Introduction
In the dynamic world of eCommerce, understanding customer behavior is key to successful business growth. Product-level cohort analysis is a vital tool that groups customers based on the first product they purchased, providing deep insights into purchasing patterns and customer preferences. This article delves into the benefits of utilizing this form of analysis and guides you on how to interpret and apply these insights effectively.
What is Product-Level Cohort Analysis?
Product-level cohort analysis segments customers into groups (cohorts) based on the first product they purchased from your store. This method allows you to track and analyze the behavior of these groups over time, offering valuable insights into how different products influence customer loyalty, repeat purchases, and overall engagement.
How to Conduct Product-Level Cohort Analysis
To start, you'll need data on customer purchases, specifically focusing on what each customer's first purchase was. Typical data points include:
Product Name/Type: Identifies the first product purchased.
Acquisition Date: When the customer made their first purchase.
Follow-up Purchases: Subsequent purchases made by the customer.
This data can be visualized in a cohort analysis table, where the rows represent different products and columns represent time intervals (e.g., months or quarters after the first purchase). Continuously update your cohort analysis to reflect recent trends and changes in customer behavior
DataDrew automatically creates these cohorts for you on your lifetime data.
This analysis helps in understanding the lifecycle of customers in relation to specific products.
Acquisition Product: The product which customers purchased in their first order
Cohort Size: The number of customers who made their first purchase in that cohort.
First Order: The number of customers who placed their first order and the cumulative revenue they generated
Monthly Columns (e.g., 0, 1, 2, 3): These columns represent months post-acquisition and show customer engagement or purchase behavior over time.
Analyzing the Data
Product-Specific Trends: Understand which products are attracting more new customers and their subsequent purchase behavior.
Customer Lifecycle: Track how long customers continue to engage after their first purchase.
Product Performance Over Time: Compare different products to see which retain customer interest.
The Value of Product-Level Cohort Analysis
1. Understanding Customer Lifecycle
Track how long customers who first purchase a specific product continue to engage with your store. This can help in tailoring customer retention strategies.
Lead By Example 🌟
Suppose you operate an online store that sells various electronics, like smartphones, laptops, and headphones.
Observations from Product Type Cohorts:
Smartphone Cohort: You notice that customers who first bought a smartphone tend to make another purchase within 3 months, often for the accessories category.
Laptop Cohort: These customers have a longer purchase cycle, often returning around 6 to 12 months later, possibly for complementary products like software or bags.
Headphone Cohort: Engagement for this group is sporadic, but they show increased activity during sales or when new models are launched.
Tailoring Customer Retention Strategies:
Smartphone Cohort: Since these customers are likely to make a follow-up purchase relatively soon, you might send them targeted promotions for smartphone accessories or extended warranty services shortly after their initial purchase.
Laptop Cohort: Knowing their longer purchase cycle, you can engage them with content related to laptop maintenance, software updates, and eventually introduce them to complementary products. Periodic newsletters featuring new releases or tips can keep them engaged.
Headphone Cohort: For this group, alerting them about upcoming sales, new model launches, and offering exclusive previews or discounts can re-engage them.
2. Identifying High-Value Products
By observing which products consistently lead to more repeat purchases, you can identify your most valuable products - those that not only attract customers but also retain them.
Lead By Example 🌟
Suppose you own "Brew & Bean," a gourmet coffee shop specializing in a variety of coffee beans.
Observations from Product Level Cohorts:
Espresso Blend Cohort: Customers who purchased the Espresso blend as their first order tend to make repeat purchases within a month, often sticking with the same blend or trying other dark roasts.
Single-Origin Cohort: These customers, starting with Single-Origin beans, show interest in exploring different varieties, with repeat purchases typically occurring every 2-3 months.
Organic Blend Cohort: Customers who initially purchase Organic blends have a longer gap between purchases but usually buy in larger quantities.
Decaf Blend Cohort: Customers who first purchase Decaf blends show very low repeat purchase rates and overall lower lifetime value (LTV).
Identifying Valuable Products & Tailoring Strategies:
Espresso Blend Cohort: Introduce loyalty programs and promotions focusing on espresso recipes, and encourage cross-selling with related products like French Roast to promote exploration within the category.
Single-Origin Cohort: Launch a monthly Single-Origin showcase, encouraging customers to try new varieties and engage with the brand through taste experiences and feedback.
Organic Blend Cohort: Offer discounts on large purchases and emphasize the health and sustainability aspects of Organic blends in marketing to reinforce their buying decision.
Decaf Blend Cohort: To address the low engagement, consider diversifying the Decaf range with unique flavors or blends, and create educational content highlighting the benefits and quality of decaf coffee. Implement targeted marketing campaigns to re-engage this cohort, possibly pairing Decaf blends with evening relaxation themes or health-conscious messaging.
3. Customizing Marketing Strategies
Understand the products that serve as effective entry points for long-term customer relationships. Tailor your marketing strategies to promote these products to new customers.
4. Product Development Insights
Gain insights into which types of products are successful in attracting customers. This can inform your product development and inventory management strategies.
5. Customer Segmentation
Segment your customers based on their first purchase, allowing for more targeted and personalized marketing campaigns.
Conclusion
Product-level cohort analysis is a potent tool for eCommerce merchants, offering deep insights into how initial purchases influence long-term customer behavior. By effectively analyzing and acting on these insights, businesses can enhance their marketing strategies, product offerings, and overall customer engagement, leading to sustained growth and success in the competitive eCommerce landscape.
Remember, the key to making the most of this analysis is in the application of its insights to drive strategic decision-making and personalized customer experiences.
Bonus - Other Breakdowns
By Product Type
Analysis: Segment customers into cohorts based on specific product types or categories they initially purchase from. This can range from broad categories (like clothing, electronics, etc.) to more specific ones (such as winter wear, smartphones, gaming accessories).
Value: This breakdown helps in understanding which product types are the most effective in attracting and retaining customers. For instance, you might find that customers who first buy luxury items have a higher lifetime value (LTV), or that those who purchase basic necessities tend to return more frequently. This insight is crucial for inventory management, marketing strategy, and product development.
By Country and Other Location Parameters
Analysis: Organize customers into cohorts based on their geographic location at the time of their first purchase. This can be as broad as country-level segmentation or as specific as city or region-based cohorts.
Value: Analyzing customer behavior based on location allows you to identify regional trends and preferences. You might discover that certain products are more popular in specific areas or that some regions have a higher customer retention rate. This information can guide localized marketing strategies, regional stock allocation, and even influence decisions on physical store locations or localized online experiences.
By Custom Parameters (Order tags / Customer tags etc)
Analysis: Utilize more nuanced customer data such as order tags (e.g., first-time buyer, bulk order) or customer tags (e.g., VIP customers, newsletter subscribers) to create specialized cohorts.
Value: Custom parameters allow for a deeper and more personalized analysis of customer behavior. For instance, tracking VIP customers might reveal that they have a higher average order value but require more personalized engagement strategies. Similarly, understanding the behavior of newsletter subscribers can help in optimizing email marketing campaigns. This level of detailed analysis supports highly tailored marketing approaches and customer service strategies, enhancing overall customer satisfaction and loyalty.