Segmentation matters

You may think you know your customers like the back of your hand, but there’s always more to learn. Data analytics is one way to define and evaluate customer segments, bringing opportunities for cross-selling and boosting profitability.

By Tom Groenfeldt

Who’s there and what do they want?” Community banks know they must answer these questions if they’re going to succeed in a competitive marketplace. The answers can lie in data analytics, which the big banks have been successfully deploying to improve their offerings.

Data analysis might sound expensive, but depending on how you do it, it doesn’t have to be. “Use the customer data you already have,” advises Joe Sullivan, CEO of Chicago-based Market Insights. His company will take an anonymized file of a bank’s customers, run the information through its software program and deliver a segmentation report breaking down customers and larger communities into segments.

“The purpose of segmentation is to help banks better understand their customer base and their financial needs,” Sullivan explains. “It provides banks with insights into dominant segments represented, cross-sell opportunities and better alignment with customer needs.”

As other marketing companies explain, when a bank identifies segments in which it is doing well, such as empty nesters, millennials or agricultural households, it can increase its emphasis on those groups, look for similar households that are not already customers and perhaps withdraw from markets where it isn’t performing as strongly.

“Segmentation is a cost-effective tool. You can quickly pull a household file from your core system, and it gives you so much information to help you spend your marketing dollars better.”
—Joe Sullivan,
Market Insights

“The idea is to get a clear handle on who are the dominant segments the bank is attracting now, and are those the segments it wants to attract going forward?” says Sullivan, who talks in terms of categories like Younger Upwardly Mobile, Upscale Empty Nest and Retirement Blues.

Hidden surprises
Like other firms, Market Insights has surprised banks with the information it uncovers about their own customers.

The company recently worked with a thrift that did not want to get away from its aging customer base, but rather, like most financial institutions, wanted to attract and retain a younger customer base, Sullivan says. Once his company ran the customer file, it turned out the thrift’s largest customer segment was Upwardly Mobile. The bank discovered that the greatest opportunity for attracting a younger customer base was already within its current customer base. Now they just needed the technology and marketing to keep them.

“They’d never looked at the data; they were looking at who was walking into the branch, which is less than a third of their customers,” says Sullivan. “They changed direction quickly and hired a director of digital strategy.

“Segmentation is a cost-effective tool. You can quickly pull a household file from your core system, and it gives you so much information to help you spend your marketing dollars better.”

Another data analytics firm, Main Street Inc., is expanding beyond its legacy business providing check programs to banks. President Ted Walton says checking accounts provide a good starting point for customer analytics, because nearly every bank customer has one. Main Street takes existing customer names and addresses and combines them with publicly available data such as geographic, demographic and behavioral characteristics to show banks who their customers are and how they vary by branch. With that information, banks can select appropriate advertising and branch imagery and pursue new customers in segments where they have a record of success.

Main Street, which has bank clients in every state except Alaska, has found its clients often don’t understand who their own customers are.

“We haven’t had one bank yet that hasn’t been surprised by [data from] at least one branch,” says Walton. He has seen banks put ads in nearby towns where they have no customers. Or they put all their marketing budget into newspaper ads while neglecting social media and direct mail.

Analytics like this can show a bank if a customer segment makes up 30 percent of the local population, but it has only 4 percent of that segment. The next step—reaching the other 26 percent—can be trickier. Community bankers are nice people; Walton says he has never met a mean one. And that may be a problem. Given the general mood of mistrust around Wall Street, and in the aftermath of the Wells Fargo scandal, community banks should be going after megabank customers aggressively.

“We haven’t had one bank yet that hasn’t been surprised by
[data from] at least
one branch.”
—Ted Walton,
Main street Inc.

“They tend to not think aggressively about building their business,” says Walton. “You have to acquire customers when the time is ripe, and customers have been abused [at other banks].”

Tailor made
Aware of new technologies in the marketplace, community bank customers are demanding a better, more customized banking experience, says David Acevedo, senior vice president and national sales director at 360 View. His company offers the growth platform, which consists of a customer relationship management system that works with a bank’s existing customer information and demographic data.

Many banks rely on traditional core processing systems, but according to Acevedo, these are designed for transactions, not for understanding customer interactions and their true value to the bank.

“A lot of organizations have been late in the game; they tend to rely on their core banking systems, but those don’t allow clients to slice and dice and segment to understand not just an individual account but the overall relationship,” he says. For example, core systems may keep checking accounts and loans in separate systems, making it difficult for bankers to get a clear picture of an individual client, much less a household.

360 View’s software can suggest a sales offer based on the products a customer does not have, such as a home equity loan or an IRA.

This type of system, when used with a community bank’s traditional customer service, can kill two birds with one stone. “[Customers] want to be able to bank digitally and also have the comfort of knowing they can contact somebody locally—even millennials,” Acevedo says.

And if there’s one thing community bankers know better than anyone else, it’s that data and technology are powerful tools, but using them in conjunction with old-fashioned customer service is the most effective way of building lasting customer relationships.

Virtual sales coach

Customer segmentation is only the first step. You have to make the sale, too, but not every branch employee is a natural salesperson. Ignite Sales in Dallas, Texas, offers a cloud-based service called Ignite Dialogue that generates dialogue guides for staff to use in branches and online.

“Our intelligent digitized guides lead the customer to only the products that are a match with their needs,” says Thom Suhy, Ignite Dialogue’s program manager. “We get customers into the right products or no products at all.”

George Noga, CEO of Ignite Sales, says, “Bankers that use our technology become more engaged with the customer, because they are finding out more about the customer’s needs and circumstances than ever before.”

—Tom Groenfeldt

Tom Groenfeldt is a writer in Wisconsin.