Question

Define market segmentation and analyse the different options available to financial services organisations in deciding on the bases to use in segmenting the personal sector.

Answer 1

Market segmentation involves dividing the cohorts or customers into small market groups that are based on various characteristics such as geographic, demographics, age, needs, income, shared interests, behavior, and personality traits. This segmentation of the market is essential for the optimization of the products and advertising that targets different customers because it can help an organization to create approachable groups. Market segments are easier to understand and leverage the products or services, sales, and marketing strategies. This helps the organization respond better to various market segments at a lower cost because the company can create product offerings for these segments, for instance, high income versus low-income groups, men versus women, and so on.,Market, segmentation is important for an organization to engage better with prospects and customers, increase sales, grow profits, and build better products or offer better services.

  Financial services organizations offer intangible services unless in the cases of ATMs and branches. The market segmentation in the financial services industry, especially in the personal sector has various options for segmenting, including demographic segmentation, geographic segmentation, firmographic segmentation, social, economic segmentation, psychographic segmentation, and behavioral segmentation. An effective market segment must be measurable in terms of calculation and estimation of the sales return within a specific cohort. It must also be accessible in that the organization understands the customer’s characteristics and behavior or ways of reaching these customers, for instance, through the internet and other technologies, radio, newspapers, and more. The market segment must also be substantial in that it will have a return on investments. The customers or cohorts must have an interest in purchasing the products or services and must afford them. Lastly, an effective market segmentation must be actionable in that it is different or unique, for instance, people with similar purchasing habits can be grouped in a single market segment.

Geographic Bases

            This is a known strategy applied by financial services organizations to serve clients in an area or when a broad target of customers have diverse preferences in relation to where they are located. Segments are established with regard to the financial market areas such as international regions, regional blocs, countries, and cities. Additionally, this form of segmentation is most suitable for small and medium financial service organizations that provide services to a broad customer base in given regional and local territories with varying population density such as urban, suburban, and rural areas. Geographic segmentation in the financial sector is beneficial to large organizations in targeting the needs of customers in different regions and their distinct wants. Small and medium financial organizations, on the other hand, can focus on their marketing strategies in specified areas of interest to avoid exaggerated spending, thus minimizing budget constraints.

Demographic bases

            This form of financial market segmentation focuses on customers' gender, ethnicity, income, education, among other factors in demographics, to aid organizations in targeting customers accurately. This customer segmentation strategy is best achieved through customer insights and census data to allow the understanding of the financial market and fulfill the needs of targeted clients. Research indicates that market divisions into smaller elements with a standard variable reduce the risk of organizations advertising to uninterested customers. The segmented awareness campaigns have increased the revenue in financial organizations to 760%.

Geodemographic Bases

            This is a statistical technique used by financial organization experts to determine whether targeted customers fall into different categories. This strategy is achieved by making a quantitative analysis of several characteristics with the guidance of pre-established principles. The differences within any group should be less than the differences between groups. This brings about a state of homogeneity in the financial marketing strategy, which enables organizations to come up with customer-specific services. Once the target group is known, Geodemographic segmentation strategy ensures that it is little or no waste of time or resources as proper planning is done beforehand. Execution of plans becomes tranquil and harmonious in the process

Psychographic bases

            This form of segmentation focuses on dividing financial markets into smaller elements about customer’s internal characteristics such as knowledge, preferences, lifestyle, beliefs, among others. Psychographic segmentation allows organizations to develop and market services efficiently as there will be a comparison between the segment's wants and needs and the organization's services. Many customers feel free while interacting through sports and team building activities which presents an opportunity for financial organizations to learn their behaviors. The significant advantage in this type of segmentation is that the customers feel more attached to the financial organizations as individual interests are focused carefully.