Why Behavioral Segmentation Is Critical to Business Success

Behavioral segmentation doesn’t always receive the same attention as other types of customer and market segmentations such as demographic, firmographic and psychographic. Yet it is easily as important. Demographic/firmographic segmentation allows a brand to sort customers and prospects by who they are: age, gender, business size and other identifiers. Psychographic/attitudinal segmentation organizes consumers by their lifestyles, interests and opinions—the reasons behind their purchasing preferences. Behavioral customer segmentation, however, organizes cohorts based on consumers’ actions. It’s the what to the who of demographics/firmographics and the why of psychographics.

Behavioral segmentation can cover a wide swath of actions. How consumers discover items in a physical or online store, how frequently they make purchases, the occasions that spur purchases, the channels they use when interacting with a brand: These are all types of behavior that can be used to segment audiences and, from there, better reach and appeal to them.

Understanding consumers’ shopping, buying and product usage behaviors enables organizations to make online and offline shopping experiences more efficient and conducive to purchasing. It enables brands to customize shopping experiences and marketing efforts, which in turn engenders greater brand loyalty among consumers. Organizations can also use behavioral segmentation to identify behaviors that typically precede customer churn so they can initiate retention tactics – as well as look into ways to reduce the causes of brand abandonment. By the same token, consumer behavior segmentation helps organizations determine high-value customers who should be rewarded to ensure long-term loyalty and brand advocacy.

When to Apply Behavioral Segmentation

While there’s certainly no wrong time for a brand to apply behavioral segmentation, doing so is especially valuable prior to embarking on new marketing and product initiatives. A brand planning its holiday marketing and advertising campaigns, for instance, would benefit from knowing when its most valuable customers are likely to start shopping and via which channels, enabling it to reach them when and where they’re most likely to begin the purchasing process. That same brand might also want to identify which customers buy only when items are on sale so that it contacts them primarily with promotional notifications rather than wasting marketing budget on mailings and emails spotlighting full-price products.

Organizations would also be wise to perform behavioral segmentation if they notice increased customer churn or decreased conversion rates. Comparing how high-value customers and low-value customers navigate a brand’s ecommerce site might provide suggestions as to how the company could improve the site experience to boost conversions and upsells among the less-valuable shoppers; reviewing the behaviors that precede site or cart abandonment as well as customer churn can reveal touchpoints that would benefit from upgrades.

And any brand introducing or refining a loyalty program needs to perform behavioral segmentation. Not only will this identify the most valuable customers, but it will also help determine the incentives and forms of engagement most likely to resonate with them.

Types of Behavioral Segmentation

The variables by which a brand segments customers by their behavior depends largely on its goal. An organization hoping to more effectively allocate marketing spend would likely prioritize different aspects of behavior than a business trying to reduce customer churn. Below are six common types of behavioral segmentation and the marketing challenges they can help solve.

1. Purchase-based segmentation

This form of behavioral segmentation can focus on everything from whether customers buy in response to marketing emails to the search terms they use on a site to how many interactions they have with a brand before completing a purchase. Organizations often use purchase-based segmentation to identify areas of friction along the customer journey. For instance, if customers who complete an online purchase are more likely to seek out the returns policy than those who don’t, the brand might test making the policy more accessible on product and checkout pages.

2. Usage-based segmentation

Here, customers are segmented by how frequently they purchase from a brand. Identifying occasional customers, semi-regular customers and superusers enables an organization to direct marketing resources more effectively. It might opt to spend more on retaining superusers and trying to increase usage among medium users than on reaching out to light users. It might also apply different messaging and tactics when reaching out to each segment. What’s more, by identifying customers who have become less-frequent users, a brand can implement retention strategies to help prevent those shoppers from abandoning altogether.

When segmenting by usage, many organizations look at not only frequency but also the amount customers spend. A customer who frequently buys inexpensive or low-margin products might not be as valuable as one who buys less frequently but spends more per purchase. RFM analysis is a type of usage-based behavioral segmentation that ranks a customer database by recency, frequency and monetary value of purchases in order to account for these variables.

3. Occasion- or timing-based segmentation

Some customers purchase from a brand only during certain times of year, before certain holidays, prior to certain life events or in response to promotions. This sort of behavioral segmentation might reveal that a sizable portion of a brand’s customers shop only in the days before Valentine’s Day and Mother’s Day. In that case, the organization might not want to market to them outside of those periods.

4. Benefit-based segmentation

Understanding the benefits customers seek from their purchases enables a brand to better target its marketing, personalize the shopping experience and fine-tune its product and service offerings. Customers might buy the same product for different reasons: Some might prioritize value, others aesthetics and others still next-day shipping. Brands can apply this form of consumer behavior segmentation to better tailor their marketing efforts — to cater to value shoppers, it might work with influencers known for frugal-living posts; to reach design-focused consumers, it might advertise in upscale publications.

5. Customer progression segmentation

A common way to categorize consumers is by which stage they are in their customer journey with a brand: awareness, consideration, decision, post-purchase or advocacy. In general, businesses want to move customers to the next stage: convert those considering a purchase into those who have decided to make a purchase, for instance. To do this, organizations need to nurture people differently in each journey stage. A brand might spotlight its superiority to competitors when communicating with consumers in the awareness or consideration stage, for example, but would not need to do so with those in the post-purchase or advocacy stage.

6. Loyalty segmentation

This behavioral segmentation type builds off customer progression segmentation, as there’s considerable overlap between a brand’s most loyal customers and those in the advocacy stage of the customer journey. Organizations typically identify their most loyal customers in order to reward them, often with loyalty programs, for continuing to purchase and promote the brand via word-of-mouth. Of course, not all loyal customers are the same — some might prefer to be rewarded with discounts and others with the chance to win exclusive prizes — so brands might benefit from further segmenting this group of customers.

How to Make Behavioral Segmentation Work for You

By understanding what customers are doing — the frequency of their purchases, the steps that lead to their making a purchase (or opting not to), when they make purchases — brands can improve multiple aspects of their business. They can personalize their marketing campaigns and messaging for optimal response and less waste, identify and reward customers to retain their loyalty and spot and remove pain points in the customer journey.

Determining which type of behavioral segmentation is most likely to boost business, however, can be tricky. So can deciding which behavioral segmentation variables to focus on, conducting the actual segmentation process and translating the results into actions. At Material, we have guided organizations through all aspects of segmentation, enabling them to create differentiated customer experiences, retain customers and increase their lifetime value. Contact us today to discover how we can do the same for your business.

FAQ

Why should a brand constantly evaluate behavioral segmentation?

How consumers behave today is not the same as how they might behave tomorrow. Consistently monitoring consumer behavior and segmenting customers accordingly enables a brand to identify changes over time. For instance, if more high-use customers have reduced the frequency of their purchases during the past several months than usual, a company can introduce retention strategies to encourage more engagement. It can also research the reasons for this trend — perhaps the brand hasn’t kept up with rivals in terms of product innovation, for instance, or maybe the performance of its e-commerce site has deteriorated. What’s more, evaluating behavioral segmentation regularly over time reveals occasion-based shopping patterns among audience sectors, such as customers who buy only during clearance sales, that organizations can use to refine their marketing strategies.

How does behavioral segmentation help brands and marketers identify opportunities?

Segmenting customers by where they are in the customer journey, how frequently they purchase or the benefits they seek enables brands to identify opportunities for upselling and cross-selling products, increasing the frequency and value of purchases and converting repeat customers into loyal brand advocates. Without breaking out their audience by these variables, organizations risk providing all consumers with the same messaging and offers. Giving discounts to already-frequent customers could well eat into profit without generating additional sales, whereas offering first-time buyers the same discount might encourage repeat purchases and sow the seeds of brand loyalty. By the same token, rather than giving frequent customers discounts, providing them with exclusive products or other rewards could bolster loyalty but have no effect on those still in the consideration stage of the customer journey.

What is the difference between behavioral segmentation and other types of segmentation?

As the name indicates, behavioral segmentation organizes consumers by their purchasing behaviors. Demographic segmentation (and its B2B counterpart, firmographic segmentation) categorizes an audience by its characteristics such as age, income, race, education and gender. Psychographic, or attitudinal, segmentation creates audience cohorts based on their beliefs, lifestyles, value systems and other psychological factors.