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Enhancing Customer Understanding with Cohort Analysis

Enhancing Customer Understanding with Cohort Analysis

Last Updated:  
March 18, 2024

At adQuadrant, when it comes to targeting, there’s one simple premise we always consider: to attract and retain customers, you have to know them. That goes beyond knowing what products they want to buy, but understanding when they buy them, what type of marketing draws them in, and what customers similar to them are also buying. Collecting, comparing, and acting upon this data is called cohort analysis, and if you’re not doing this, you’re missing out on a powerful tool.

When you track and capitalize on this data, you can craft highly effective marketing campaigns without going over your budgeted ad spend. Over time, that leads to better Return on Investment (ROI) and Return on Ad Spend (ROAS), which in turn boosts your bottom line. Let’s dive in and talk about how cohort analysis is your ticket to an improved understanding of your customers and what motivates them to purchase your products. 

A Deeper Definition of Cohort Analysis 

For those unfamiliar, it’s a good idea to start at the beginning with a definition. Cohort analysis is a marketing tool that allows you to track and analyze the behavior of a group of customers. 

These groups, or cohorts, share a common characteristic based on previous behaviors or demographics. For example, some cohorts you might want to analyze are: 

  • Time-based cohorts: These cohorts are made up of customers who made a purchase within the same set time frame
  • Behavioral cohorts: These cohorts are based on a set of similar customer behaviors, such as amount spent, frequency of purchases, or even inactive customers
  • Demographic cohorts: These are groups made up of people of similar demographics, such as age, location, or other defining personal characteristics like gender or race
  • Channel-based cohorts: These are cohorts made up of customers based on how they became customers—did they find you through your website, a social media post, or somewhere else? 
  • Usage cohorts: These cohorts are defined by how the customers use or engage with your products

These are just a few examples. You can segment your cohorts for cohort analysis in any way that benefits your specific industry and business model. 

How Does Cohort Analysis Work? 

Cohort analysis is only as effective as the cohorts you choose, the data you track, and the actions you take after analysis. There are a few things you need to do before you get to the actual business of analysis, which are:

Choosing Your Cohorts 

The cohorts you choose should be based on your customer avatars and the metrics that will best suit your business. If you need to understand why a certain demographic is no longer responding to your targeted advertising, then that demographic could be a cohort. Want to attract more high-dollar spenders? Track their behavior to uncover buying trends. 

Choosing Your Time Periods

You also need to decide what your ideal time metric is. Should you track your cohorts daily, weekly, or monthly? All three? You can even do quarterly and annual analyses to determine long-term customer trends. Tracking cohort behaviors over time helps you see patterns of buying and usage that you might not notice or ascribe to a pattern without the addition of cohort grouping. 

Choosing Your Key Performance Indicators (KPIs)

If the first set of metrics is the selections of your cohorts and the second is the time periods you’re going to track data over, then the last thing you need to choose is the Key Performance Indicators, or KPIs, that you want to see from your cohorts. If you’re going to use cohort analysis to understand the behavior and long-term value (LTV) of your customers, then you should track KPIs like the cost to acquire each new customer, total sales, first sales, and repeat sales/retention. 

Remember that cohort analysis is about helping you make more informed decisions, and that relies on the quality of your data. You get out what you put in, so be sure to choose the metrics that best align with and will be most beneficial to your goals. 

What Can You Do with Cohort Analysis Data?

Keep in mind that cohort analysis is primarily a marketing tool, and you are using it to understand customer behavior to better promote, advertise, and boost your business. You can also use cohort analysis to identify areas for upselling and cross-selling based on the products your cohorts are already purchasing. Cohort analysis is also a useful tool for looking ahead to what your cohorts will want to buy in the future, allowing you to better target your marketing and raise the LTV of each customer. 

Cohort analysis can also be applied to different stages of the customer lifecycle, beginning with acquisition and tracking them through retention and revenue. This helps you understand how cohorts move through these stages and where improvements or interventions might be needed.

Other than tracking user behavior to optimize your marketing, you can also use the data you collect for your cohort analysis to improve your customer service processes, improve customer retention rates, and inform product development. (Hint: if you made a big ‘upgrade’ to one of your products and the customers who previously loved it most stop buying it, maybe it wasn’t much of an upgrade.) 

How Cohort Analysis Helped Our Client Crush Their Black Friday Cyber Monday Goals

We recently set up Triple Whale cohort analysis for our hair accessory client to help guide the strategy for the 2023 Black Friday Cyber Monday sale period. When reviewing the data, we found that their consumers are most likely to make a second purchase within the following time periods:

Within the same month they made their first purchase

Within the following 2 months of their first purchase

What this allowed us to do was focus our efforts on driving as much net-new traffic in the 2 months leading up to BFCM and then when the sale starts, we could scale & retarget into audiences containing people who have purchased during this time period. Our hypothesis was that these are some of our highest intent users and we felt confident that it is where our budget would be best spent in order to use the sale to get them to make their second purchase.

The big win was that we were able to beat the 2022 BFCM sale period revenue by +54% while maintaining our under 40% MER goal. 

In addition during this period overall online store sessions were up +52% YoY. We also saw massive increases in traffic from paid social channels as you can see in the data below:

Sessions from Instagram were up +49%

Sessions from TikTok were up +124%

Sessions from youtube were up +480%

Cohort Analysis Doesn’t Need to be Complicated

While it may feel like cohort analysis has a lot of moving parts, it doesn’t have to be complicated. The right tools can help you get started with cohort analysis, and Triple Whale’s cohort analysis feature is a great place to begin. This built-in tool helps you segment and track your customers based on a number of metrics that you get to choose and set to better understand your customers and their purchasing habits. 

Triple Whale’s cohort analysis feature is easily accessible from your main dashboard, and with just a few clicks, you’re on your way to gaining deep insights into your customers’ habits and just how much you’re spending on attracting and retaining those customers. These insights on LTV will help you create more efficient, effective marketing campaigns to lower your ad spend and boost your bottom line. 

Remember, cohort analysis is just one of the many tools in Triple Whale’s toolkit, but it’s a critical multi-purpose tool that will shed light on many aspects of your customer base that you might not have previously considered. It’s easy to get started; just choose your cohorts, time periods, and KPIs, and get tracking! With cohort analysis, you’ll be well on your way to understanding your customers’ behaviors, buying trends, buying power, and much more. You owe it to your business (and your marketing budget) to use cohort analysis to improve your targeting advertising and boost your bottom line. 

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