Behavioral segmentation helps companies get to know their customers - and knowing your customers is the name of the game if you want to compete in a crowded market. Don’t believe us? AdWeek says personalization in marketing can reduce customer acquisition costs by up to 50%. Plus, research from Accenture found that 91% of consumers say they prefer shopping with brands that provide relevant offers and recommendations.
Before you can provide relevant offers to customers, though, you have to figure out what makes them tick - and blanket generalizations aren’t going to cut it. Continuous intelligence tools allow you to dive deep into customer behaviors, right down to the individual user.
In this article, we’ll look at how behavioral segmentation helps enterprises get to know their customers, and how to leverage those insights into meaningful - and profitable - change.
What is behavioral segmentation
Behavioral segmentation is one of four major types of market segmentation, which divides customers into groups, or segments, based on how a customer acts. This could include everything from:
- Interactions at point of sale or on your website
- Use of your product or service
- Use of features within your product or service
- Overall awareness of your brand (and how it changes as they move through the buyer journey)
- Purchasing behaviors & habits
Behavioral segmentation works in tandem with other major types of market segmentation, such as demographic, psychographic and technographic. More importantly, though, behavioral segmentation builds upon the other types by seeking a deeper view of the customer. It goes beyond typical segments like age, gender, location and income, seeking to understand behaviors, actions, and decision-making patterns at every point in the customer’s interaction with your brand.
How behavioral segmentation benefits your business
Tracking and optimizing the buyer journey is not as simple as it used to be. Today’s shopping experience is fragmented, with multiple entry and exit points. It’s individualized, with as many unique journeys as there are customers. Add to that the growing importance of a stellar customer experience, and you’ve got your work cut out for you.
Fortunately, there is more data you can use to learn about a customer’s experience with your brand. Behavioral segmentation allows you to answer key questions about consumers such as:
- How many times does a user view a product before purchasing?
- Which offers and messages do they respond best to?
- What time of day, week, month, or year do they purchase?
- What drives repeat purchases and higher cart values?
- What do people love about your product vs what’s not working?
Studying and understanding how customers interact with your brand allows you to:
- Identify brand loyalists
- Discover opportunities to optimize the buyer’s journey
- Improve your product or service based on real feedback
- Refine your messaging based on what resonates with your audience
- Provide a more personalized customer experience
- Increase conversions
All of this means you can make decisions based on data - not guesses - and use precious resources more efficiently.
Types of behavioral segmentation
Behavioral segmentation can take many forms - but some common types have emerged for their ability to impact customer engagement, conversion, and retention.
Segmentation based on purchasing behavior
Segmentation based on purchasing behavior examines how customers decide to buy, as well as the trends, habits and behaviors associated with making a purchase decision. More specifically, this type of behavioral segmentation helps you analyze and understand:
- How much research does a customer perform before purchasing?
- What types of information do they seek, and what types are most convincing?
- What search queries does a customer use to locate your brand, product, or service?
- What questions do they ask when speaking with sales reps or chat support?
- How complex is the purchasing process?
- Are there barriers along the way that could derail the path to purchase?
Obviously, there is a huge benefit to understanding your customer’s purchasing behavior - doing so allows you to eliminate obstacles and sell more products faster. Online shoe retailer Zappo’s proved this when they made returns free after learning that return fees deterred some consumers from buying new shoes. The change led to higher profit margins (since shipping a $300 pair of boots costs the same as shipping a $30 pair of sandals) and helped them become a leader in customer loyalty.
Occasion or timing-based segmentation
Occasion-based segmentation categorizes customers based on the timing of their interactions with your brand or website. “Occasions” can include seasons (e.g. fall, spring) life events (e.g. birthday, wedding, vacation) or holidays (e.g. Christmas, Thanksgiving, Labor Day).
Occasion-based segmentation can also mean segmenting your customers based on time of day or timing within the context of their daily routine. For example, purchasing coffee or breakfast in the morning or stopping by the grocery store after work.
Starbucks, for example, has done a great job of leveraging occasion-based behavioral data to increase sales and delight customers. Their iconic Pumpkin Spice Latte has practically become a sign post for the onset of fall. Over the past twenty years, the Starbucks holiday cups have become a source of both obsession and controversy. It’s no secret that these seasonal offers consistently pump up the company’s Q4 numbers.
Benefits sought segmentation
Most of the time, we buy things because they solve a problem or provide a benefit. Segmentation based on benefits sought attempts to understand and group audiences based on why they purchase, as it relates to the perceived benefits of your product. Types of benefits sought could include:
- Reviews & feedback
- Other unique selling points (USPs)
Benefits-based behavioral segmentation groups customers based on their answers to questions like:
- Why did you buy this product?
- What pain point did it solve for you?
- What would you be doing without it?
- Which specific features are most valuable to you?
For example, one customer may purchase a particular car for its gas mileage, while another was swayed by its safety features. Yet another customer could purchase the exact same car simply because their friend has it and loves it.
Segmentation based on customer loyalty
Repeat customers spend 67% more than first-time buyers. And 84% of consumers say they’re more inclined to stick with a brand that offers a loyalty program. Measuring a customer’s allegiance to your brand helps reveal what instills loyalty, as well as what types of rewards increase customer lifetime value and drive repeat purchases. In other words, segmentation based on customer loyalty lets you put your resources where they’re most likely to produce an ROI.
LEGO offers a great example of using customer data to develop and improve loyalty programs. The popular toy maker recently changed their loyalty program to include a broader audience segment (not just high spenders) and gives rewards members more choice in the type of awards they can claim.
LEGO further individualized their program by making certain rewards available only to certain customers and awarding extra points for specific SKU purchases. The change has been a success for the brand and even earned them an industry award.
Segmentation based on buyer’s journey stage
Segmenting your customers according to their stage in the customer journey is all about delivering the right message, in the right format, at the right time. The buyer’s journey is typically broken into four stages:
Observing your customer to see where they are, and how they move through each stage helps you align your communications, personalize the customer experience, and increase conversions. It may also reveal stages where customers drop off or languish, giving you a chance to find out why and devise solutions.
For example, someone in the consideration stage for purchasing a new smartphone might benefit most from content such as a comparison checklist or user reviews. As they move closer to a purchase, they may respond best to (and potentially be swayed by) a coupon code or promotional offer.
Segmentation based on user status
You can also segment customers behaviorally based on where they stand with your product, aka their “user status.” Some examples of user status (and the types of messaging they need to hear) are:
- Prospects need convincing that your solution is right for them
- First-time buyers might benefit from instruction and tips on using your product or service
- Return customers need to feel appreciated and can be introduced to complementary products & features
- Defectors have left for a competitor and need to be wooed back into your arms by fixing a problem
- Brand evangelists should be rewarded or incentivized for sharing your brand with others
In the highly competitive auto insurance industry, brand loyalty rates have steadily dropped since 2004. To combat this, GEICO regularly sends out “we miss you” emails to former customers along with an offer to see a new, more competitive rate. No doubt this strategy helps keep them in the number two spot among the U.S.’s top car insurance companies
Understanding the ‘whats’ and ‘whys’ behind consumer behavior can unlock insights your brand needs to edge out the competition - not to mention winning points in your customer’s eyes. While deciphering this web of behaviors can seem daunting, the right behavioral analytics tool can make the process far less complicated.
Looking to measure customer behaviors continuously and in real-time? Learn how Scuba can provide insights across your entire customer experience within a single view.