Segmentation For The Banking Industry - Intelligence Qatar

Building asophisticatedmarket segmentationstrategy for thebanking industryJune 2015

IntroductionConsumer banking preferences andbehaviors continue to change based ontechnological advances, demographicsand social factors. Retail bank executivesare seeking to drive revenue generation bygrowing share of wallet from existingcustomer relationships.Meeting this priority requires a deepunderstanding of what customers need,want, expect and value in a financialinstitution.While customer acquisition is still important,greater emphasis is being placed on moreaccurately targeting current customersegments. The goal is to identify andcapitalize on opportunities for revenuegrowth through cross selling and up selling.2

Why is a segmentation strategy important tobanks and financial institutions?A market segmentation strategy isimportant to banks and financial institutionsbecause it is the key to optimizingmarketing and customer service delivery.There are two fundamental strategiesorganizations can take to market theirproducts and services - it can try to sell toeveryone (mass-marketing) or it can focusits efforts on target segments(segmentation-marketing).In most cases, mass-marketing is expensiveand ineffective. For this reason, a marketsegmentation study should be a keycomponent in the company's overallstrategic plan.“Segmentation isconsidered one of thefundamental concepts of modernmarketing”Philip Kotler3

Current segmentation modelsMany local banks in Qatar have adopted asegmentation model based on aelementary classification scheme. They use‘income’ as the main demographicvariable to segment their customer base.One of the reasons why they use thisapproach is because it can be developedquickly and inexpensively.The main drawback of this model is that it isonly marginally better than mass marketing.Furthermore, if all banks in Qatar segmenttheir existing and potential customers byincome, they all view consumers throughthe same lens. The current approach doesnot help organizations to differentiatethemselves from the competition.It assumes all customers in a certainincome band are the same and does notprovide the necessary insights to effectivelytarget, attract and service the differenttarget segments.4

A successful market segmentation strategyA comprehensive segmentation strategyshould be based on a range of variablesincluding: Demographics (age, income, gender,nationality etc.) Contribution (revenues, costs, profit andlifetime value etc.) Behavior (product ownership, spend,transaction frequency, channel use etc.) Psychographics (social class, lifestyle,personality characteristics etc.).Segmentation can help answer the mostimportant questions: Who are my best customers? What products/services do they need? When will they need them? How do they want to interact with us? Why do they behave the way they do?A well designed market segmentationstudy will identify groups of people who are"most likely" to purchase a particularbank’s products or services.Segmentation helps firms understandcustomers’ needs, preferences, channelbehavior and choices of brand.Armed with this knowledge, organizationscan focus its product development,marketing and service delivery in a waywhich maximizes sales and profitability.5

IQ’s approach to market segmentationIQ’s approach to segmentation is outlined below.IQ’S SEGMENTATION APPROACHBanks will be equippedwith the informationon which of thesegments eachcustomer belongs toand how best to dealwith them.CustomerSegmentationStrategySurvey questions to phics6

How banks can gain a competitive advantageThe main objective of a marketsegmentation strategy is to analyze themarket, find niche opportunities, andcapitalize on a superior competitiveposition. An improved understanding ofcustomer segments better enables bankexecutives to rethink marketing strategiesand approach segments in a moretargeted, cost effective manner – for animproved customer experience andgreater investment return.There is a uniqueopportunity for banks to bean early adopter and bethe first bank in Qatar toimplement a successfulmarket segmentationstrategyFrom an efficiency standpoint, successfulsegmentation strategies lead to betterplanning and more effective use of resourcesbecause they allow the organization to focustheir resources on segments of consumersthat are more likely to purchase their marketofferings.A segmentation strategy will enable banksto: Understand existing customers Decide which segments to serve Develop different packages for eachsegment Tailor marketing messages and media mix Prioritize customer facing technologyspend.7

Contact DetailsTracey KohingaManaging PartnerIntelligence QatarLevel 1 Al Reem TowerWest BayPO Box 15580, Doha, QatarTel: 974 4483 5628/29/30Fax: 974 4417 5691Mobile: 974 3029 7180Email: tracey@intelligenceqatar.qaWebsite: www.intelligenceqatar.com

IQ's approach to market segmentation 6 IQ's approach to segmentation is outlined below. Customer Segmentation Strategy Survey questions to include: Demographics Contribution Behaviour Psychographics Banks will be equipped with the information on which of the segments each customer belongs to and how best to deal with them .