Needs-Based Segmentation in Banking

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Banks marketing financial products can improve the economy and effectiveness of their marketing through segmentation. Basic segmentation utilizes geographic data and factors such as age, income and marital status. Banks can improve segmentation by focusing on customers’ needs and financial personalities using a technique called needs-based segmentation. Needs-based segmentation also enables banks to adapt and align their offers and their marketing with customers’ changing lifestyle.

Segmentation

  • Bank customers fall into basic categories of consumers and business customers. The market for business banking is split into small and medium enterprises and large corporate businesses. Within the broad consumer category, different customers have needs based on their status, lifestyle and financial needs. Needs-based segmentation groups customers based on similar needs and wants, or based on the benefits they seek from a particular product.

Personality

  • According to First Manhattan Consulting Group, financial personality plays an important part in needs-based segmentation. Some customers may be risk averse, making minimal use of credit, while others feel comfortable using a variety of financial products. Analysis of customer behavior identifies the factors that make customers choose a particular bank. Customers’ transaction histories also provide useful data for identifying needs. Comparing product usage with other personal data and financial personality profiling enables banks to predict future purchasing behavior.

Communication

  • To communicate with different customer groups, banks use a variety of tools, including advertising, branch publications and direct marketing. Needs-based segmentation enables a bank to develop highly targeted direct marketing campaigns offering a range of products that align with customers' needs. The level of precision that is possible through needs-based segmentation can improve the response rate on direct mail campaigns and achieve a higher return on marketing investment.

Products

  • Banks use needs-based segmentation to improve the targeting of products such as home equity loans, mortgages, deposit accounts, credit cards, life insurance, secured lending and investments. According to consultancy firm McKinsey & Company, banks must create bundles of products that directly address the needs and the personality of the customer. A European bank, for example, allows customers in its smart financial personality segment to create their own current account package, using standard features and a selection of fee-based options.

References

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