Behavioral segmentation: A complete guide

Think of two coffee shops on the same street. One sends the same "10% off!" coupon to everyone on their mailing list. The other notices you always order a double espresso before 9 AM and sends you a "morning person" deal for an extra shot.

Which one earns your customer loyalty?

That's the difference behavioral segmentation makes. It's not about sorting people into boxes based on their age or zip code – it's about understanding what they do, how they do it, when they do it, and most importantly, why they do it.

You're probably thinking, "Great, another marketing buzzword I need to care about."

However, if you're in marketing and you're not paying attention to how your customers behave (not just who they are), you're trying to navigate with your eyes closed.

Let's fix that.

In this guide, we'll walk through everything that matters about behavioral segmentation. 

What is behavioral segmentation?

Behavioral segmentation is the cornerstone of any solid marketing strategy, especially in the ecommerce industry. It's about observing what your customers do, finding patterns in their customer journey, and using those valuable insights to group similar behaviors together.

As part of your overall market segmentation approach, you're not just looking at basic customer data, but tracking meaningful behavioral patterns as part of your marketing efforts:

• Purchase decisions (and what stops them)
• Timing of engagement (from browsers to buyers)
• Usage behavior and frequency
• How your customer base responds to marketing messages
• Customer engagement levels across touchpoints

Why does this matter? Because behavioral targeting based on what customers do tells you way more about their next move than demographic or geographic segmentation ever could.

Benefits of behavioral marketing segmentation

Source: Optimizely

1. More sales

You can:

• Time your offers better for higher conversion rates and retention rates 
• Customize your messaging for better email marketing response
• Predict what customers want next to reduce customer churn
• Reduce cart abandonment and increase customer lifetime value

2. Better customer experience

You want your customers to not just buy once, but rather stay and buy again. For this you need:

• More relevant recommendations to upsell 
• Timely communications
• Personalized experiences
• Stronger brand loyalty
• Higher customer satisfaction

Difference between behavioral and demographic segmentation

Knowing someone's age, gender, or income only tells you what they might do. Behavioral segmentation shows you what your target audience actually does.

Think about it. Demographic data might tell you that a 35-year-old urban professional with a high income is likely to buy premium coffee. That's their buying behavior. But behavioral data also shows you that this same person only buys decaf after 4 PM and prefers to stock up during monthly sales.

In simple terms, demographic segmentation = The who

• Focuses on who people are (age, income, location)
• Changes slowly over time
• Easy to collect and analyze
• Based on general assumptions
• Limited predictive power

Behavioral market segmentation = The what and why

• Tracks actual customer behavior
• Updates in real-time
• Requires sophisticated tracking
• Based on proven patterns
• Strong predictive capabilities

Behavioral segmentation allows you to better understand your different customers and create marketing campaigns that actually work. Here's how:

1. Better targeting

Instead of shooting in the dark, you're making informed decisions based on actual customer behavior. For example:

• Sending restocking reminders to customers when they typically run out
• Offering upgrades to power users who've maxed out their current plan
• Re-engaging cart abandoners with relevant incentives

2. Money well spent

Your marketing budget is precious. Behavioral segmentation helps you spend it where it counts. You can:

• Focus resources on potential customers most likely to convert
• Create offers that match actual buying patterns
• Stop wasting money on irrelevant campaigns for new products 

Types of behavioral segmentation

These five types of segmentation can be helpful for you to update the purchasing process and target customers.

1. Purchasing behavior

It's about how people buy what they buy. Some customers comparison shop for weeks, while others hit "buy now" immediately. Here's what to look for:

• Spontaneous vs. planned purchases
• Price sensitivity patterns
• Payment preferences
• Response to incentives
• Occasion-based buying

2. Usage rate

Not all customers are created equal. Understanding how often and how much they use your product is important. Think about your customers in these buckets:

• Heavy users (your power users)
• Regular users (steady customers)
• Light users (occasional buyers)
• Inactive users (potential churn risks)

3. Customer journey stage

Track where customers are in their journey:

• New customers exploring
• Regular customers engaging
• Loyal customers advocating
• At-risk customers needing attention

4. Loyalty and engagement

This goes beyond just repeat purchases. It's about the relationship your customers have with your brand. We're talking about:

• Brand advocates who sing your praises
• Loyalty program participants
• Occasional returners
• One-time buyers who need convincing to come back

5. Benefits sought

What drives customer decisions:

• Price-conscious buyers
• Quality seekers
• Convenience prioritizers
• Experience enthusiasts

Examples of behavioral segmentation 

Let's look at some companies doing behavioral segmentation right for their groups of customers.

1. Spotify wrapped

Spotify does a fun year-end review. Spotify tracks:

• Listening patterns
• Playlist creation
• Genre preferences
• Time-based engagement
• User engagement levels

They turn this behavioral data into:

• Personalized playlists
• Targeted recommendations
• Engaging user experiences
• Strong emotional connections

2. Amazon's frequently bought together

Amazon's algorithms analyze:

• Purchase combinations
• Browsing behavior
• Cart interactions
• Buying frequency
• Customer preferences

Challenges in behavioral segmentation

Here are just some of the challenges marketing organizations will need to overcome to implement an effective behavior segmentation strategy:

Source: Optimizely

1. Privacy concerns

Collecting comprehensive behavioral data is genuinely challenging, especially for small businesses. Privacy regulations like GDPR and CCPA set strict limits on how you can collect, store, and use customer data. The penalties for violations are severe, making compliance non-negotiable. Beyond legal requirements, there's also the ethical consideration of balancing personalization with privacy protection.

2. Poor segmentation

Poor behavioral segmentation affects your entire business strategy. Here's what happens when it goes wrong:

• Over-segmentation spreads your resources too thin
• Missing key behavioral patterns leads to lost opportunities
• Complex segmentation structures become difficult to manage
• Too many data points can lead to diminishing returns

3. Changing customer behavior

Customer needs and behaviors evolve constantly, requiring continuous updates to your segmentation approach. External factors like economic changes or technological advances can quickly make existing segments irrelevant. For lifestyle brands especially, customer behavior changes as they progress through different life stages.

4. Measurement and attribution

Tracking the effectiveness of behavioral segmentation isn't straightforward:

• Attribution becomes complex across multiple channels
• Long-term benefits can be hard to quantify
• Different segments need different success metrics
• Creating reliable control groups is challenging

Behavioral segmentation strategy

Here are the steps to get your behavioral segmentation strategy up and running.

1. Track: Don't jump into complex segmentation if you can't track basic customer actions. And if your data's scattered across twelve different platforms, you'll have a bad time. Keep your data in-house using warehouse native analytics.
2. Pick behaviors: Not every click needs to be analyzed. Focus on behaviors that impact your bottom line such as purchases, engagement patterns, service usage, etc.
3. Start small: Begin with one or two behavioral segments. Maybe it's purchase frequency or usage patterns. Master those before you expand.
4. Make it actionable: Each segment should have a clear purpose and action plan. What will you do differently for each group?
5. Automate: Manual segmentation is like trying to count grains of sand, tedious and probably inaccurate. Use tools and automation to do the heavy lifting.
6. Test: Your assumptions about customer behavior might be wrong. Test, measure, and adjust. Then do it again.
7. Keep it fresh: Customer behavior changes. Last year's power users might be this year's dormant accounts. Update your customer segments regularly.
8. Measure impact: Track how each segment responds to different approaches.

Wrapping up 

Unlike static demographic profiles, behaviors paint a dynamic picture of engagement, purchasing patterns, and brand loyalty. While behavior tracking and analysis requires consistent effort, it provides invaluable insights into customer intent and preferences.

As digital interactions evolve and new channels emerge, your behavioral segmentation approach must adapt accordingly. At its core, behavioral segmentation isn't just about better targeting, it's about understanding actions that drive business outcomes.

When you grasp how customers naturally interact with your brand, you can create experiences that resonate.