Podcast 04: The Best Way to Think About Your Customers. Behavioral Segmentation

Hey, everybody. My name is Drew Sanocki. Welcome to the Nerd Marketing Podcast, the only podcast on all the internet where you can hear Drew Sanocki, that’s me, talk to you about ecommerce marketing. My goal here is to give you 100% actionable information. Give me five to ten minutes of your busy life and I’ll give you some proven ecommerce growth strategies that have worked for myself and worked for some of the companies I work with.

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My name’s Drew. I’m an ecommerce veteran. I live in New York City. Today’s topic is why I don’t care about sex and why you shouldn’t either. Guess what I’m talking about. No, I’m not really talking about sex. I’m talking about customer profiling and segmentation. I want to lead it all off with a story today.

The story is something that happened to me this weekend. The family and I drove upstate, get out of the city because it’s driving us nuts, because the kids are driving us nuts. Put the kids in the backseat of a Zipcar and headed north up the Hudson to explore some of the towns up there. They’re very cool. Day goes on. Everybody’s happy. We pull into a gas station to fill up the tank and a motorcycle pulls up behind the car, Harley Davidson. A woman’s driving it. She gets off the Harley, takes off her helmet. she must have been like 65, 70 years old. Grandma’s driving the Harley.

That made an impact on me for a number of reasons. You expect the Harley to be driven by the Harley guy. It’s like big beard, Hell’s Angels jacket, whatever. I think it’s just a common misperception and an issue that a lot of ecommerce store owners have that they focus in on the demographics and the lifestyle factors of their customers, and they ignore the behavioral factors. What I want to talk about in this podcast, it’s a short one, but I’m going to tell you there are two ways to profile your customers, two big ways to segment your customers out. One is based off of demographics and lifestyle. It’s the way that we all usually do. Who’s your customer? They are 30 to 35 year old females who are single professionals, who are physically active, whatever.

There’s another way to profile your customers. It’s behavioral. It’s based on behavior. That would be more like who are our customers? They are the ones who were acquired through Google. They visited our site three times and then they purchased. They haven’t been back in two days. Whatever, that kind of stuff. The main point I’d like to make here is that when you think about your business and growing your business and doing some segmentation and targeting for your business, think about behavioral segments first. Instead of our customers are 25% male, 75% female, whatever, think in terms of things like recency, frequency, and other behavioral aspects. The more you do that, the easier it will be to grow the business.

I thought of three ways why behavioral segmentation is better than what I’m going to call demographic or lifestyle segmentation. The first is that it’s a stronger predictor of future activity. If you go and build your retailer around lifestyle factors, you might have a kickass brand but you may not have any luck in getting anybody to come back to the site. I would say what’s a better predictor of a future visit to the site: somebody who just visited the site yesterday or someone who fits your demographic conception of who your customer is? A woman who’s 35 years old, single, lives in New York, whatever.

Recency. The person who visited the site yesterday, be them man, woman, child, is more likely to visit the site today and tomorrow than is just the person who you grab off the street that fits your demographic profile. If we know that recency is a better indicator of future activity, then we can build models around that and we can bring people back to the site. You may build the most beautiful site to target your particular demographic segment, but if you ignore things like recency, you’re going to be ignoring a big factor and a big predictor on bringing people back. What use is a good site if you’re not going to bring people back to the site to buy? That’s the first reason.

The second reason that behavioral segmentation is better, I think, is that it’s more helpful in selling to your existing customers. I’ll give you another example here. You’ve got two people who fit your demographic profile of who you think your good customer is. Maybe these are single males who are under 30 years old, live in New York, and do CrossFit. You got two guys, Joe and Steve. Steve’s bought from you before; Joe hasn’t. The demographic profile of both of them is the same, and now you are tasked with selling to both of them. In Steve’s case, he’s bought from you before. You want to sell more stuff to him. Demographics kind of fall short, right?

What additional insight is there to help you sell more to Steve, or sell an initial product to the other guy? Very little. If we layer behavior on, if we know that Steve bought the jump rope and that looking at our past transactional history, people who buy jump ropes ultimately buy kettle bells, we know we now have a nice cross-sell or upsell to offer Steve. It’s going to help us increase our lifetime value from Steve, where demographic information won’t do that. That would be reason number two.

Then reason number three, if it’s not obvious by now: behavioral profiles and behavioral segmentation of your customers are just way more actionable than demographics. It doesn’t help me to know that the typical customers on my website might read Time magazine or live in New Jersey. If I know, however, their recency, products they’ve purchased before, how they were acquired, when the last time they opened an email, those kind of behavioral things, then I can set up rules. I can set up very simple goals in Google Analytics. I can set up rules in my email software and I can market to them differently and sell to them differently. It’s much more actionable.

I’m not arguing that demographic segmentation is useless. Certainly it’s helpful, I think, to give some context of things like your brand and how the site should look. But behavioral is much more actionable. Really, the Holy Grail is when you can combine behavioral with the demographic segmentation. You take that woman who was riding the Harley. If we came with some preconceived notions of who Harley’s customers were, she obviously would not fit the profile, but let’s layer some behavioral data on top of her. If we know that she’s purchased a Harley but hasn’t been in a Harley store in 30 days, then the demographic profile becomes all the more compelling. We can start to do some really cool segmentation based on past behavior.

That’s the main takeaway from this podcast. It was a short one. I just wanted to introduce you to the concept of behavioral segmentation and how important it is. Why am I doing it? I’m doing it because in future episodes I’m going to help you build out some really simple behavioral models, so some simple ways to look in your Google Analytics or in your ecommerce metrics and identify the right products to sell, the right offers to make, and the right ways to market your business, all these things that can be done very easily if you just embrace this concept that past behavior has something to do with future behavior.

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That’s all I got today. My name is, again, is Drew Sanocki. Thanks for listening to this episode of the Nerd Marketing Podcast. If you have any thoughts or questions or want more information about what I’ve talked about, contact me through my blog, nerdmarketing.com, where you will find playbooks and action plans that make it easier for you to grow your online business. Please, I beg of you, review this podcast on iTunes. If you do that, you will help me bring the magic of data-driven customer analytics to the world. Let’s help spread that magic. I’ll talk to you next time. Thanks.