High-balance/low-balance market segmentation. (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 interested in the newer channels of distribution, which we bankers seem to be spending so much time on these clays. They are much more concerned about dealing with competent, branch-based bankers who can serve them and correct any mistakes that crop up. Interestingly, they are also less interested in both loan and deposit interest rates, While this may seem somewhat counterintuitive, it should be understood that this segment is more inclined to keep their substantial investment balances in nondeposit investment products.

The low-balance segment in many ways is the opposite. They like PC/Internet Banking, ATMs, call centers and all the new channels that speed up and make more convenient their daily banking chores. They are rate-sensitive and pay a great deal of attention to the value aspects of checking accounts. Interestingly, this segment, while not having nearly as much money, views the bank more favorably than the high-balance segment as a source of investments.

Different customers, different strategies

This analysis leads to the conclusion that this bank needs a marketing strategy that appeals to two very different types of customers. A marketing plan aimed at the higher-balance segment would emphasize the role of the banker in providing deep personal service and a focus on quality and quick remediation of problems and attention to detail. A marketing plan aimed at the low-balance transactor/borrower would emphasize convenience, multiple channels, innovation and value.

In the future even community banks must understand segmentation and recognize that differing types of customers need to be assembled into groups large enough to enable the creation of products, delivery systems and pricing strategies with unique value propositions. There is no better way to do this than to ask customers questions and listen to their answers.

L. Biff Motley is president of Motley & Associates, New Orleans. He can be reached at [phone].