Think about all the decisions you made today.
- Which fruit should I eat for breakfast?
- What should I wear to work?
- Should I visit the bank during my lunch-break?
- Whom shall I ask about getting a new laptop?
- Where can I find a gift for my boss?
While these may seem like mundane, everyday and boring things, these are precisely the decisions that give marketing experts sleepless nights!
For a marketing professional, the questions would be:
- How did you come to the final decision?
- What action did you take to achieve the result you wanted?
- How much did you spend, why, where and by what method?
- What was your journey like to your goal?
- Were you satisfied with the result?
- Would you repeat the same process when you had to make the same decision again?
Consumer behavior has always been an elusive chimera to sellers across the world, ever since humans invented commerce and business. While it was relatively easy to know the consumer/customer back in the day when a business operated out of a brick-n-mortar store where a customer walked in and asked for what they wanted, today it’s a completely different story.
Businesses operate in ways that are far removed from traditional methods. To give an example, while scrolling through your social media page and chatting with a friend about hiking in the mountains, you’re astounded when an ad pops up about mountain boots!
This isn’t brilliant mind-reading, creepy surveillance or sinister telepathy. It’s called behavioral segmentation and it’s what nearly every online business uses. They don’t peek inside your head, but they do use the data available from cookies, IP addresses, Google analytics, advertising platforms, marketing automation systems, etc. to figure out what interests you and how it impacts your behavior.
As a business owner, it’s essential that you know more about Behavioral Segmentation.
What Is Behavioral Segmentation?
Market segmentation has been around for a very long time.
- There is archaeological evidence to prove that our Bronze Age ancestors used geographical circuits to segment their trade roots.
- Medieval retailers segmented the hoi polloi from aristocratic customers by designating different shopping spaces in their store to separate the two.
- German toy manufacturers in the 19th century created different products for different global markets.
- Data from census reports, tax registers and street directories was compiled in the early 1900s by an American ad agency to differentiate customers by social status and income levels.
Early marketing studies focused on who the consumer was and how they engaged with the product/service. This was analyzed via data on location, gender, age of the individual consumer or through “firmographics” or company size, industry sector, etc.
Behavioral segmentation takes this concept a step further and asks “What did she/he do?”
It’s about understanding the consumer/customer/website-visitor’s behavior and using the insights gained from these actions.
What Behaviors Can Be Segmented?
Marketers use learning from subjects such as psychology, sociology, anthropology etc. to derive conclusions from the unprecedented amount of data available to them today via analytics. Modern CRM (Consumer Relationship Management) databases provide huge amounts of information on behavior.
Today it’s possible to observe consumer behaviors such as:
- type of product consumed
- content that is preferred
- frequency of interaction with a website/app/business
- repurchase intentions
- willingness to refer your business
- retention and loyalty
- route by which they arrived at your website
- number of products purchased at a time
- use of coupons and rewards
- timing of purchase
Purchase decisions are a subject of intense study by marketing experts as they ultimately affect revenues and sustainability of the business.
Customers typically go through a decision-making chain:
- Recognition of the need to purchase due to stock-depletion, regular habit, dissatisfaction with an existing product/service, need for related products, curiosity about a new product
- Information search and evaluation are the next stage where the consumer analyzes the range available
- Analysis of alternatives comes next with comparison shopping for quality, price, benefits, discounts etc.
- Purchase intent and final purchase decision follow
- Post-purchase analysis where the consumer matches the product with the initial expectations
At every stage of this journey, behaviors can be observed, recorded and analyzed to arrive at a pattern.
When larger groups of consumers display shared behaviors, they can be grouped into a behavioral segment. There are different types of behavioral segmentation:
- Purchasing behavior
- Benefits expected or sought
- Occasion or event timing
- Journey stage
- Satisfaction and loyalty
- Interest and level of engagement
- Status of user (whether regular, occasional, infrequent, non-user etc.)
These behaviors are not mutually exclusive and customers typically overlap into different segments. You can use one or more of these segmentation methods or you can combine them according to your type of business.
Benefits of Behavioral Segmentation
For marketers, observing consumer behaviors yields a rich vein of insights. They can categorize customers, according to buyer personae such as “Smart” “Price-conscious” “Risk Averse” “Social Media Influenced/Influencer” “Not In a Hurry” “Impulsive” etc.
Behavioral segmentation helps businesses to identify, correctly serve and retain high-value consumers.
It can help deepen and extend your consumer pool.
Through this method you can align your communications to your customer’s needs, preferences and budget
You can provide a completely personalized communication with an individual customer based on the data available.
Behavioral Segmentation allows you to identify the bottlenecks and obstacles in the customer journey and to fix them.
You can build weighted algorithms based on behavior over an extended period of time, based on the customer’s behaviors across all the touch points on your website and across other channels where your message is available to them.
It gives you a reality check on the effectiveness of your product, how the consumer uses it and how often they do.
An important yield is frequency of purchase data – you get insights into when and why the consumer has purchased something. For instance, a birthday, anniversary, corporate milestone, regular monthly purchases, etc. can give invaluable insights into behaviors. These recurrent occasions can be used to provide relevant marketing messaging.
Through behavioral segmentation, your business can offer customers personalization and the feeling of being valued.
This allows you to allocate your marketing resources in the most optimal way. There is less wastage of time and effort that would occur if you were beaming out a general message to the unsegmented market.
Finally, the biggest benefit of behavioral segmentation is that it enables prediction. When you discern patterns of behavior, the next step seems logical and you can identify trends. This in turn allows you to plan for your own future, forecast sales revenues, and launch new products and services.