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From data to market strategy using behavior segmentation

How to personalize your offers for business growth

Photo by Belinda Fewings on Unsplash
Photo by Belinda Fewings on Unsplash

74% of customers feel frustrated when your product offerings are not personalized (source Forbes). Behavioral segmentation can help solve the problem. Simply said, behavioral segmentation is about understanding customer behavior – how they interact with your product or website, how often they use it, how much they spend, and what products they buy.

Once you have an understanding of customer behavior, you can personalize your offerings. This can lead to higher customer satisfaction as well as business growth. In this blog, you will see how to go from data to market strategy using behavior segmentation.

Behavior segmentation process (image by author)
Behavior segmentation process (image by author)

Data collection and Feature creation

Behavior segmentation requires collecting data from various sources such as website navigation data, billing data, product purchase data, and lots of other sources. The more data you have, the better you will be able to understand the behavior.

In order to illustrate the process, let me take an example of a telecommunication company. Shown here are sample features that are created at the customer level. It has got information on demographics, what services the customer has, as well as billing information. The image below shows only sample features out of a total of 40+ features.

Sample data (image by author)
Sample data (image by author)

Segment creation using clustering

We can create segments using a Clustering algorithm, and assign each customer to a segment. Shown below is a result of the clustering algorithm. There are three segments shown in blue, red, and green colors. Each dot corresponds to a customer.

Segment creation using clustering (image by author)
Segment creation using clustering (image by author)

Segment Interpretation

So what do these segments mean? A radar chart can help us to interpret the segments.

For example, the green cluster is one with customers with the highest tenure and who use all services such as Internet service, Online backup, Tech support, and Streaming movies.

Interpreting green cluster (image by author)
Interpreting green cluster (image by author)

The blue cluster is one with the lowest tenure and moderate usage of all services.

Interpreting blue cluster (image by author)
Interpreting blue cluster (image by author)

The red cluster corresponds to customers who have only phone service and do not have digital internet services.

Interpreting red cluster (image by author)
Interpreting red cluster (image by author)

Market strategy

Once the segments are interpreted, the next step is to develop a market strategy.

The green segment is Digitally engaged customers.

A market strategy could be to create a digital loyalty card and reward them based on the use of digital services. This will in turn also increase revenue for the company.

The blue segment is moderately engaged with low tenure.

A market strategy could be to offer discounts and convert them into long-term contracts.

The red segment is basic customers with only phone service.

A market strategy could be to educate them about the advantages of digital services and then upsell digital products.

Conclusion

Behavior segmentation can help develop a market strategy that is personalized to your customers. In this blog, you saw the process of developing such a personalized market strategy

Datasource citation

The dataset used in this blog is from a telecommunication dataset available here. Both commercial and non-commercial use of it is permitted.

Telco customer churn (11.1.3+)

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Further reading

Please also check out my related blog.

From data to marketing strategy using transactional segmentation

YouTube channel

You can also video on behavioral segmentation on my YouTube channel

Website

You can visit my website which is a no-code platform to learn Data Science. https://experiencedatascience.com


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