Customer Segmentation

Kamal Kalra 28.8.12

Retail Bank Databases

If a Retail Bank has a large database of customers.. the database can be selectively targetted for cross selling of new products The financial products which can be sold are credit/debit cards, new banking schemes, Insurance products, mutual funds, tax savings schemes etc.

Customer Segmentation
1.The Bank has to make most of its Marketing Budget and it will not be a good idea to waste marketing effort on the wrong segment Eg Selling pension schemes to people just starting their careers would be infructuous. Selling them housing loans may be a better idea 2.They have to understand customer needs. One of the methods could be a survey of what the customer wants

Customer Segmentation contd.

3. Prepare a strategy for the targetted customer segment eg. If the segment is Price conscious then offer schemes which appeal to the target customer by competitive pricing of packages or offering a new product in the right price range On the other hand if the customer is more into prestigous value add from a product the product should be tailor made for the specific requirement Eg Offering CRM packages to meet all the needs of the quality conscious customer

Customer Segmentation contd.

4. Find where the product will fit in the Price Quality matrix The purpose of segmentation is to ensure 1. The Current Customer consumes more of an existing product 2. New Customers are targetted for current products 3. New products are introduced for the current customers 4. New products are introduced

Why is segmentation strategy used

If a company has the deep pockets of a established brand like Coke the company can have huge spends in mass marketing to target the public at large If a start up company or a medium /small company is to target its customer they would first zero in on a target segment who would use their product They would then devise a strategy to target the segment Finally they would position the product to target the segment selected

Overall Strategy

How is the segmentation done 1.Regional Preferences: When KFC targetted Indian markets they realised that Indians preferred spicy food whereas this was not the case in Western countries. They came out with the Spicy grilled chicken. Gold loans which were very popular with the middle class segment provided a segment which PSU banks were slow to exploit and thus provided Gold Loan companies from Kerala viz. Muthoot and Manappuram to set up large network of branches and large loan portfolio in gold loans

Strategy contd

2.Demographics use in strategy use data either from the Banks own database or from census data to segment people by Age group, Gender, Income or Educational qualifications 3.Psychographics: This tries to segment the customer base on the basis of Values, Lifestyle, self concept Tools used for this are surveys designed to capture these aspirational values

Strategy contd
4.Use of Geo-demographics This strategy is used to target new locations 5.Loyalty : This strategy rewards loyal customers with flying miles, bonus point system on use of credit cards, points on using ebanking for remittances etc. 6. Evaluates segment attractiveness thru -Identifiable customer segment eg who is there for a particular product even a low number may be used for targetting an exclusive product like Amex travel cards, Hummer cars etc.

Strategy contd.
1. 2. 3. 4. 5. 6. 7.

Group Customers based on similar needs How demographics are distinct for groups Decide overall attractiveness of segments Determine Segment Profitability Segment positioning on Product-price Create Segment test to check attractiveness Marketing Mix strategy 4 Ps to include Product, Price, Promotion and Place

HSBC the Worlds Local Bank & Different Values

The second largest Bank in the world with 9500 branches/100m customers has started a marketing drive showing how it works as a Local Bank Worlds Local Bank US businessman after a hole in one has to buy expensive gifts for playing partners and not a round of drinks. Discounts on cards other freebies Different Values Shows three photos of beauty pageant winner, man on moon and boy tying shoelaces: The more you look at the world the more you realise what matters to people

Achieving excellence in Services Marketing

External: Normal work of product /promotion Internal: training & motivating employees Interactive: serving customer Charles Schwab largest discount brokerage house in the US ; services 8 m customers Resolves all customer issues daily. US Airways improved services by handheld scanners to reduce mishandling of baggage by 50%.

The power of analytics

We know the power of the killer Apps which can transform the way business is conducted. Corporates know through analytics a great deal about customers and their needs as well as how they can be met. Analytics can tell you: - Needs of the customer -what they will pay for the product -how many will they buy in their lifetime -what triggers people to buy a product -how salary can be related to performance -how to keep inventories low and performance high Employees work to a strategy championed by the top mgmt. Capital One thru IT has increased its growth 20% every year

Analytics

In sports its not steroids but analytics behind growth of Boston Reds Top of the list of Analytics users is Mariott Hotel chain which has perfected over 20 yrs providing optimal prices for its guest rooms Capital One tries 30 k experiments/yr with intt rates and incentives to maximise growth of customers who will repay card dues. Progressive use similar experiments for Insurance when they analyse high risk policies which other companies do not touch eg they may take college grads above 30 with a certain credit score or above, no accidents and sets prices based on analytics which will make business profitable and tests results with financial simulation Different Excel spreadsheets floating around in a corporate means potential errors. A centralised DB gives consistency of data /analytics Some apply same approach to people eg Proctor & Gamble an interesting quote from an analyst- In God we trust all others bring data

Expertise in various corporates

Function Description Corporate Supply Chain Optimise SC, Dell Wal Mart reduce inventory Amazon Customer Identify most Capital One, Loyalty profitable & retain Barclays Pricing Price to maximise Progressive, Marott Profit Human Capital Select best man for job Boston Red Sox Product & service Detect quality defects Honda Intel early R&D Improve quality/ Safety Novartis, Amazon

Strategy

Marketing has been difficult to quantify being rooted in psychology Now a multi attribute utilility theory and advertising is using econometrics a stat tool for measuring impact of different advertisements Corporates like P&G, Gallos (wines), Wal Mart use customers to help them in preventing stock outs by sharing data in joint initiatives , reducing costs etc As a strategy you therefore need the right people and the right technology

Thank you