The Power of Client or Member Segmentation

In a consumer landscape where personalization in interactions, offers, and recommendations is increasingly common, expectations are forming between consumers and their providers to understand their unique needs with as little friction as possible. Organizations that can most effectively deliver personalized products, services, and relationship management are creating a “moat” around their markets, while those that fail to do so risk losing customers to the competition.

Client/member segmentation is a tool that enhances an organization’s ability to deliver on these expectations. Segmentation supports an organization deepening their understanding of the customer, their loyalty, and, in turn, their share of wallet. With this, segmentation can be approached in several ways that can vary in their effectiveness depending on the application.

What is segmentation? 

Segmentation analysis is an oft overused term that can vary substantially in its complexity. From a basic ABC sales segmentation which groups individuals based on a singular specific value such as dollars purchased; to demographic segmentation based on more common descriptors such as age, gender, education; to geographic-based segmentation based on a given geography or an associated lifestyle; or those that are more complex and integrative such as values-based, needs-based and/or behavioural segmentations which are more often effective in driving marketing and sales efforts.

How can financial services maximize the power of segmentation? 

Financial services organizations have made significant financial commitments over the last few years recognizing the power of segmentation, but some have felt limited value from their investment into segmentation.

A popular approach being used today is the application of geographic-based segmentation which is commonly referred to as a lifestyle segmentation model. Where a person lives tells a lot about one’s lifestyle, which can be used by marketing professionals to identify and target ideal clients or members with messages about the products and services that should resonate. This allows organizations to align their marketing tactics and/or physical office decisions to the most profitable markets. But this doesn’t easily translate to defining a customized and personalized journey and building of brand loyalty.  While there are benefits to this approach such it’s the simplicity of connecting to a client’s FSA or postal code it can lack the required specificity needed to maximize the effectiveness in a financial services product and service delivery application.

For segmentation to be most effective it needs to be considerate of the specifics of the financial services space while also being able to work within the confines of internal data available to feed into any model. While geographic insights are frequently available, geographic-based segmentation may miss some of the nuance found within certain (more complex) markets—such as major cities which will often note a mix of lifestyles in a concentrated area/FSA. There is also the consideration of the “chicken or the egg”. Are those who live in a specific area holding specific values, attitudes, and perceptions because they are from a given area, or are they in a given area as a result of a series of behaviours?

In our experience, the most effective segmentations take a 360-degree view that recognizes the multi-faceted nature of clients/members and leverages behavioural segmentation in its algorithms. This approach enhances insight into client/members needs, preferences, behavioural patterns, as well as the important “soft” side of the relationship. Who are they not only as your clients, but who they are as people. If you can identify their priorities and values, you are able to speak to them in their language.

Why don’t all FIs employ behavioural segmentation? 

The reason is typically complexity, concerns about data quality, and the lack of confidence in the predictive analytics and machine learning algorithms employed to drive behavioural segmentation. Practically, however, it is more that organizations view any existing segmentation models being leveraged as competing as opposed to complementary and able to build upon each other to drive desired outcomes.

For those organizations already far down the path of lifestyle segmentation, integrating behavioural segmentation in your lifestyle segmentation models will help you achieve the customized and personalized client or member experiences you are seeking.