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CUSTOMER SEGMENTATION
Customer segmentation: key for an effective HNI strategy
The winning formula for the new age is no longer just about customer segmentation, but also about providing world class differentiated experiences, says V. Ramkumar, Partner at Cedar Management Consulting International
Author V. Ramkumar, Partner, Cedar Management Consulting International
rom driving transaction efficiency to sophisticated CRM platforms, banks have invested millions of dollars in building operating models that drive superior service levels. However, the customer engagement experience is what really matters. The question that then needs to be answered is: do all customers have the same experience? Or is a distinction drawn between different segments? If so, what is the right approach to segmentation?
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Customer segmentation is the Holy Grail for leading retail banks. And it is viewed as the greatest thing since sliced bread in the consumer and services world. Those who succeed not only get the science of differentiation right, but also ensure it is implemented effectively. This is not just theoretical KYC norms or regulatory compliance. This is about really knowing who the customer is. Not just from a demographic or sociographic standpoint – the age, income, gender, occupation, etc. all do matter. It is beyond that. It is also about knowing banking preferences and profiling customers based on transaction behaviour, and more importantly determining what matters to them.
The conventional logic of having customers defined as Mass Retail, Mass Affluent, HNI and Ultra HNI continues to form the bedrock of segmentation. These definitions are primarily driven based on the net-worth or income levels of the customer, or the relationship value that the customer holds with the bank. Banks have, however, moved further to also identify segments to focus on from
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a vertical classification – a classic example is Millennials, whose product, service and channel preferences are new age and quite different from traditional customers. The Merrill Edge programme, driving online investments by young people who stand to inherit large sums, is a good example of this.
While profile-based segmentation based on customer demographics remains quite heuristic, behavioural segmentation helps drive grouping and analysing customer preferences from the standpoint of product holding, balances, patterns of channels and transaction activities. And the sophistication of analytics has also brought a new perspective to the game, with micro-segmentation holding the key to customising product and service offerings to smaller groups with homogeneous interests, behaviour and preferences. Predictive segmentation helps apply previous knowledge to these micro segments within the existing customer portfolio, to address a business question that begets an answer – for instance, which of these micro- segments are dissatisfied, and what approach would need to be adopted to address a particular pain-point or need for that particular micro-segment? This becomes even more pronounced when the underlying portfolio is represented by a segment that is more valuable, or whose attrition poses a higher risk.
HNI: who, why and what? The classic industry definition of a typical HNI customer
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