Banks realize the need to change from a product-centric approach to customer centric. One way to achieve this transformation is to better understand their customer through segmentation. Segmentation reveals specific intelligence that can otherwise be covered by the complete volume of data. Segmentation can also help banks to better understand the customer lifespan and predict customer behavior.
Why do banks need customer segmentation?
By understanding specific segmentation groups, banks are able to
- Analyze customer priorities
- Communicate the strategy for reaching out the group of customers in a different way
- Identify cross-selling and up selling opportunities
- Define the service levels
- Identify wealth management customers
- Identify customer likings and communication means
There are traditional ways that banks have been using since their inception to segment their target customers for- retail banking, private banking, wealth management, small and medium enterprises, large corporates etc. However, relying on these is not going to produce many actionable insights in the current competitive landscape. The real power of customer segmentation is not the quantity of data you can collect, but it’s the ability to collect the information that actually teaches about the customers.
How banks can segment the customers in the digital world?
Demographic segmentation is most common which includes information about the existing customers. It is particularly useful for identifying age, sex, marital status, family size, age of children, income, occupation, geographic location, education, race, religion and nationality.
Commercial bank customer segmentation includes type of business, number of employees, age of business, organization structure and geography. For the new age banks, it is imperative that they build a strong social media profile. This helps the banks to connect and build an easy relationship with their customer.
Banks take every effort to understand their customer through different channels and insights derived from various source like personality traits, values, attitudes, interest and lifestyle to build effective communication channel. Banks can use psychographics as the window to identify the most likely customer to experience their discomfort. Some of the important psychographic factors that banks should
- The adaptability to using online and mobile banking
- Immediate or late adoption of banking products
- Classifying them as impulsive buyers, crowd supporters or the logical type
The Role of Artificial Intelligence in Customer Segmentation
The implementation of customer segmentation using artificial intelligence with the right strategy can increase banking revenue by 30% and decrease costs by 25%.
With the help of artificial intelligence, customer segmentation can flow over and analyze more thoroughly to generate more detailed, target segments, as well as automate the process of personalizing segments for each section. Deploying AI to generate the customer segments will result in superior solution, compared to when it’s done manually. The following are the advantages of implementing AI for customer segmentation:
- Operates with minimal human involvement.
- Increased personalization
- Auto-update of segments if there is an change in marketplace
- Increase scalability
The more time you take to understand and segment your bank customer, the more successful it will be in customer retention. Any effort for customer segmentation is a good investment for the bank.
Explore in detail customer segmentation challenges here