How to Focus Marketing Initiatives to Get the Greatest Returns

Many financial services power-houses—e.g., Fidelity, CitiBank, Merrill Lynch and MetLife—have elected to position themselves as leaders in virtually all segments of the market. As a result, their marketing focuses on casting a very wide net in order to attract the largest possible market.

The practices of these industry “Goliaths” have encouraged many financial services “Davids” that success lies in following their marketing example. Unfortunately, these “me too” marketers do not have the resources to effectively mimic the practices and techniques used by the industry giants. Trying to pursue every marketplace opportunity is almost always a futile approach and a waste of valuable resources. A more pragmatic, cost-effective approach is one that maximizes the impact of limited marketing resources by concentrating marketing efforts on the most receptive market segments.

Divide and Conquer

The keystone of any successful target marketing program is careful market segmentation based on focused research that provides insights into meaningful customer traits and practices. Segmentation is a process that seeks to partition the marketplace into clearly defined segments—i.e., customer/prospect groupings that have similar characteristics and are likely to exhibit similar behavior.

Segmentation is a key component of strategic marketing planning since it can help organizations to more effectively

  • prioritize possible markets and approaches
  • identify underserved niches
  • capitalize on approaches that achieve competitive advantage.

An effective market segmentation strategy can also significantly help increase sales and improve overall market performance. Its many rewards include: new customers; more customers from desired segments; more satisfied customers with products and services that respond to their needs; identification of potentially profitable market opportunities; incremental sales and improved market share.

An Historical Perspective

General Motors provides an early example of successful segmentation. In the early 1920s GM created a differentiated business model by segmenting car buyers into price/quality brackets and then focusing products, messages and promotions to meet the specific needs of each class of buyers. This was the genesis of the renowned family of GM products—Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac. Ford, which offered its standardized Model T in “any color as long as it’s black,” was caught flat-footed and was forced to close its main River Rouge plant for nearly a year while it retooled in an attempt to regain a competitive stance.

As the GM example illustrates, a firm need not alter its products or services to implement an effective segmentation strategy. It must instead

  • effectively match products and services to the identified needs and wants of customers within specified target market segment(s)
  • craft focused messages that clearly and convincingly articulate the value proposition offered by these products/services in addressing the specific needs of the target market segment(s).

Finding Differentiated Approaches

Market segmentation is definitely more art than science. Some of the more common segmentation screens utilize geographic, demographic, socioeconomic, psychographic, usage and/or benefit considerations. At the same time, however, a number of creative approaches have proven quite effective in analyzing segments. Researchers are utilizing newly refined segmentation to make the process more accurate. As a result, it can often produce uncanny revelations, as illustrated by the accompanying chart.

Regardless of the analytical approach used, however, the objective is to identify market segments that are

  • unique—distinguishable from all other market segments
  • substantial—big enough to make marketing efforts cost effective
  • meaningful—an appropriate fit with an organization’s strategy and resources
  • accessible—so it can be identified and penetrated by an organization’s marketing and sales activities.

In looking at the markets for financial services products, we also find that the inclusion of “attitude differentiation” factors can be particularly relevant. By using appropriate segmentation screens, marketers can significantly increase the effectiveness of their marketing messages by

  • First, sub-segmenting prospects/clients based on their purchase dispositions, defined as
    • Innovators: Those who seek out innovation.
    • Early Adapters: Those comfortable with the new and/or different.
    • Mainstream: Those who “go with the flow.”
    • Late Adapters: Those that need an extra nudge to “get with it.”
  • Then, crafting specific messages that appeal to prevailing attitudes within each of these groups based on both the disposition of the individuals and the market cycle stage of the particular product or service.

The Bottom Line

While most financial services organizations acknowledge the importance of marketing segmentation, very few use this powerful tool to its full potential. Too many firms base their segmentation strategies on cursory or intuitive analysis of their markets, rather than deliberate research. We strongly believe that every financial services organization should take a hard look at how to maximize the significant benefits that segmentation can offer.