A successful, effective client segmentation strategy may be challenging to create, but it will be less painful for your business in the long run. 

    Experian is a global credit reporting company, and as such, we are all about managing data effectively. 

    There are key requirements we apply when it comes to segmenting clients. While not all will apply to financial planning firms, there are some fundamentals which should really help you when it comes to segmentation that works for your business. 

    Before you do anything else, you need to be clear on the business objectives and strategies behind the client segmentation work you're about to carry out. 

    You may be coming at this from a compliance perspective, in light of the product governance, or PROD, rules. Alternatively, you may be wanting a more effective marketing strategy.

    Ask yourself what you're hoping to achieve from segmenting your clients. For example, is it about:

    • Identifying client needs to make your advice proposition more suitable for them?
    • Improving client profitability?
    • Identifying new target clients?
    • Improving clients retention?
    • Identifying opportunities to grow or gain market share? 

    If you have segmentation in place already, consider why it isn't working. Is it badly structured? Does it adequately reflect your services? Is it central to the business?

    Instead of new segmentation, it may be that your business just needs to make itself more attractive to your core clients. Think about whether you need to refresh the firm's brand values to align them with your key strengths.

    It may be worth carrying out research with your clients and analysing your client bank to identify the strengths to focus on. Then, differentiate your brand accordingly. 

    Start with the data

    Unfortunately, many companies begin their segmentation by thinking about the types of clients they want, rather than looking at their existing clients. That makes any future ‘tagging’ exercise very complex indeed.

    So, start by looking at the people who are already buying from you:

    • Perform simple data analysis on each service you offer, identifying your main types of clients, what they look like and why they buy.
    • Once you’ve identified your main client groups, define a business goal to acquire and retain more people like them – segments don’t need trendy names to work.
    • Concentrate on the clients you already have, perhaps by improving the proposition.

    A question of value

    There are lots of ways to segment, including looking at value. In this sense, we're talking about the value to your business of existing and prospective clients.  

    This may be one of the reasons you're segmenting in the first place – to help you understand how your business can become more profitable. 

    Create an investment model, using two or three dimensions together. This can help you build a high level view of your client bank to enable you to separate where the value lies in your business. For instance:

    Experian table 1

    Value: The monthly or annual profit per individual client (or revenue if profit figures are not available). 

    Potential: Assessing a client’s potential value from up-selling or cross-selling other financial planning and professional services, or potentially across a number of generations. 

    Retention: Mapping the likelihood of each client staying with your business. 

    This lets you cluster clients and create a high level business strategy:

    Experian table 2

    How to go about segmenting

    Your firm is likely to be helping clients with a number of financial issues and challenges. This means relying on just one approach to segmentation is risky and could lead to wasted resources. It’s much more effective to create a 'segmentation toolbox', with different approaches that can be used to tackle different challenges. 

    This list shows just what’s possible: 

    • Value segmentation – Segmenting according to a client's current value, potential value and lifetime value.
    • Behavioural segmentation – Data collected on how and when clients are seeking advice and financial planning services.
    • Attitudes and needs – What are the core values of your clients, and the needs and reasons for advice?
    • Socio-demographic – Where people live, their age, their household, their lifestyle now and their hopes and expectations for the future.
    • Preference – How people want to interact with you, their privacy concerns around their data and the kind of relationship they want to have with you.
    • Customer state – Time-based segments, showing where a client is in their life, or where they are in a particular process or in their relationship with you.  

    You may want to create a prospect pool along the same lines as your existing client segments. This in turn may help you take advantage of time-bound opportunities such as those in the ‘enquiring’ stage, and those who are ready to start with working with your business.  

    The blending of art and science

    The segmentation you use must be able to meet emerging requirements for things such as branding, targeting, privacy, and relationship management. This includes a number of broad techniques:

    • Attitudes or needs-based segmentation to build brand awareness and communication strategies among desired client segments, perhaps locally or in particular markets.
    • Behaviour-based segmentation to improve targeting of the right clients for your firm by increasing response rates, revenue and profitability.
    • Preference-based segmentation to address potential privacy concerns by delivering more of what clients want, when and where they want it.

    Meeting all these requirements takes a careful blending of art and science. If your firm can achieve it, you will make segmentation really work for you and your clients.

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