certain percentage of high spending customers because they're a lot more profitable than the other customers who cost you the same amount to acquire. That's why you should make sure you keep them for as long as possible. To keep them coming back to your Magento store, you should offer them:

• Early access to your products (or the possibility to pre-order).
• Access to premium or limited edition products.
• Complementary services like free express shipping, free gift wrapping, etc.
• Surprise gifts.
• Dedicated support throughout the entire purchasing cycle.

For sure, identifying the customers who spend more than the average is not difficult, but, if you want to make your list even more exclusive, you need to take it up a notch and narrow the segment to those customers who bring you a lot more revenue than the average - your VVIPs. 

3. Cart abandoning customers

Unfortunately, not all customer segments are as fun as loyals or high spenders. And this segment is really tough.

As many online shoppers who abandon their carts do so because they got interrupted, email reminders can be effective. But that doesn't mean that you should stop there. There are many reasons why customers abandon their carts, ranging from shipping costs (that were not clear beforehand) to inability to place an order if you're not signed up to lack of a wish list feature (sometimes people add products to their cart with the intention of buying them later).

Because there are so many reasons why people abandon their carts, you should go more in-depth, find out the reasons for leaving without a purchase and further segment your clients to address issues separately. You can segment cart abandoners by product or category of interest, and you can recommend them similar products or try to upsell. At the end of the day, you should keep in mind that your goal is to get them to make a purchase - it doesn't really matter what they're buying.

Customer segmentation in action

Fortunately for you, modern tools enable you to segment customers based on multiple parameters. You can segment your clients by traffic source, geolocation, behavior, or even make your own custom segments. To exemplify, let’s have a closer look at weather segmentation.

Weather conditions influence our mood, and certain types of weather can trigger specific and predictable shopping behavior. In the fashion industry, you can use weather segmentation to display a “complete look for the weather outside”. In the automotive industry, you can transform a huge upcoming snow storm into a great opportunity to sell winter tires. In the beauty and cosmetics sector, you can use weather segmentation to promote sunscreen lotions. 

If you're not convinced yet, we will show you a successful example with one company from the Home&Garden industry.

They wanted to increase sales on the category “Trees” by using an overlay. The overlay’s role was to inform the website visitors about the weather conditions and how it affects the trees.

Even though December is a cold month, and it seems impossible to sell plants during this period, together with our experts, the company managed to transform the problem into an opportunity: they sold trees only to customers who lived in regions where weather conditions were favorable for the plants to survive. To facilitate segmentation, a live A/B testing experiment was created on the company’s website.

The segmentation criteria were based on the weather conditions:

• Temperature above 2 degrees Celsius
• Sunny weather

This experiment resulted in a conversion rate increase of 117.86%. Pretty cool, right?

On a final note

Every e-commerce business needs to choose a specific approach to customer segmentation that should be in line with the company’s marketing and sales policies. If you are interested in growing your online store, turn to Magento consultants and see how easy it is to use segmentation in your experiments! Thoroughly analyzing your customer base and understanding the needs of each segment will help you get the most of your Magento online store.