Customers are the heart of any business. A lot of effort goes into attracting and retaining customers through marketing campaigns, customer satisfaction surveys, targeted sales strategies, and more.
But if you don’t truly understand what your customers want and how they behave, all these tactics fall on deaf ears. That's where cohort analysis comes in.
In this tricky landscape where you want to reel your customers in, make them happy and keep them satisfied, it requires a deeper assessment of their nature.
That's where cohort analysis comes in.
Cohort analysis offers the opportunity to gauge the state of business operations, ranging from evaluating current strategies and informing future business campaigns. It provides a data-driven understanding of your customer base and useful ways to develop such relationships and maintain them over-time.
What Is Cohort Analysis?
Cohort analysis is a time-and-group based approach to tracking the behaviors by consumers (B2C) and even businesses (B2B). It achieves this through organizing the group around common demographic traits such as age, gender, or income and studies this group’s (i.e., the cohort) behavior through tracking their actions over a period of time.
Imagine you want to understand how different groups of customers interact with your business over time. Cohort analysis helps you do this by:
- Grouping customers: You create groups, or "cohorts", of customers who share something in common. This could be their age, when they signed up, where they live, or what they bought.
- Tracking their behavior: You follow these groups over time to see how they act – what they buy, how often they use your app, if they stop using your service, and so on.
Think of it like a long-term study of your customers. This helps you see patterns and trends you might miss otherwise.
Cohort Analysis vs. Customer Segmentation
It’s common to confuse cohort analysis with other research methods, specifically customer segmentation – so let’s break it down.
Cohort analysis engages in customer segmentation, which groups a set of people according to specific characteristics (i.e. age, location, etc.). This feature resembles the grouping aspect of cohort analysis thus explaining the constant comparison.
However, the major difference is that customer segmentation is cross-sectional data collection where it gathers information at one point in time – still useful but depending on the purpose, may not be as fruitful as a longitudinal-based analysis like cohort analysis.
The purpose behind cohort analysis is about assessing customer behavior throughout their life cycle (e.g. campaign effectiveness or seasonal shifts). Whereas, customer segmentation is best for determining “growth potential” in designing or launching a product.
Despite the differences, here at Drive Research we’re adept at customer segmentation! Here’s some articles that discuss the meaning, utility and process of segmentation!
- How to Conduct Customer Segmentation in 6 Easy Steps
- How to Group Your Customers into Market Segments
- How to Use Segmentation to Improve Your Marketing Strategy
Why Is Cohort Analysis Useful?
Cohort analysis is a lucrative tool for companies. It improves your current methodologies, campaign approaches and relationship with customers through establishing foundational understanding of target audiences.
Cohort analysis relies on the following to produce this foundational kind of analysis:
- Longitudinal-roots
- Direct connection from the source
- Group organization
Longitudinal-Based
Since the analysis takes place over a period of time, it follows a longitudinal model of study – a unique quality to this is that behaviors specific to a cohort (i.e., any single or composite of features, like age, membership status or membership date) is reflected in the cohort’s design.
In the context of consumers, this kind of attribute-based grouping is useful since companies can inform their advertising approach for insights on what’s been effective or their branding approach, whether the perception has been consistent or any sentiment changes or track intensity of engagement depending on the quarter.
Direct Link
Another perk to cohort analysis is that it’s verifiable proof directly from the source. The tricky thing with researching people is that their self-reported perspectives aren’t always accurate – not to call consumers liars but it’s an issue of human nature.
We’re not always privy to our own habits, good or bad and this translates into engagement (i.e. shopping, app-usage).
Issuing a survey is a fantastic way to gain insight about attitudes but awareness about particular behaviors from a specific subset of members like which group shows up the most during a specific season or which group purchases a product at high volume versus those that don’t is where cohort analysis shines.
Why? Because cohort analysis tracked their behavior, not just what they said but what they did!
Evidence of what occurred which researchers can point to – this means a lot for managing customer relationships or product launches and brand campaigns. It tracks the selected group’s choices and actions through which insightful themes or patterns emerge.
Group-Focused
A benefit to cohort analysis is the cohort itself!
The great thing about this method is that it isolates certain characteristics whether sociodemographic-based (i.e. race, age, geo-location) or something more intentional like behavior-based (i.e. specific product line users) or acquisition-based (i.e. time of subscription).
This lays the foundation for analysis by narrowing the focus on a specific subset of users or consumers. Considering the duration of behavior across different groups can be very informative!
The longitudinal-format offers a unique opportunity to observe group dynamics over time corresponding to a certain behavior.
If a company wants to understand more about their older consumer group compared to their younger groups, then cohort analysis permits this scope.
Or if the advertising department is curious about the conversion rate or click-through rate differences between quarterly periods, cohort analysis supports this utility Despite the granular nature to this nuanced methodology, cohort analysis is adaptable in its application.
What Is Cohort Analysis Beneficial For?
In our experience, cohort analysis is commonly used for effectively tracking and gauging patterns throughout the customer lifecycle. Basically, cohort analysis is a GPS, while there’s still a journey ahead via follow-up surveys or interviews, at least now you're moving in the right direction.
More specifically, our market research company often performs a cohort analysis for businesses looking to measure customer churn and retention.
Customer Churn
Customer churn is when there’s gradually reduced customer interaction with a product or service line.
For example, a meal prepping start-up just launched their app to their users. The design team wants to observe their interactions to determine the utility of this new service.
They launched the app in Q3, it was well received and showed promising results in Q4 – however in Q1, the team noticed a significant drop in engagement, but this behavior seems scattered.
Through a customer-churn based cohort analysis, the researchers were able to pinpoint, “What?” AND, “Who?”. To further characterize their process in understanding “Why?”
From there, researchers can determine when the duration of the “churn”, through tracking the variable’s behavior, increases or decreases and when that specific behavior occurs.
Customer Retention
Whereas, customer retention measures who maintains engagement with the product or service.
For instance, a skincare app releases a subscriber-exclusive feature and wants to assess the success of this feature via interaction frequency. By positioning the inception of the feature, against the duration of engagement can provide some insight on whether it’s favorable or not.
Cohort analysis is able to determine the “When?” and “What?” in a customer’s relationship with a company. This can inform their investigation into the “Why?”; why are our older users breaking up with Company ABC (churn) or why are generation Z users still with Company XYZ (retention)?
Master Cohort Analysis With Drive Research
Drive Research is a national market research company specializing in advanced analytic techniques such as cohort analysis, TURF analysis, MaxDiff analysis, and more. Whether you are looking for a partner to execute a full-service online survey or solely focus on the data analysis and reporting – we can help.
Contact Drive Research today for more information.
② Email us at [email protected]
③ Call us at 888-725-DATA
④ Text us at 315-303-2040