Cohort analysis is a method used to analyze the behavior of a particular group of customers over time. In this approach, cohorts are created as unchanging groups, where no new customers join a cohort once it’s formed, and customers cannot move from one cohort to another.
The most common type of cohort is the group of customers who became part of the business in a specific time frame, such as the second week of January or the fourth quarter of the year. Also known as “static pool analysis,” cohort analysis tracks the behavior of these specific, fixed customer groups over time, as they move along the customer lifecycle curve.
Cohort analysis is useful for identifying trends within customer behavior that may be hidden when looking at more general analytics data. For example, overall analytics data may show an increasing number of monthly purchases, which seems like a positive sign for the business. However, cohort analysis may reveal that the higher overall percentage is due to many first-time buyers, while cohorts of older customers are actually returning to make purchases much less frequently than in the past. Therefore, following the behavior of particular cohorts over time provides a more accurate view of business performance.
When a company experiences a “bad month,” it’s essential to understand if the unexpected performance drop was due to a market-wide factor or a specific problem that might be identified and adjusted. For example, if most new customers in a particular month spent much less than the customers acquired in previous months, it would be wise to examine any changes in acquisition strategy and identify under-performers.
Sophisticated cohort analysis involves tracking the longer-term impact of a particular marketing action on a group of customers who were treated with that marketing action. By creating a cohort of this customer group and tracking its behavior over time, the marketer can achieve much deeper insight into the long-term effects of a particular marketing action.
Another advanced use of cohort analysis is combining cohort analysis with behavior-based customer micro-segmentation. This involves defining a cohort of customers who exhibit certain behaviors, such as high spending on a particular product over a specific period, and spotting trends among this specific group of customers to gain insights into customer acquisition, uplift marketing, and customer retention.