What Is Cohort Analysis? Complete Guide for eCommerce Brands

Cohort analysis evaluates customer data by grouping them based on their buying behaviour, acquisition date, and other patterns. Businesses can understand trends and optimise their marketing strategies by analysing customer behaviour over time. This ultimately helps in retaining customers and generating revenue. 

The key is to group the customers (cohorts) appropriately. If the cohorts are not defined properly, then the analysis may not derive correct insights. In order to ensure its effectiveness, it may be clubbed with psychographic or behavioural segmentation.

Let’s say a business runs a marketing campaign based on which it receives responses from customers. Cohort analysis involves observing and registering the number of customers that purchase the product on day 1, day 2 and so on. These numbers are usually compared with another campaign run at a gap of a few days or weeks. A comparison is done between the two to analyse the difference in their impact.

Different Types of Cohorts

Users or cohorts are grouped on the basis of different factors. This is essential to gain valuable insights and increase the engagement rate. Here is a look at the different types of cohorts:

Acquisition Cohorts

This segmentation is done on the basis of the first interaction of the users with the business or product. It allows businesses to monitor customer retention over time by showing when they leave the app. If more users are leaving the app it means that the brand is not able to offer a good experience. It must work on improving the experience and maybe even the products and services being offered. If the retention rate is good then the business must maintain its quality of service and the overall experience it offers.

It should be noted that acquisition cohort analysis is an effective way to figure out when the customers leave. However, it does not provide the reason behind the churn rate.

Behavioural Cohorts

As the term suggests, this type of cohort is identified on the basis of the behaviour of the customers. Factors such as the installation of apps, buying patterns and the amount of transactions done are taken into consideration during this analysis. Behavioural cohort analysis helps identify how different behaviours influence the engagement and retention rate. The moments and reasons for engagement and churn can be identified with this analysis, and improvisation can be done accordingly.

Key Benefits of Using Cohort Analysis

Here is a look at the various benefits of eCommerce cohort analysis:

1. Increase in Customer Retention Rate

Cohort analysis helps businesses understand customer behaviour. It makes it easier to identify why some customers engage actively with the brand while others leave. By analysing cohorts over time, businesses can improve customer retention and lower the churn rate.

2. Better Marketing Strategies

Customers are categorised into different groups to conduct cohort analysis. By understanding their buying patterns, engagement rate, and overall behaviour, businesses can adjust their marketing campaigns to better promote their products and services. This drives better results and improves the return on investment.

3. Improve Product Development

This unique analysis enables businesses to understand how different customers interact with a product. Using this data, they can refine the product’s features and make it more viable. As the product becomes more aligned with the users’ needs, its demand increases.

4. Better Performance Measurement

Cohort analysis creates segments that help understand the impact of new features, changes in pricing policy, and more. Thus, this analysis can better measure the performance of the products and business as a whole. It also helps analyse the performance of various acquisition channels. Therefore, businesses can leverage the channels that give better returns. 

5. Greater Revenue 

Cohort analysis helps businesses understand customer behaviour. Using this information, they can devise better strategies and generate greater revenue. It helps in sustainable growth over time.

A Step-by-Step Guide to Perform Cohort Analysis

Several steps are involved in conducting cohort analysis. Here is a step-by-step guide to understand how it is performed:

1. Set Objective

Begin by defining the purpose of your eCommerce cohort analysis. Some businesses conduct the analysis to improve customer retention, others to evaluate the effectiveness of their marketing campaigns, and others to understand which acquisition channel is best suited for a particular business. A clearly defined objective ensures that the analysis provides essential insights.

2. Determine Key Performance Indicators

It is important to determine the key performance indicators relevant to the set objectives. These may include customer retention rate, churn rate, engagement rate, and purchase frequency, among others.

3. Define Cohorts

A crucial step in the process is to group users on the basis of different factors such as their sign-up date, first purchase and purchase pattern. It is important to define the cohorts accurately in order to ensure accurate analysis.

4. Create Graphical Representation

Display the cohort data using charts, tables, and graphs. Graphical representation of data helps one understand the trends more easily.

5. Assess and Repeat

Assess the insights derived from cohort analysis to understand what works for the business and what areas need improvement. Based on the analysis, improve your strategies.

Choosing the Best Cohort Analysis Tool for Your Needs

Using the right tool to ensure accurate eCommerce cohort analysis is important. Here are some factors that must be considered while selecting the tool:

1. Creation – The tool must enable you to define cohorts on the basis of different factors.
2. User Friendliness – It should be easy to use and integrate with other systems.
3. Visualisation – The tool must offer a clear graphical representation for a better understanding of the insights.

Shiprocket’s Role in Improving Customer Retention

Customer retention is important for eCommerce success. Choosing the right shipping partner is crucial to create the right impression and attract customers. 

Shiprocket is a reliable shipping aggregator that offers exceptional shipping solutions. We have tie-ups with multiple courier partners that ensure timely and safe deliveries. 

Shiprocket leverages advanced logistics tools to offer real-time order tracking and quick order fulfillment. Any delay in the shipments is conveyed proactively to the customers. Our efficient customer service support to help with queries and complaints. We offer a timely resolution that builds trust, enhances customer satisfaction, and improves retention.

Conclusion

Cohort analysis is a powerful tool for understanding customer behaviour. By segmenting users based on the aforementioned factors, businesses can track patterns and improve their marketing strategies. It helps understand what keeps the customers loyal to the brand and coming back. Many companies are using cohort insights to improve customer retention and grow their business.