In the digital age, data has become financial institution’s most valuable asset, providing insight into product performance, consumer behaviour, market trends, and more.
Customer segmentation plays a vital role in all of this, creating opportunities to better understand each customer’s needs and preferences and how to better target those needs and preferences in order to increase revenue.
Customer segmentation plays a vital role in all of this, creating opportunities to better understand each customer’s needs and preferences and how to better target those needs and preferences in order to increase revenue.
What is Customer Segmentation?
Customer segmentation is the process of dividing customers into groups based on common characteristics so companies can market to each group effectively and appropriately.
Segmentation allows companies to better tailor their marketing efforts to various audiences. Those efforts can relate to both communications and product development.
Specifically, segmentation helps a company:
- Create and communicate targeted marketing messages that will resonate with specific groups of customers, but not with others.
- Select the best communication channel for the segment, which might be email, social media posts, radio advertising, or another approach, depending on the segment.
- Identify ways to improve products or new product or service opportunities.
- Establish better customer relationships.
- Test pricing options.
- Focus on the most profitable customers.
Customer Segmentation Example
ABC Bank has performed a customer segmentation analysis based on customer demographics (i.e. age, gender, marital status, income, region, number of children, etc) and credit behavior (i.e. credit card limits, mortgage loan possession, vehicle finance, and other credit product possessions)
Benefits
- Providing bespoke products and service.
- Flexibility in customer orientation, convenience orientation, pricing orientation and relationship orientation is vital for customer retention.
- Churn prevention from loyal and profitable customers.
- Deeper market penetration, preventing downward migration in terms of value.
- Increasing profitability with existing customers by effective cross selling of products in current competitive business scenario.
- Retention of highly profitable customers is the key challenge in current highly competitive business scenario and can be achieved by continuous effort of offering customer centric products/services.
