The science and sense in segmenting customers

It is fair to argue that a strong correlation exists between Customer Segmentation and these. I further submit that CVPs, USPs, CX, CLV and Customer Retention can be further optimised if customer segmentation is done right and takes precedence over anything else, and a business truly understands both the client and the market.

Customer segmentation is simply dividing the target market into smaller groups that have similar attributes or characteristics.  While some organisations choose to segment their market from the get-go (when they start operating), some prefer building sizable portfolios where there is no segmentation until scale has been built.  You really cannot tell with precision when is the perfect time to do so is, more so that segmentation can be quite indulging and an expensive endeavour. The entity’s resources, capabilities and the impact it seeks to make on the market must be taken into consideration as well, but businesses that adopt segmentation at the earliest start of their operations derive lot of benefits and will have a clearer path in navigating the business maze.

In banking, more than two decades ago, segmentation was limited to broader categories of just Retail (individuals) and Institutional clients (small, medium businesses to large corporates).  Banks have gone deeper in segmenting clients to serve them better and offer relevant products in line with that specific segment.  It is in other aspects of financial services such as Asset Management where the broad segments remain, and this could be purely due to the fact that the customer base is not as huge as one would expect to find in banking.

The Insurance industry is following this trend and segmentation models are becoming more prevalent. Institutional clients can be further segmented into Corporate Clients, Commercial Clients and Public Sector Clients while in   Retail banking you can have sub-segments such as Private Banking, Mass Affluent, Mass Banking and Student Banking. Although the segmentation criteria are mostly by turnover, other ways of segmenting clients can still be pursued. The call to action is not a suggestion for banks to create more segments but rather to use qualitative and quantitative data to galvanise and acknowledge that even within the existence of their current segments, more data can be utilised to define and segment customers. Besides, for any strategy to work, one must spin data and create stories that will give one hardcore facts about one’s customers.

Other than using client turnover to carry out market segmentation, there are ways of segmenting clients. There is Behavioural segmentation, a business can use customer purchasing habits, client loyalty with the brand and engagement to classify clients. Psychographic segmentation is another way where a customer’s inner qualitative traits such lifestyle, opinions, interests and values become the hallmark of classifying the customer. The most used in this era is Demographic segmentation where basic traits like age, religion and education are used as clues to segment customers.

As indicated, this is commonly used in segmenting clients and massive strides have been achieved in this regard. Inclusive of our local banks, CVPs for Islamic banking clients have been created. More opportunities still exist. Areas such Senior’s Banking have not been explored. Although some people may view it as discriminatory, the truth is Geographic aspects such as the physical location, city, district and population density are used by some businesses in segmenting their clients, especially brands that operate internationally or globally. Lastly, Firmographic aspects can be one way of segmenting clients or a market. The customer’s industry or the attributes of their business are used for classification in this case.

A plethora of benefits can be derived from the practice of segmentation. First, client segmentation gives a business more ammunition to know clients at a more intimate level, thus able to offer much-needed competitive advantage in exploring new markets and products. It is also a given that Customer Experience will most likely improve because the understanding of customer needs and preferences affords you a better chance of serving clients better in comparison to an entity that is clueless about their client’s attributes.  Building better and relevant CVPs and USPs also follows naturally, but only if the Research and Product Development processes are strictly informed by clues and behaviours from identified segments.

Even in marketing activities such as product promotions and campaigns, if they these run parallel with customer or market segmentation, more return on investment should be achieved and more hits than misses. You are most likely to be talking to the right customer profile, and not just wasting bullets in the dark.

Besides, one of the general rules in life is that as human beings we yearn to connect with people who understand us and whom we understand. The starting point is knowing each other at a deeper level.  Businesses that know their clients can connect with them better. Once they do so, in return clients trust them and will remain loyal to the businesses.

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LinkedIn: Gomolemo Kololo Manake

e-mail: gomolemo.manake@icloud.com