Published on Linkedin, February 9, 2024 (source)
Let's start a discussion on "Customer Segmentation vs. Cohort Analysis" for startup founders, marketers, and business strategists. These concepts are crucial in understanding customer behavior and improving business strategies. Let's break down the key points of each to set the stage for an informative and engaging discussion:
Customer Segmentation
Definition: Customer Segmentation is the process of dividing customers into groups based on common characteristics. This is done to market more effectively to specific groups.
Criteria for Segmentation: Can include demographics (age, gender, income level), psychographics (lifestyle, values, attitudes), geographic location, and behavior (purchase history, loyalty, usage rate).
Sample table for eCommerce Seller. KAM means managed by Key Account Manager.
Purpose and Benefits:
Targeted Marketing: Allows for more personalized and effective marketing strategies.
Product Development: Helps in tailoring products or services to meet the needs of specific segments.
Improved Customer Service: Enables businesses to better address the needs and preferences of different customer groups.
Challenges:
Data Collection and Analysis: Requires significant data gathering and analytical capabilities.
Dynamic Nature: Customer preferences and market trends can change, requiring ongoing analysis and adaptation.
Cohort Analysis
Definition: Cohort Analysis is a subset of behavioral analytics that takes the data from a given dataset (like a SaaS company's user base) and rather than looking at all users as one unit, it breaks them into related groups for analysis.
Sample of Retention Table for Active User
Types of Cohorts:
Time Cohorts: Grouped by their first interaction with the product or service (e.g., customers who signed up in a specific month).
Behavior Cohorts: Grouped based on behaviors they exhibit within a product or service (e.g., users who make a purchase after a free trial).
Size Cohorts: Grouped by the size of the business or order volume.
Purpose and Benefits:
Understand Customer Lifecycle: Helps in understanding how long customers stay and when they churn.
Product and Service Improvement: Identifies points where product enhancements can increase retention.
Better Customer Retention Strategies: Helps in developing targeted retention strategies.
Challenges:
Complex Analysis: Requires sophisticated tracking and analysis tools.
Time-Consuming: Involves detailed tracking of cohorts over extended periods.
Key Differences
Scope: Customer Segmentation is broader, often used for marketing and product development, while Cohort Analysis is more focused, usually used for understanding specific behaviors over time.
Data Analysis: Cohort Analysis often requires more detailed longitudinal data analysis compared to Customer Segmentation.
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