High-balance/low-balance market segmentation.

• Author: Motley, L. Biff
• Position: Customer Satisfaction

Market segmentation is a much-discussed strategy of financial marketers. With the aging of the population and the proliferation of companies offering financial services, it is critical that bankers make specific marketing plans that take into account the different perspectives, preferences and profitability of varying types of customers.

A good place to begin is to look at how your existing customers might be segmented. There are many ways to divide customers into groups sharing similar attributes: age, income, sex and job-type are examples of the objective or demographic ways to segment. You can also segment based on the predominant products that customers use, Dividing customers into "borrowers," "investors" and "transactors" is a way to segment according to preferences and life positions.

One Segmentation Approach

One segmentation method that is gaining relevance divides consumers into "high-balance investors" at one end of the spectrum and "lower-balance transactors" at the other. This simple approach combines the best of various segmentation models, in that the higher-balance investor segment is made up of older, more affluent clients whose financial goals are influenced more by their desire to grow, manage and preserve their existing wealth, either for retirement or for transfer to their offspring or others.

The lower-balance transactors are made up of younger clients who are still in their earlier wealth accumulation stages and who are focused more on checking, saving and loan products, but who are also beginning to learn about and initiate wealth accumulation, either through employer 401(k) plans, IRAs or savings plans.

Using the ABA Client Satisfaction Index website (www.clicentsatisfaction.com), we have sorted a typical community bank's customers into the high-balance/low-balance segments. This may be seen in the accompanying charts and tables (see opposite page), which show the "strategy grids" of the two segments (note: the strategy grid simply arrays the 20 key attributes of a banking relationship by scores on the importance of each attribute versus scores on how well the bank performs).

The significant differences in the arrangement of the attributes between the high-balance and the low balances segments leads to several conclusions. Among these: High-balance customers are less...