Finding Your Target Segments - Financial Services Marketing

The science of marketing comprises fact-based research, sophisticated statistical methods, testing of hypotheses, and analysing results. The art of marketing is based on experience, imagination, and creativity. Both art and science must go into choosing target segments.

Any financial firm that has been in business for any length of time has three potential markets: current customers, prospective customers, and former customers. This last group is often overlooked, yet can be a significant source of new business for certain products. For example, a customer who has purchased an equity loan product in the past is an excellent prospect for a future equity line.

For start-up firms or companies that are expanding their markets, the task is more difficult. Rather than analysing current customer patterns, they need to develop profiles of potential segments based on the variables most appropriate to their situation.

For each profiled segment, research must determine the following:

Market potential: What is the total size of the segment in dollars or units? Sales potential: What market share percentage of this segment can you reasonably expect to develop (over one or more years)?

Competition: Who are the market leaders? What strengths and vulnerabilities make this an attractive segment?

Ease of reach: How will you reach this segment? Are there identifiable media that match key variables? Cost: How much will it cost to reach this market? Can you afford it?

Other resources: Do you have products that appeal to this market segment? Sufficient marketing resources and expertise?

Fit: Does this segment fit with your organization’s objectives? Are there conflicts or synergies with other client segments? Are there changes in the environment that will make this segment more or less desirable in the future?

Identifying Current Market Segments Your best prospects will resemble your best customers. They usually buy for the same reasons and are reached through the same media and methods.

Who are your most profitable customers? The old 80/20 rule still operates in most businesses: 80 percent of your revenues come from 20 percent of your customers.

What do your top 20 percent buy from you? How often? How long have they been customers? Look at last year’s customer list. Are the same people still in your top 20 percent? If not, what happened? Why did some of them leave? Can you get them back if you address the issues that concern them? Are any of your other top customers likely to leave? Can you save them?

What characteristics do your top 20 percent have in common? Do they have similar demographics or other observable characteristics? Can you do a cluster analysis to find out where they live, what they read, or watch on TV? Are they in similar types of business? Do they belong to the same organizations? Do they have common relationships with lawyers, accountants, or other professionals?

How did they become customers in the first place? Was it through personal referrals, a mailing list, an ad, attendance at a trade show? This is critical information, and you should always enter this data when you first acquire a new customer. There are several ways to collect more detailed information about your customers:

Segmentation Checklist

Segmentation Checklist

Surveys. Create a short questionnaire with key items of importance to your business (see box at right). If yours is a relationship business, you can call or e-mail your customers to ask if they are willing to participate. If you have a physical place of business, you can provide survey forms to waiting customers or have a staff member approach customers to fill out a survey.

Informal Q&A sessions. You may want to talk informally to your top customers or arrange a breakfast meeting of five or six top customers for an informal focus group. Chances are they will be flattered to be asked. If you feel a need to provide an incentive, you can offer to make a donation to their favorite charity. You should also contact former customers to find out why they left.

Industry gossip. Your sales force, suppliers, even your competitors can provide priceless information about your markets. Go to sales conferences and trade shows. Even if you don’t exhibit, you will pick up the latest inside information.

Have a cluster-based overlay done on your customer database. If you have enough clients to make this worthwhile, you can get all kinds of interesting information about them, from what they watch on TV to how much their homes are worth.

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