Data Engineering

How's Your Consumer Doing?

The article by Sofia Martino at Azumo highlights how data-driven segmentation can improve conversion rates and customer retention. By focusing on key variables like Frequency, Recency, and Monetary Value, brands can better engage their audience and boost ROI. The piece emphasizes the importance of understanding and nurturing your consumer base to drive long-term profitability.

Sofia Martino
September 10, 2024

Originally written by Sofia Martino, Data Solutions Architect at Azumo, this article explores the critical question: What is a good conversion rate?

What percentage would make you proud to say, “My brand is thriving!” You might search for benchmarks or averages by industry, hoping to find a number that signifies success. But beyond bragging about reaching a 4% conversion rate with a single campaign, the real question is: How are you developing your consumer base?

As Sofia points out, the key to success lies not just in the numbers but in how well you nurture your consumer relationships, and the primary strategy to achieve this is segmentation.

The Power of Segmentation

Segmentation allows for complexity, precision, and adaptability in your marketing efforts. It enables you to engage directly with specific buyer personas, understand their behavior on your platform, and ultimately increase revenue. Developing your consumer base effectively requires focusing on three crucial areas:

  1. Boosting new users: Engage and convert new users into loyal customers.
  2. Improving retention: Encourage repeat business and keep customers returning.
  3. Strengthening loyalty: Deepen relationships with existing customers to enhance their lifetime value.

According to McKinsey & Company, companies that use data-driven segmentation see a 10% to 20% increase in customer satisfaction and a 15% to 25% rise in marketing ROI. This shows how targeted marketing can significantly improve both customer experience and business results.

Analyzing the Consumer Journey

When thinking about customer development, a Cohort analysis can offer valuable insights. The goal is to improve retention, particularly within the first months after a customer’s first purchase. For example, what percentage of new users continue purchasing one month after joining your platform (M1)? What about six months later (M6)?

A study by Bain & Company highlights that increasing customer retention rates by just 5% can boost profits by 25% to 95%. This underscores the importance of not only acquiring new customers but also retaining them to maximize long-term profitability.

Leveraging Data for Effective Segmentation

How can you use data to drive segmentation? As Sofia Martino suggests, it's a matter of using smart, dynamic tagging methods based on key variables:

  • Frequency: How often a customer makes a purchase (calculated as Transactions/Users).
  • Recency: The time since their last purchase (e.g., DATEDIFF(MAX(transaction timestamp), TODAY())).
  • Monetary Value: The average purchase amount (calculated as GMV/Transactions).

Once you've tagged your segments, define campaign execution periods (e.g., T0, T1) using dynamic data models. You can structure your campaigns with clear start and end dates (e.g., >=DATE(yyyy, mm, dd) && <=DATE(yyyy, mm, dd)), and tag products at the SKU or category level for more granular targeting.

Interpreting the Results

After setting up segmentation, it’s crucial to analyze the outcomes. Key performance indicators (KPIs) will help you understand the impact of your campaigns. Consider:

  • What were the KPIs before the campaign?
  • What changes occurred in user behavior after engaging with specific product categories?

Relevant KPIs can include transactions, in-app events (e.g., cart abandonment, conversion), changes in purchasing patterns, and product cross-purchases.

A  Salesforce study shows that 79% of consumers are more loyal to brands that understand and care about their needs. This emphasizes the value of effective segmentation in building loyalty and increasing long-term profitability.

In Summary

To build and grow your consumer base, you need more than industry benchmarks—you need a smart, creative approach to segmentation. By strategically mapping customer segments, tracking performance, and constantly refining your efforts, you can not only meet industry standards but exceed them.

As Sofia Martino from Azumo demonstrates, data-driven segmentation is a powerful tool that can lead to higher customer satisfaction, loyalty, and ultimately, profitability. The key is to focus on your consumer’s journey and continuously optimize your approach.

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