Behavioral Segmentation

Retail and eCommerce professionals face unprecedented challenges in acquiring and retaining customers: rising acquisition costs, customers becoming increasingly mindful of spending, and competitors left and right. Enter the concept of behavioral segmentation.

In this unfriendly landscape, it’s more important than ever for businesses to understand their customers’ behavior and tailor their marketing strategies accordingly.

This marketing segmentation technique empowers you to tailor your marketing, leverage the buying behaviors of your power customers, and enables you to speak the right words, at the right time, to the right person.

This article will explore behavioral segmentation, its importance, and how to implement this segmentation strategy.

If you’re looking for ways to stay ahead of the competition and attract and retain loyal customers, read on to discover the power of behavioral segmentation.

What Is Behavioral Segmentation?

Behavioral segmentation represents the marketing technique that categorizes existing customers into groups based on their behavior – such as their purchasing habits, brand loyalty, and response to marketing campaigns.

Unlike other marketing segmentation techniques (based on self-reported customer preferences or demographic information), behavioral segmentation relies on the customer’s actual behavior.

This approach might prove more effective and reliable in the long run since it’s based on complex data instead of customers’ personal experiences and biases.

A real-life example of customer segmentation based on behavioral criteria is Amazon.

The leading online retailer constantly updates its algorithm based on the latest patterns in purchase behavior, making its upsell recommendations more and more accurate over time.

Another example of behavioral segmentation in action can be seen in the Customer Value Optimization Methodology.

Rather than blasting your customer base with general promotions and irrelevant messages, CVO specialists offer targeted promotions and discounts to customers based on specific behavior.

For example, retailers may offer a promotion to customers providing complementary products to items already purchased or a discount when it’s time to restock on purchases.

Behavioral segmentation is how Retailers and eCommerce businesses understand their customers buying behaviors and tailor their marketing efforts to serve each segment better.

Demographic Segmentation vs. Behavioral Segmentation

Marketing segmentation is always a good idea. However, your methodology and segmentation types can also tip the balance in your favor (or against it). Each segmentation technique comes with pros, cons, and best practices. 

To that end, let’s look at the main differences between demographic and behavioral segmentation, considering when and how it would be more beneficial to use each type of segmentation.

Demographic segmentation refers to dividing customers into groups based on age, gender, income, education level, and geographic location. 

For example, a retailer selling baby products would most likely focus on target audiences of expectant mothers who are likely to be in their 20s to 30s.

Demographic segmentation is easy to implement and understand and is also typically readily available, making it easier to collect customer data.

However, this type of segmentation alone can be too general since customers within the same demographic group most likely have different needs and preferences. You’ll need to combine it with other types of segmentation (such as psychographic segmentation) to improve its effectiveness. 

Demographic segmentation is helpful when targeting broad customer groups or when you lack customer data and need an easy way to segment them.

When you look at the behavioral segmentation definition, this technique can be more effective in predicting future behavior and informing your Customer Lifetime Value processes.

For example, suppose you’re running a company selling athletic leisure. In that case, you can target customers who recently bought running shoes with athletic clothing – thus encouraging them to place another purchase and increase their Monetary Value. 

Conversely, behavioral segmentation can be more challenging to implement as it requires more complex data than demographic segmentation.

While demographic and behavioral segmentation has specific advantages and disadvantages, you can still use them to target your customers effectively.

In a nutshell, demographic segmentation helps you identify broad customer groups. In contrast, behavioral segmentation empowers you to dive into the specifics and better understand customers’ actual behaviors.

Why Is Behavioral Segmentation Important?

Behavioral segmentation allows you to gain a deeper understanding of your customers, then adapt your marketing efforts and loyalty programs accordingly, thus moving away from spray-and-pray campaigns that lead to nothing but wasted time and money.

At the same time, analyzing customers’ actual behavior towards your products reveals interesting patterns and trends that are more challenging to spot based on demographic information alone.

These insights can inform your future decisions about targeting, customer engagement, and even the processes needed to increase Customer Lifetime Value and enjoy more sales, profits, and revenue.

While behavioral segmentation is more complex than demographic and geographic segmentation, the benefits of understanding why customers choose to buy your products make an effort worthwhile.

In fact, gaining this level of insight is considered the ultimate goal of marketing research, the key to unlocking customers’ behavior and making a habit out of buying from you.

Behavioral Segmentation Types

There’s more than one approach to this segmentation, so in this section, we’ll go through each type of behavioral segmentation technique.
As you’ll see, the techniques only depend on the criteria you’re using to create your customer segment. The methodology is straightforward enough to ensure clarity from the segmentation process.

Purchase Occasion Segmentation

“Occasion” refers to the specific event or time of the year that triggers a purchase. This type of segmentation allows you to group customers based on various occasions when they plan to purchase.

This type of segmentation allows you to take advantage of traditionally busy shopping periods (such as Christmas, Black Friday, Back to School days, etc.) with specific promotions or attractive discounts.

At the same time, noticing patterns of sales numbers spiking up during specific periods allows you to prepare in advance and guarantee no friction in the customer journey (such as lack of inventory or delayed deliveries).

Product Usage* Segmentation (Sometimes Referred to as Customer Usage)

This type helps you create segments based on how much (and often) your customers use the product.

Usage segments are generally divided into heavy, medium, and light users.

With usage segmentation, you can identify heavy users, ensure they get extra attention, and tailor your retention strategies so customer loyalty stays high and you won’t lose them.

At the same time, you can target medium users with customer success stories, extra information on extracting more value from the products, and even discounts to encourage more frequent purchases and increase their brand loyalty.

Benefits-Based Segmentation

Segmenting based on the benefits sought by your customers helps you uncover the hidden reasons why people buy your products, then apply this information to attract and retain more customers.

For example, if a significant segment of your shop’s clientele visits because of your convenient location, creating a targeted ad campaign for this particular audience may be wise.

Or, if customers flock to your website because of your low prices, it wouldn’t be wise to create campaigns upselling luxury products for this segment.

We recommend collecting customer feedback through surveys (such as the Net Promoter Score survey), A/B testing, and even Jobs-to-be-done interviews to unveil why customers buy from you.

After you have this knowledge, test it against your marketing and branding initiatives, and make any necessary changes to ensure the way you market your products is following reality.

Loyalty Level Segmentation

With the loyalty criteria, you want to separate die-hard fans from bargain hunters (and everything in between) to ensure you’re rewarding loyal customers and are using your resources effectively on customers with low revenue.

Behavioral segmentation is incredible, allowing you to find the needle in the haystack, the diamond in the rough – i.e., the most loyal customers in your customer base, the 20% delivering 80% of your revenue.

You need this segmentation to inform your priorities if your resources are limited. Invest in creating unique and quality customer experiences for loyal customers, treat their issues quickly, and target them with loyalty programs.

Behavioral Segmentation Examples

Purchase Occasion Segmentation Example:

A sports retailer may create a unique snowboarding apparel collection for the holiday season and market it specifically to customers who have purchased snowboarding equipment.

An online office supplier may send promotional emails in the weeks leading up to September (back to school) to encourage his clients to order supplies before school starts.

Product Usage Segmentation Example:

A beauty retailer may group customers who buy anti-aging products monthly and offer them special promotions for those products in the future when it’s time to restock.

An online gaming supplier may offer discounts to customers who frequently purchase the hottest game available.

Benefits-Based Segmentation Example:

An online grocery store may offer a subscription service for customers who value convenience and time-saving benefits.

A home improvement retailer might create a marketing campaign targeting customers who value quality over the price-point.

Loyalty Level Segmentation Example:

A restaurant that makes deliveries may offer a loyalty program with different tiers of rewards for customers who visit it frequently.

An online retailer may offer free shipping to customers who have spent a certain amount in the past 12 months.

Benefits of Behavioral Segmentation

Are there any specific benefits to behavioral segmentation that you don’t find in more accessible segmentation techniques?

Yes.

Let’s unpack each advantage of segmenting customers according to their behaviors.

You Gain a Deeper Understanding of the Driving Factors Behind Consumer Purchasing Decisions

To be a successful retailer, you must first identify what triggers your customers to buy from you.

Market research based on analyzing consumer behavior will help you reach insights about their decisions, then use this information to improve your product offerings, pricing strategy, and marketing campaigns.

In other words, you discover what customers need and give them that precise something to preserve and increase customer retention.

You Find and Nurture Your Loyal Customers

Loyal customers usually carry the weight of your business: they spend a lot, do it often, and bring other people on board.

To keep them happy, you need to invest in customer satisfaction programs. This involves exceptional customer service, personalized communication, and loyalty rewards programs.
With behavioral segmentation, you can find these people and ensure they receive all your love, attention, and gratitude.

You Understand Buying Patterns

There’s nothing worse than finding yourself out of stock on the busiest shopping spree of the year. Or getting caught off-guard with the orders and unable to deliver them on time.

You can avoid these unhappy scenarios by being aware of when certain groups of consumers are most likely to buy your products.

Analyzing buying patterns allows you to plan and prepare for peak buying times. This may involve adjusting your ad spend, creating campaigns to coincide with these peak times, or adapting your inventory and partnerships for those specific times.

You’re Curating the Marketing Messages and Increasing Customer Engagement

The capital sin of marketing is launching one-size-fits-all campaigns and treating all customers the same.

Being too general leads to irrelevant offerings and doesn’t persuade customers to buy.

On the other side of the coin, you have targeted, visceral, and powerful messages that convince even the most skeptical people to place an order.

Behavior segmentation helps you in this endeavor by providing crucial insights into customers’ needs and preferences, allowing you to tailor your messages to hit the right spot.

Wiser Marketing Spending

Even when resources aren’t limited, you still need to allocate your marketing budget wisely to maximize your ROIs.

One way to waste money is focusing on consumers who aren’t ready to buy, have low loyalty, or won’t be heavy users of your products.

Analyzing consumer behavior helps you avoid faulty targeting, allowing you to speak directly with people with the greatest chances of becoming loyal customers and generating repeat business.

How to Implement Behavioral Segmentation

So, how do you correctly implement behavioral segmentation and reap all the above benefits?
As with all things marketing, it’s about gathering, sorting, and making sense of your data. Here’s the segmentation process step-by-step process:

Step 1 – Find the Behaviors You Want to Track

The first step is identifying the most relevant behaviors to your business and goals. You can track behaviors such as purchase frequency, purchase amount (RFM segmentation helps here), brand loyalty, response to marketing campaigns, and Customer Lifetime Value.

It depends on what you want to learn about your customers and future marketing plans for various customer segments.

Whichever behaviors you’ll land on, remember that they should be measurable and actionable.

Step 2 – Collecting the Behavioral Data

After identifying the behaviors, you must collect all your data demonstrating said behaviors. Use various sources, such as customer surveys, sales data, and social media interactions.

Besides collecting the data, you also need to perform a QA analysis and ensure your numbers are accurate, complete, and up-to-date.

Step 3 – Analysing the Data

After the data passes the quality test, it’s time to analyze it to identify patterns and trends and create customer segments.

You can use a tool such as Excel or specialized data analytics software to perform this step.

Step 4 – Creating & Populating the Segments

Based on your previous analysis, you can now distribute customers to corresponding sub-groups based on shared behaviors.

This step can be done either manually or with the help of specialized software.

Hint: Omniconvert Reveal allows you to segment customers based on when was the last order placed, how many purchases, what was the total spent, RFM segments, and more! Check out our platform’s capabilities and start using it to segment your customers!

Step 5 – Creating Customer Profiles

After you populate your segments, it’s time to create profiles for each group.

Include demographics, behavior patterns, and preferences to understand each group better and tailor your marketing efforts accordingly.

Step 6 – Orchestrate Marketing Strategies

The sole purpose of the process was to create better, more relevant marketing campaigns and extract more value from your customer base.

Now it’s time for action, as this step is when you create marketing strategies for each customer segment.

They may include personalized offers, custom messages, and targeted advertising campaigns.

Step 7 – Test and Refine

Launch your marketing campaigns and test their effectiveness.

Monitor the response of each segment of customers and refine the strategies based on the feedback and results you’re getting.

Wrap-Up

As you can see, Behavioral Segmentation can become a powerful tool, helping you better understand your customers and create better retention and prevention campaigns.

Whether it’s purchase occasion segmentation, product usage segmentation, benefits-based segmentation, or loyalty level segmentation, you can use each criterion to segment customers and gain a competitive edge in today’s challenging market.

So, if you want to take your business to the next level, consider incorporating behavioral segmentation into your marketing strategy and start seeing the results yourself.

FAQs