By Mary Ellen Georgas-Tellefsen
Segmentation. Even though it’s one of the most important strategies applied by successful banks and businesses, it comes in and out of style in the banking industry every few years.
There’s no doubt a segmentation strategy can be challenging to implement in a multi-channel, multi-product, and multi-stakeholder environment. But a focus on specific segments that are important to your institution will pay dividends in the long-term by increasing customer loyalty and profitability.
Why adopt a segmentation strategy?
Successful businesses in all industries begin the product development and marketing processes with a few simple customer-centric questions:
- Who are our customers?
- Who do we want as our customers?
- Why should those customers do business with us/buy our products?
The answers to these seemingly simple questions are quite complex, especially if you’re sitting in the C-suite at a bank. Banks serve consumers and businesses, low income, high income, disparate industries, and multiple generations to name a few segment types.
In other words, banks appear to be all things to all people.
However, through an organized and intentional process, banks can focus in on certain segments they deem to be important and profitable for the business. Only then can they create products, services, delivery platforms, and communications plans to best support those relationships.
It doesn’t mean the bank stops offering its products and services to all comers. What it means is that investments, priorities, and decisions will be focused on creating value for its target segments—and enhancing what the institution offers them.
Need some examples?
Look at Signature Bank or Sterling National Bank. They offer a range of consumer and business products. However, they are focused on business banking and providing their commercial customers with every product, service and convenience possible.
Next, consider First Republic Bank. This bank has carved out a very successful niche by banking all aspects of its affluent and high net worth clients’ lives. They still offer products and services to all consumers and businesses. But their marketing, product suites, and dedication to service (tagline: “It’s a privilege to serve you”) is focused on and directed at affluent consumers and business owners.
At its roots, segmentation is all about creating more profitable relationships with customers.
Segmented customers receive better product packages and services to meet their needs, while the bank deepens relationships and margins. A segmented focus also informs the team how NOT to spend scarce dollars or hours.
In a nutshell, the benefits of segmentation include:
- Focused strategy for product development, communications, and sales
- Better guidelines for prioritization and decision-making
- Enhanced new-customer acquisition efforts
- Deeper relationships leading to improved revenue and profitability
Who’s your segment?
If you think your institution has no segment focus, think again. Look at your geographic market, analyze your existing customer base, and most importantly analyze your new-to-bank customers to assess whether they have different characteristics than your existing base.
Whether you know it or not, your bank is attracting and serving certain types of customers. If you know who you are serving—and decide who it is you want to target—your bank can make better decisions for those target customers.
When setting out to identify your bank’s target segment(s) there are a lot of variables to consider: Is the market growing or declining? What types of consumers and businesses are in your market area? Do you want to use some type of age/income or psychographic scheme to segment your customers?
Some of the more popular segment targets include:
- Generational definitions (think baby boomers, Gen X, millennials and Gen Z)
- Affluent/ Mass Affluent
- Business Owners
- Tech Adopters
Keep in mind that once you define your target segments, you have to be able to find those people and businesses and market to them. Don’t make the reality of targeting and marketing too difficult.
One other thought. While personalized micro-marketing is all the rage—and may be the future of marketing—most institutions are not in a position to capitalize on this technology any time soon. That’s okay. Just going through the exercise of assessing your markets, customers, and target segment preferences puts your institution ahead of the pack. When the time is right, you’ll be positioned to take advantage of new marketing technologies.
Consider these five factors when adopting a segmentation strategy.
Regardless of which type of segmentation focus works best for your institution, the critical success factors remain the same:
- Dedicated and collaborative management team – Too many times management asks staff to carve out time from an already over-crowded schedule to take on new projects in addition to their existing roles and responsibilities. While it’s great to assign segmentation responsibilities to resources who know your organization, it’s not great to ask them to divide their time. If your organization is serious about creating and executing a segment-based strategy, you have to dedicate resources toward the endeavor. And it can’t be a part-time endeavor. Some institutions create segment-focused teams within Marketing, and other organizations create lines of business. Both organizing principles have their pros and cons (which is another topic altogether). The point is that your segment team needs to create a business model, financials, value proposition, products, services, marketing plans, and management tools. They will be busy. And to be successful, they need to be 100% focused on launching your segment endeavor.
- Cross-functional coordination – When your dedicated team is in place, it will need management support to work across lines of business, products, regions, operations, channel management, and every other department in the bank. Whether you want to admit it or not, your organization probably contains a silo or two. Your segmentation group is going to be on the front lines of battling for help and resources from established groups, hierarchies, and silos. They will need executive support to ensure the organization is not only responding to but also prioritizing their requests.
- Laser focus on the customer experience – Keep the segmentation team focused on the customer and customer experience! Every decision needs to be filtered through a customer lens. The learning never stops—the team will be constantly discovering new things about your target segment(s). Creating and delivering a superior customer experience that fulfills the particular needs and preferences of a target segment will almost certainly guarantee success.
- Competitive differentiation – Can you answer the following questions without using “customer service” or “price” in the answer? What makes your institution special? What makes your segment focus special? What is special and differentiated about your offer for your target segment(s)? What is your bank is doing or offering to make someone in your target segment come to your bank?
Finding a differentiating factor without defaulting to your bank’s customer service or pricing has turned out to be a challenge for many institutions. Get creative and challenge your team to find other innovative ways to offer your target customers something special.
- Patience – This is a long-term strategy. Nothing happens in banking overnight, and this couldn’t be truer when creating, implementing, and launching a new segment-based business. The team will face challenges implementing the plan and going to market. And the project timeline will inevitably grow longer than anticipated. Be patient, Rome wasn’t built in a day and neither is your segment-based business. However, once you’ve introduced your new products/services/focus to the market, give the field and your team the support it needs to be successful. If you’ve built the right product suite with attractive pricing and the right delivery mix for your target segment(s), customers and prospects will respond. And your bank will see balances grow, relationships deepen, and profitability begin to rise.
Mary Ellen Georgas–Tellefsen is an experienced banking industry consultant. She is a firm leader at Capital Performance Group, LLC, providing strategy, marketing, and digital channel consulting services to the financial services industry.