What is Market Segmentation?
Market segmentation is the process of dividing a broad market into several smaller, more homogenous components. The value of market segmentation comes from understanding the differences in the buying cycle and then creating and tailoring more relevant messages to drive higher response. Simply put, market segmentation leads to higher sales and profit.
Financial services marketing segmentation relies on consumer data. Consumer data allows brands to better understand, and influence, consumer decisions. Learning how people make decisions and the stimuli they react to provides opportunity.
There is no single right answer on how to segment your data or the number of segments to create. Response Media recommends clients to drive down to the maximum number of addressable audiences feasible, rather than go all the way to the maximum number of possible. This best practice ensures brands don’t go overboard.
Methods to Segment for Financial Services Brands
A few standard methods for starting segmentation in the financial services world include diving audiences by Psychographics, Personality, User Status, Frequency of usage, Loyalty, Length of Relationship, Geographic variables, Demographics, Socio-economic variables. Cross-referencing these attributes with brand-specific traits such as Prospects, Current Customers, Current Users of Products/Services, and Abandoners will create a highly-valuable segmentation.
More advanced brands are employing artificial intelligence (AI) to help identify – and communicate – to market segments. AI uses sophisticated algorithms based on key factors, such as their propensity to buy.
Benefits of Financial Services Marketing
No brand can be everything to all customers. Prioritizing high-value and excluding lesser-value segments allows financial institutions to focus their resources. Concentrating on high-value segments also offers more significant learning and understanding to meet the needs of profitable segments better. In almost every case where market segmentation is used, it enhances customer retention. A tighter understanding of customers allows financial institutions to forecast changes in the relationship and respond faster than they could otherwise.
Market segmentation allows financial institutions to unearth overlooked target segments. Small segments can have enormous potential. The Pareto Principle (80% of profits come from 20% of the customers) certainly applies to market segmentation and financial services companies.
Lastly, market segmentation in the financial services world fuels a more robust customer relationship strategy and marketing program. While there is no single correct way to segment your audience, not segmenting is undoubtedly the wrong way to go.
