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Cohort analysis

What is it?

Cohort analysis is a subset of behavioural analytics which allows you to study the behaviour of a group over time. The groups or cohorts in this context are aggregations of data points, or relevant stakeholders in your business, and the data may come from e-commerce platforms, web applications or sales data.

The groups being analysed usually share a common characteristic so that you can compare cohorts and extract some potentially meaningful insights. The behaviour being assessed can be anything that is of interest to you and your business.

The goal of any business analytic tool is to analyse data and extract actionable and commercially relevant information that the business can use to increase results or performance. But a database full of hundreds of thousands of entries relating to all users, across many different categories and time spans can make it difficult to extract much in the way of useful insights. The universe of data is too large and too jumbled.

What makes this technique so useful is that it allows you to see patterns in the data more clearly – patterns that would otherwise be missed if the data was not clustered in cohorts. By drilling down into each specific cohort you can gain a much better understanding of that group’s behaviour. Obviously when you understand what a specific cohort or group is doing you can modify your approach to improve results.

When do I use it?

Cohort analysis is especially useful if you want to know more about the behaviour of a group of your stakeholders such as customers or employees.

Rather than having to take a broad brush look at what all your customers are doing or how they are reacting to a new product or change in service, or, for example, looking at absenteeism across all your employees, you can get a much more accurate picture of what’s really going on if you can divide those stakeholders into groups that share similar features.

Cohort analysis is therefore more commercially relevant and can help you identify problems and make better decisions.

What business questions is it helping me to answer?

Cohort analysis can help guide decision making, especially around decisions that could alter behaviour in important stakeholder groups. It can help you to answer:

  • Who are my most profitable customers?
  • What characteristics do my different customer groups share in common?
  • How do particular groups of my customers behave?
  • What characteristics do particular groups of employees share in common?

How do I use it?

There are four essential steps in cohort analysis:

  1. You need to determine what questions you want answered. What are you trying to find out about your stakeholder group or sub-groups? The whole point of analysis of any type is to provide answers to strategically important questions so you can identify what needs to be done differently or what opportunity needs to be exploited in order to improve some element of your business.
  2. Next you need to define the metrics that will be able to help you answer the questions you’ve identified. Cohort analysis requires the identification of the specific properties you are going to examine in the group. For example, gender, date of first or last purchase, level of purchase, etc.
  3. Next you need to define or identify the specific cohorts you are going to assess. This will often require you to perform attribute contribution in order to find the relevant differences between each group or sub-group so that you can use that difference to explain the difference in their behaviour.
  4. Finally you perform the cohort analysis. The findings are often then visualised in a graph or table. This visualisation can help spot the patterns that will then shape decision making.

There are many different variations on cohort analysis that you can run based on your needs and what you are trying to understand. If you want to know more about cohort analysis and how to use it explore the links at the end of this chapter. Plus there are many software options available that could help you.

Practical example

Perhaps you want to know more about who is buying your products. You can look at sales data to see how many sales you’ve made and you can look through demographic data, but if you looked at all the data as one data set if wouldn’t necessarily be obvious if you were selling more to one market segment than another.

Cohort analysis allows you to create and assess the sub-groups or cohorts that exist within the single large data set called ‘customers’ and drill down to see if there are any additional insights that could improve your results.

You might, for example, discover that you have groups or cohorts that outsell all the other groups combined. If you discover that most of your sales are made to women between 35 and 45 then you can tailor your marketing and advertising to further tap into that lucrative market and increase sales.

Tips and traps

Cohort studies are based on past result data or what your group under investigation did in the past. This can be a trap because what happened before will not necessarily happen in the future.

Further reading and references

To find out more about cohort analysis see for example:

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