Customer behavior data is an essential tool for creating successful marketing, product, and other customer-centric business strategies and campaigns. In fact, research has shown that companies that effectively utilize insights from customer behavior can outperform competitors by 85% in sales growth.
Using behavioral customer segmentation, brands can leverage their customer data to better understand users’ actions, anticipate their needs, and identify which marketing strategies they’re most likely to resonate with.
But first, we need to understand what behavioral segmentation is and when to use it.
What is behavioral customer segmentation?
Behavioral segmentation is the marketing process of dividing customers into groups based on their actions and behavior patterns as they interact with the company. This might include how a customer navigates a company’s website, their interactions with marketing emails, or the patterns and frequency of their past purchases.
Where other types of customer segmentation can tell you who your customers are, behavioral customer segmentation allows you to group customers based on what they do. To create effective customer segments, we need to see both sides of the equation.
By pairing an understanding of who your customers are (demographic, geographic, and psychographic characteristics) with the actions they have taken with your brand, businesses can more accurately distinguish segments and identify how best to target them.
Why is behavioral customer segmentation important?
Behavioral segmentation helps you identify your most engaged customers and how they interact with your brand. This helps brands better allocate their time and resources to the segments most likely to make a purchase.
In addition, the process of analyzing customers’ past actions can help brands identify obstacles in the customer journey or high converting stages that could be further optimized.
From there, brands can build personalized marketing strategies for segments with common behavioral characteristics. This helps companies nudge consumer groups closer to a sale through the channels they’re most likely to engage with.
How do I know which behavioral customer segmentation strategy to use?
Because companies often have a wealth of behavioral data on their customers, there are many ways of segmenting customers based on their past actions. In many cases, brands will use a combination of behavioral segmentation types to optimize customer experiences for different groups.
Here are 7 types of behavior-based segmentation that you should know:
- Customer journey stage
- Past purchase behavior
- Customer loyalty
- Occasion (timing-based)
- Benefits sought
To understand which behavioral segmentation strategy is right for you, let’s look at what each of these segmentation methods means and how they can be used–and when they might fall short.
7 Types of Behavioral Customer Segmentation
1. Purchase Behavior
Segmentation based on purchase behavior relates to grouping customers on their level of involvement in purchase decisions. In other words: what kind of shopper they are. This is typically determined by the steps they take on their path-to-purchase and the type of product or service being offered.
Purchase behavior is typically segmented into 4 categories:
- Habitual buying
- Variety seeking
There are different ways of naming and classifying behavior types, but the important thing to understand is how these interactions can inform business strategies.
For example, customers with complex purchasing behavior are typically more meticulous and slower to make a purchase than other shoppers. They might spend a lot of time researching alternative products and clicking through your brand’s website before making a purchase.
For this type of customer, a good course of action to move the sale along might be to share educational materials or testimonials that establish credibility and increase the customer’s confidence in the brand.
On the other hand, customers with variety-seeking purchase behavior are more likely to make quick purchase decisions and switch between brands frequently. These customers might be better persuaded with eye-catching logos or retargeting materials.
By understanding what a customer’s path-to-purchase looks like, brands can better support customers throughout their decision-making process.
A usage-based segmentation approach involves grouping customers by how frequently they use or interact with your product or service. For example, you might segment customers into heavy, medium, and light users.
This allows you to test new ways of increasing usage (or purchases) for different levels of loyalty to your product. For example, Uber Eats offers varying retargeting promotions based on app usage. In this case, a light user might receive less frequent, higher-value meal coupons to entice them to return, whereas a heavy-user may get lower-value discounts to encourage use on a regular basis.
3. Customer Loyalty
Usage directly relates to customer loyalty, but there is one aspect of loyalty-based segmentation that we have not discussed: loyalty programs.
Brands know that loyal customers are an enormous asset to their business–from high lifetime value to brand advocacy. Therefore, many companies reward high-engagement customers with loyalty programs. Loyalty programs are specific reward systems that customers can only join after spending a certain amount of money with the company or paying a premium to be part of the program.
For example, Amazon offers customers a premium for Amazon Prime that gives customers access to free 2-day shipping and other benefits. For loyal customers that make frequent purchases, the benefits may well be worth the price, and by signing up, they become part of a distinct, highly targetable segment of customers for the business.
Occasion-based behavioral segmentation relates to grouping customers based on the occasions they’re most likely to interact with the brand and make a purchase. This type of segmentation is typically based on one of the following:
- Universal occasions (holidays, seasonal events)
- Personal celebrations (birthdays, vacations)
- Time-based occasions (day of the week, time of day)
For example, Dominos may send customers marketing promotions on Friday or Saturday nights if customers have frequently ordered at these times in the past.
5. Customer journey stage
The customer journey stage relates to a customer’s path from brand awareness to brand advocacy. Segmenting based on the customer journey stage will look different for each company based on how they classify the stages in this journey.
The challenge for brands is identifying which actions indicate a customer is in a specific stage. This will require tracking each of the channels and touchpoints a customer interacts with on their way down the marketing funnel. Are they subscribed to your newsletter? Have they interacted with an ad? Both? A range of data points will be necessary to correctly place customers in the right stage.
Despite its challenges and broad scope, segmenting by the customer journey stage can be essential to effective marketing. It allows businesses to identify key obstacles along the customer journey, personalize experiences and messaging at each stage, and make better use of marketing channels and communications.
6. Benefits Sought
Benefits sought is a segmentation method that refers to the features, values, or use cases that motivate customers to purchase a product.
To segment customers based on benefits sought using only behavioral data, these benefits need to be clearly distinguishable among product variations.
For example, let’s say a soup brand offers three variations of the same type of soup: regular, light, and extra protein. The company might find that a group of customers only buys the light option. Therefore, the brand assumes that these customers are seeking health benefits and classifies them as such.
Unfortunately, this may not be an accurate categorization if there are other factors that could have influenced the purchase decision. For example, if the light soup is also the cheapest option, there is no way for the company to know if the customer was seeking low-cost or health benefits.
In other words, behavioral data won’t always be enough to rule out which benefits a customer is motivated by. To do so, businesses would be better off conducting a pricing study, which can help identify exactly what value consumers place on each product attribute, and which benefit has the strongest impact on their purchase decision.
Interest-based behavioral segmentation refers to grouping customers based on the interests they indicate through interacting with a company. This type of segmentation works well for companies that can track and predict customers’ interests at scale.
For example, Spotify and Netflix have complex algorithms that can track individual user behavior and identify which genres of music or entertainment they like. This allows the company to create personalized recommendations and experiences that align with those interests.
This type of behavioral segmentation may not be accessible for companies or industries that don’t have this depth of data on individuals’ interests. In this case, brands can leverage psychographic segmentation to better understand their audiences’ interests and opinions.
Digging Deeper into Customer Segmentation
The uses and benefits of behavioral segmentation are extensive, but that doesn’t mean it’s the end all be all for understanding your customers. Even when paired with geographic and demographic characteristics, we are still missing a key understanding of what drives customer behavior.
The underlying motivations, values, and expectations your customers have can drastically impact their purchase decisions and relationship with your brand. These insights are often left out of behavioral data and can only be uncovered with psychographic segmentation.
Adding psychographic segmentation into the equation gives you a deeper, more accurate understanding of your customer groups and allows you to align campaigns and strategies directly with their values.
To unlock a deeper perspective on your customers, GroupSolver® has personalized customer segmentation solutions that reveal an authentic understanding of your segments at scale, while letting the most important voices do the talking. Schedule a quick demo to get started today.