Cohort analysis involves analyzing the behavior of a particular group of customers over time. Cohorts are unchanging groups; for example, no new customers join a cohort once it is formed, and customers cannot move from one cohort to another. The most common type of cohort is a group of people who became customers within 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 looks at how these specific, fixed customer groups behave over time and how they move along the curve of the customer lifecycle.

 

Likewise, when the company experiences a “bad month”, it is critical to understand if the unexpected performance drop was due to a market-wide factor (e.g., a quiet summer month) or to a specific problem that might be identified and adjusted. For example, if it is discovered that most new customers in a particular month spent significantly less than those acquired in previous months, it would be wise to examine any changes in acquisition strategy (e.g., traffic sources) and identify underperforming areas.

 

A more advanced use of cohort analysis involves tracking the longer-term impact of a particular marketing action on the group of customers who received that marketing action. Take, for example, a group of 5,000 customers who received a 20% discount coupon code by email. A sophisticated marketer will want to track the behavior of these 5,000 over 3-6 months, instead of just measuring the immediate response rate to the offer. By creating a cohort of this customer group and tracking its behavior (including spending patterns, churn rate, etc.) over time, the marketer can gain 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. A gaming website, for example, might define a cohort of VIPs (high spenders) who spent more than 75% of their money on Bingo over the past six months and who joined the site in January. Spotting trends among specific groups of customers often yields valuable insights for customer acquisition, marketing uplift, and customer retention.