Shopify makes it easy for both seasoned and aspiring business owners to offer their products and services online. But, getting to know customers you might never meet in person well enough to respond to their preferences is a huge challenge.
The good news is, online customers leave a footprint of digital data points that can be used to understand their preferences and intentions. This kind of analysis might not come as naturally as a good old fashioned personal connection, but machine learning is adept at recognizing useful patterns in this kind of data.
Using data to predict how much a given customer will spend with your brand over time is called customer lifetime value (CLV) modeling. Retina is in the business of modeling CLV for our customers, so we developed a free Shopify app called Retina Go! that empowers Shopify business owners with insights about their customers. A process called customer segmentation is at the core of this method.
What Is Behavioral Customer Segmentation?
Retina Go uses machine learning to organize all of your customers into clusters. These clusters are based on behavior rather than demographics. For example, the model considers factors like usage frequency, brand loyalty, and what incentives buyers need (or do not need) in order to make purchases. The best part about using this method? It predicts CLV for each individual customer for the next 5 years. Conversely, traditional methods only show how customers behaved in the past.
Unlike demographic profiles, which can be tricky to use effectively in practice, behavioral customer segments are easy to act on. The goal is to understand what kinds of interventions will be the most effective at building connections and encouraging more interaction (read: sales) from each group. For an example, we’ll break down four key groups:
Champions: Your Most Loyal Customers
This category is composed of active customers with high CLV. Champions tend to come back often and spend the most. Oftentimes, they don’t require much marketing intervention to do so. That means you don’t have to allocate much of your marketing budget to your champions in order to keep them coming back. Rewarding them for their loyalty is a good choice, though, and champions are your best bet for testing new products.
Champions earn their name because they’re the ones most likely to promote your brand to others. This is especially true if you offer new and exciting things to keep them interested. You should also consider asking your champions for reviews directly. Champions can help you attract new business if you use them as lookalike audiences on advertising platforms like Google or Facebook. We’ve written a guide for this process if you’d like some more information.
Potential Loyalists: Your Most Promising Recent Customers
Customers in this group are active, but do not have high predicted CLV. In other words, they’ve had a couple of opportunities to get to know your brand through their recent purchases. But, they may need some encouragement and nurturing before they become loyal champions. It makes sense to devote more of your marketing budget here than the average customer—your brand is top of mind for them already.
Try offering loyalty programs or recommending new products to your potential loyalists and see how they respond. Over time, you may see some of them become champions if they continue to support your brand. Others may drop off, or only make repeat purchases if they’re heavily incentivized to do so. Either way, Retina Go will keep up with the changes so you can keep pace with your customers’ changing needs and preferences.
Can’t Lose Them: Your Best Opportunity for Intervention
Customers with high CLV but levels of activity Retina Go considers “At Risk” belong to this third category. These are customers with behavior that indicates high value over the next five years, but only if you don’t lose them before then. Their lower levels of recent activity may indicate they’re losing interest, or perhaps that your competition is winning them over.
Send personalized notifications or emails and reach out with short surveys to discover what these customers are looking for from your brand. Keep their interest alive with information about new products. Most importantly, get creative about the best way to reconnect with this audience for your unique business.
Lost High Value: Your Mission Is to Win them Back
Finally, customers in this category used to have high CLV, but their activity has since lapsed. Lapsing means activity has dropped to a point where a marketing intervention is necessary to win them back. Use what you learn in the process of reconnecting with your Can’t Lose Them customers to identify possible reasons the customers in this last category may have churned in the first place.
Next, plan a few different revival campaigns to test on this audience. Your goal is to rebuild your brand equity to encourage them to come back. Our tip is to use products with a high average order value as an offering in these campaigns. That way, it’s more worth the cost to reacquire each customer from the jump. But, remember that many of these customers were once champions. That means winning them back is about more than just that one return purchase.
All Four Segments at a Glance
Retina Go makes it easy to understand the activity and CLV levels of each and every one of your customers. At Retina, we believe it’s important to classify customers at the individual level like this. That’s because it empowers business owners and marketers can take personalized actions that each customer will find valuable.
However, looking at behavioral segments in aggregate is a great way to measure the health of your business overall. The Shopify app provides visualizations of how many of your customers belong to each segment or how different customers’ CLV changes over time. Check out the examples below.
When it comes to using CLV to make better business decisions, segmentation is just the tip of the iceberg. If you have a Shopify eCommerce business, add Retina Go to your account for free here to explore more of the use cases. We can help you lower acquisition costs with our Facebook audiences. Plus, we can tell you what customers make repeat purchases and help you find more customer just like them.
If you’re not using Shopify but still want to harness the power of CLV in your business, we’d love to help. Please reach out to us via email at [email protected].