1、Market Segmentation:A FIG PerspectiveFINANCIAL INSTITUTIONS CONCEPTS TRAININGMike Sherman,Senior Marketing Specialist,HKFebruary 9,1998CONTENTS?What is segmentation?How do we use segmentation?How do we segment a customer base?NY-ZXP662/980206YhaHR1?What is segmentation?Objective Criteria Examples?Ge
2、neral?Banking?How do we use segmentation?How do we segment a customer base?NY-ZXP662/980206YhaHR1CUSTOMER SEGMENTATION DEFINED?Customer segmentation is a process of separating a large group of customers or prospects into smaller groups that share common characteristics.?It aims to identify segments
3、that can be more profitably served by adapting average products,channels,and service offerings to their specific needs.NY-ZXP662/980206YhaHR1SEGMENT YOUR CUSTOMER BASE ACCORDING TO SIX CRITERIACriteriaActionableDifferentiableProfitableReachableExecutableDescriptionSegments are different between and
4、similar withinSegmentation addresses the business objectivePotential for first mover advantage Profit opportunity identified in the segments The company must be able to communicate and deliver to the segments DefensibleCompany has the(potential)skills and systems for implementation NY-ZXP662/980206Y
5、haHR1SOFT DRINK MARKET IS HIGHLY SEGMENTED?COCA COLARefreshmentCokeOne cola for everyoneLow-calorie refreshmentDiet Coke Refreshment Caffeine-freewithout caffeineCokeFruit-flavored refreshmentNY-ZXP662/980206YhaHR1Cherry Coke SNEAKER MARKET SEGMENTS ACCORDING TO ACTIVITY TYPE?NIKEBasketball shoesAir
6、 JordanOne sneaker for everyoneExerciseshoes Air Zoom RunningshoesAir MaxSoccer shoesNY-ZXP662/980206YhaHR1Tiempo ProBANK CUSTOMER SEGMENTSFocusCustomer groupsCharacteristics?Sales US$250m?Numerous suppliers?Sales US$5-250 m?Lead bank and several other suppliers?Sales US$5m?1 lead bank?Private finan
7、cial services?1/2 banksLarge corporatesMiddle marketSmall businessRetailNY-ZXP662/980206YhaHR1RETAIL CUSTOMER GROUPS HAVE DIFFERENT FINANCIAL PROFILESPercentCustomer groupsLow520%25U.K.EXAMPLE428Mass473234UpscaleAffluent23113835CustomersNY-ZXP662/980206YhaHR1AssetsLiabilitiesCUSTOMER PROFITABILITYVA
8、RIES DRAMATICALLYPercent,?Million profit annuallyU.K.EXAMPLEHigh profit20%202080-80-12016088020Profitability drivers?Product holdings?Delivery channel?Credit riskLow profit 20CustomersNY-ZXP662/980206YhaHR1Customer profitabilityCUSTOMER NEEDS ANDBEHAVIORS DIFFERStrongly agree-percentConsolidationI w
9、ould like all my financial needs to be met by one financial institutionU.S.EXAMPLEChannelI would prefer to use ATMs for routine transactions ratherthan tellers19337ServiceI would prefer to conduct all my financial business in person25145244Affluent,middle ageAffluent,youngerMass,olderLower,younger11
10、18285310NY-ZXP662/980206YhaHR1CONSUMER HOUSEHOLDS CAN BE SEGMENTED BY INCOME AND AGEMillions of householdsU.S.EXAMPLEHousehold income$75,000Younger affluent(7)SuccessfulMiddle beginnersfamily(5)(8)Affluent(5)Middle core(6)Older upscale(4)$45,000Young mass Mass market(13)(20)Older mass(20)$15,000Youn
11、ger lower(12)Older lower(8)35Source:PSINY-ZXP662/980206YhaHR15065Age of household headCONSUMER NEEDS CAN SHAPE SEGMENT ATTRACTIVENESSPercent of all respondentsWant it all?Want convenience,prestige,price,competence?Value personal relationship?Interested in both branch and new channels?Young,blue coll
12、ar,low-mid incomeGERMAN EXAMPLEAttractiveRemote users?Prefer direct/remote channels?Not interested in personal relationships?Mid to high income,wealthy,higher education,young to mid-ageConservative,cost-conscious?Are price conscious,but care about image/prestige?Prefer branch channels?Elderly,low ed
13、ucation,low income1414%15Performance?Want advice,accuracy and speed?Will choose performance and price over advice or contracts?Not at all are concerned with prestige/image?Young to middle age,wealthy,medium to high income171228Personal relationship?Face-to-face contact importantPrefer one financial
14、institution for all servicesNeed to trust/know bankerNot concerned about competenceElderly,low education,low to mid income,high assetsCompetence?Confidentially/discretion are key Need to trust/know banker for advicePrice is not an issueHigh income,young to middle ageNY-ZXP662/980206YhaHR1SEGMENTS CA
15、N HAVE WIDELY VARYING DEMOGRAPHIC CHARACTERISTICSPercent Seg-ment AverageAge8122025921202321222018242628-451645-651723131921Urban26183021212826Geography161313EmploymentABCDE16201322131321233619221965+27Rural1927All18-28respondentsNY-ZXP662/980206YhaHR1Employed Self-employedCUSTOMER NEEDS AND COST-TO
16、-SERVE VARYCLIENT EXAMPLECost to serveLowerClient preferencesPercent saying strong agreeMiddle marketUpperLower5084Strong personal relationship55424031Upper50Direct expenses16Gross contributionDeal with same person every timeAverage spending on financial servicesUpperLowerNY-ZXP662/980206YhaHR1Produ
17、ct usagePercent using 6-10 productsUpperLower2161235,00084,000DIFFERENT SEGMENTS REQUIRE DIFFERENT SERVICES OFFERINGS CLIENT EXAMPLEAND SALES STRATEGIES Lower middle marketTargetProducts focusService offeringClients with sales from US$5-25 millionPrimarily credit,deposit,cash management,trust and in
18、vestment advisory,private banking and leasingPersonalized,simplified banking?Ease of use?Allows business owners to focus on business?Close integration of business and personal?Faster solutionsLeverage sales teams through technology,direct sales and telemarketingUpper middle marketClients with sales
19、fromUS$25-250 million Lower middle market products plus international services,foreign exchange,investment banking,hedgingYour trusted financial advisor?Trust-based partnering relationship?Integrated solutions based on client needsSales strategyNY-ZXP662/980206YhaHR1Team selling concept using credit
20、 and product specialists?What is segmentation?How do we use segmentation?Product development Channel development?How do we segment a customer base?NY-ZXP662/980206YhaHR1PRODUCT DEVELOPMENT SHOULD BE BASED ON CUSTOMER NEEDS AND BEHAVIORCustomer Customer behaviorneedsTransactorRate sensitiveStatus see
21、kersLow confidenceIncentive orientedRevolverFirst USA teaser ratesAmerican Express American Express Green and Gold Cards Optima CardCitibank Classic CardCitibank AAdvantage Card ILLUSTRATIVEFee sensitiveBrand consciousNY-ZXP662/980206YhaHR1AT&T Universal CardOpportunitySEGMENTATION ENABLES BANKS TO
22、PURSUE RELATIONSHIP MANAGEMENT STRATEGYBeforeCorporate segmentAfterLarge corporatesUpper-middle marketSmall businessLower middle market?All corporates served by relationship managers?No distinction in service based on customer profitability and potentialNY-ZXP662/980206YhaHR1?Tailored approach by se
23、gment?Organization structure and service dependent or profitability and potentialPRIVATE AND CORPORATE CUSTOMERS SHOULD BE SERVED THROUGH DIFFERENT CHANNELSIncome-based customer segmentsRelationshipmanaged inPrivate customersPrivate bankingWealthyUS$300,000Branches/regional centersBranches/specialaf
24、fluent centersAffluent10-15%US$70,000GERMAN EXAMPLECorporate customersMulti-nationalsLargeUS$1 bn2-5%Relationshipmanaged inCorporate centerUS$30 mnCorporate/regional centerBetter offsBranches25%US$30,000-70,000Middle13%US$3-30 mnRegional centersMass60%US$30,000 Small85%US$3 mnBranchesNY-ZXP662/98020
25、6YhaHR1All customers use branch network for transactions?What is segmentation?How do we use segmentation?How do we segment a customer base?Value delivery systemNY-ZXP662/980206YhaHR1CUSTOMER SEGMENTATION IS A VITAL ELEMENT OF THE VALUE DELIVERY SYSTEMValue delivery systemChoose the valueNeeds/buying
26、 factorsProvide the valueServicePriceCommunicate the valueSales Adver-messagetisingPromo-tion,PRValue Value Product Distri-segmen-packagecreationbutiontation NY-ZXP662/980206YhaHR1FIRST:SEGMENT CUSTOMER BASEValue delivery systemChoose the valueNeeds/buying factorsProvide the valueServicePriceCommuni
27、cate the valueSales Adver-messagetisingPromo-tion,PRValue Value Product Distri-segmen-packagecreationbutiontation Hypothesize the key buying factors?Benefits?Price?Usage occasionIdentify segments which seek similar value offerings?Based on valueDetermine specific value packages to offer and evaluate
28、 in terms of:?Segments similar within and different between?Useful to company situation?Customer demand?Cost implications?Do-ability/company skills?Competitive reactionNY-ZXP662/980206YhaHR1HYPOTHESIZING KEY BUYING FACTORS IS CRITICAL ApproachEnd productObserve a customerList of key buying factors?Price?Brand?Service speed?Service quality?Location/proximityAsk a customerNY-ZXP662/980206YhaHR1Think like?What is the a customer purchase process?What is important in choice?How are products used?Product breadth
