Finacle Whiteboard

Nothing could be further from the truth. Customers’ needs have specialized to such an extent that each expects to be treated as a “segment of one”. Chances are that customers who share geography, language or ethnicity will have more in common than those who’ve transacted the same amount. Therefore, while relationship value is important to understanding and retaining loyalty, it’s not a stand-alone parameter of customer segmentation.

Banks need to look at new, more effective ways of grouping their customers. Besides nativity, other factors worth considering are social status, generation (Baby Boomer, “X”, “Y”), financial behaviour and sophistication. What’s more, it’s important to recognise the interplay of different factors of segmentation – for instance, do most Hispanic customers have similar income levels or transfer money through the same channels? Upon deeper reflection, it becomes clear that broad segments can be progressively drilled down into finer sub-segments to arrive, at least in theory, at a “segment of one”. Each of these segments must be targeted with innovative offerings relevant to the needs of the constituents. Besides product and service features, pricing, channel and timing issues also determine the relevance of the offering to the target segment. For example, Gen Y needs simple products delivered over sophisticated channels, whereas the Baby Boomer generation wants exactly the opposite.

Banks that are truly serious about making a shift in segmentation strategy must throw their entire weight behind it. They must be prepared to make changes in their policies, processes and people, if necessary. They must also ensure that they have the right technology backbone in place. Only modern core banking systems have the capability to capture and process massive amounts of data needed to draw up customer segments, and the flexibility to enable banks launch innovative products with agility.

Related Read: New Segmentation Approaches to Drive Product Innovation - A Thought Paper