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The first step of conducting Customer Behavior analysis is to segment your customers as you'll want to identify the characteristics of customers who are the most valuable to your business. Typically there are six types of behavioral segmentation:-

1. Benefits sought
   

   When a customer is looking to buy a product or service their behavior can reveal what benefits, features, or values are most important when making a purchasing decision. For example, a customer buying a jacket may be buying one based on the price, material, color, etc... Any of these benefits sought can be motivating factors to a customer and influence their purchasing decision.

2. Occasion or timing-based
   

   Occasions can be universal or personal. Universal occasions such as holiday sales and discounts apply to all the customers equally and signify a time when customers make more purchases. Personal occasions can be recurring such as buying groceries every week or rare such as buying a wedding gift.

3. Usage rate
   

   The frequency with which customers use a product is another way to apply segmentation. Usage rate signifies customer loyalty or churn and overall customer lifetime value.

4. Brand loyalty status
   

   Loyal customers are extremely valuable to a business because they are less costly to retain and have the highest lifetime value. By analyzing customer behavior data customers can be segmented by their level of loyalty. And loyal customers can be given special privileges such as special discounts or loyalty rewards.

5. User status
   

   Different customers have different user status such as:

   • Non-users
   • Prospects
   • First-time buyers
   • Regular users
   • Defectors
6. Customer journey stage
   

   Segmenting customers based on where they are along their customer journey map can help you understand potential roadblocks they’re facing and why they are not progressing forward to purchase.

Besides the typical way of customer segmentation, there is another way to segment customers called the RFM model.

RFM stands for Recency, Frequency and Monetary Value. 

• Recency = how recently a customer placed the last order on your website

• Frequency = how many times a customer purchased something from your website in a specific period of time
• Monetary Value = how much each customer spent on your website since their first order

You cam use RFM model to segment your customers in the following ways:

1. Manually: By manually reporting customer data in a spreadsheet and then segmenting the customer based on RFM rules.
2. Automatically: By using tools like Tableau that can create RFM dashboards.

This may be one of the most important and critical business activities you ever do so do not skip the process of segmenting your customers! 

Read our other articles in our Series on Customer Behavior Analysis & Segmentation:

• Part 1: Customer Behavior Analysis
• Part 2: How to Conduct a Customer Behavior Analysis
• Customer Behavior Analysis & Segmentation - Full Article

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