Best Practice: Getting Weak Cohorts Back on Track

Cohort analysis is a powerful way to evaluate your business by grouping customers and observing their behavior over time. The most common approach is acquisition cohorts, where customers are grouped by the date they were acquired. This allows you to track how customers acquired in a given month compare to those acquired earlier. Especially when scaling marketing activities, the quality of customers usually suffers compared to your early fans.

Why Cohort Analysis Matters

Let's say you recently ran a Black Friday promotion and want to know if you should rerun it. If you check the total number of customers added each month, you might see a significant spike in November. At first glance, the numbers look good - you received a lot more new customers as a result of the promotion, but before running the promotion again next year, you might want to see if those new Black Friday customers are as valuable as they seem. Comparing monthly customer cohorts, for example by LTV, is the perfect way to find out.

Identify Influencing Factors

The color coding of the cohort analysis makes it easy to compare their performance after the same time period. The best way to analyze the cohorts is to look at the LTV. This shows the profit of the cohorts (after COGS). But don't stop there! It is important to understand what factors have caused a cohort to have a lower LTV, for example. To do this, it is important to analyze the cohorts according to the following metrics:

• Average Order Value
• Items Per Basket
• Item Price
• Product Return Rate
• Orders Per Customer
• Gross Margin

Let's use a supplement brand to illustrate how the timing and nature of customer acquisition can influence the cohorts' performance. By understanding these dynamics, the brand can tailor its strategies to effectively target and engage each cohort based on their unique characteristics and preferences.

Average Order Value
Example: Customers acquired during a January New Year's Resolution promotion
This cohort may be primarily motivated by New Year's resolutions and may have purchased only the supplements they perceived as essential to their short-term health goals. 

Items Per Basket
Example: Customers acquired during a Buy 2, Get 1 Free promotion.
Cohorts without this promotion may see a gradual decline in the value of items per basket if the brand does not continually offer similar bundled promotions. In addition, individual products that were readily purchased in combination may no longer be available.

Item Price
Example: Customers acquired during a Summer Slimdown campaign.
The Summer Slimdown campaign may have emphasized affordable weight loss supplements and meal replacements to attract new customers. This cohort may continue to prioritize lower-priced items, especially if they initially joined the brand for budget-friendly weight management solutions. This is especially true if the price is well below the average price of your brand's other products, making them seem expensive in comparison.

Product Return Rate
Example: Customers acquired during a spring launch of a new supplement line.
The brand introduced a new product in April and most customers in this cohort may have been early adopters who purchased this new product. However, since it was a novel offering, some customers may have experienced a higher return rate if the product didn't meet their expectations or if they experienced any adverse effects. 

Orders per Customer
Example: Customers acquired during a holiday season gift campaign.
Customers in the December cohort may have a lower number of orders because they initially made purchases for holiday gifting rather than personal use. Their buying behavior may not align with frequent orders outside of gift-giving occasions, leading to a consistent lower order frequency.

Gross Margin
Example: Customers acquired during a Flash Sale event in July.
The Flash Sale cohort may have a lower gross margin because they were initially attracted to the brand by discounts and may continue to seek and expect similar discounts in the future. They may be less inclined to purchase products at regular prices, affecting the overall gross margin for this cohort compared to previous cohorts.

Improvement Strategies

Let's stick with our examples to show how improvement strategies can target cohort-specific challenges and guide them toward behaviors that increase their LTV.

Average Order Value
For the New Year's Resolution cohort with a lower AOV, encourage them to explore additional supplements that align with their long-term health goals. Offer personalized product recommendations and bundles tailored to their resolutions. Implement a loyalty program that rewards them for recurring purchases, helping them see the value in a continuous supplement regimen.

Items Per Basket
Sustain the Buy 2, Get 1 Free cohort's high items per basket metric by regularly offering attractive bundled promotions. Create seasonal bundles with variety to maintain their interest. Encourage cross-selling by providing product recommendations based on their previous purchases.

Item Price
Focus on upselling and educating customers to choose higher-priced items that meet their health goals and preferences. Create bundled packages that include a mix of lower-priced and premium supplements. Offer these bundles to the Summer Slimdown cohort at a slightly discounted price compared to purchasing the items individually. Encourage the cohort to upgrade to these bundles by emphasizing the value and convenience they provide.

Product Return Rate
Reduce the return rate within the spring launch cohort by providing detailed product information, usage guidelines, and testimonials. Offer a satisfaction guarantee or hassle-free return process to boost customer confidence. Continuously solicit and act upon customer feedback to refine product formulations and minimize adverse effects.

Orders per Customer
Nurture customer engagement for the holiday gift campaign cohort year-round. Develop a content marketing strategy that provides value beyond the holiday season, such as educational articles, wellness tips, and product updates. Encourage customers to maintain a supplement regimen and consider gift-giving for other occasions, thereby increasing their order frequency.

Gross Margin
Introduce your tiered loyalty program to your Flash Sale customers where they can access higher tiers by consistently purchasing premium supplements. Reward customers in higher tiers with exclusive benefits, such as early access to new products or personalized consultations with health experts.

Identify Cause And Effect

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Read our full blog post about cohort analysis for Shopify stores here.