gayatri murthy, cgap raghu kolli, leapfrog … · discuss how to apply and integrate segmentation...

Customer Segmentation

GAYATRI MURTHY, CGAP

RAGHU KOLLI, LEAPFROG INVESTMENTS

FEB 20, 2018

CUSTOMER CENTRICITY SERIES | SEGMENTATION MODULE

The hidden opportunities in your target customers


1. Understand what segmentation is and why it’s a valuable tool, to solve a range of business challenges, especially when serving low-income customers

2. Delve deep into relevant case studies

3. Distinguish between various types of segmentation approaches and when to use them

4. Discuss how to apply and integrate segmentation workinto your team and business

Goals

What do hope

to learn or gain

from today’s

session?


Course Agenda

20 minutes What is segmentation? Why is it valuable?OverviewREFLECTION ACTIVITY: Segmentation at Work

30 minutes LEARN: What approach do I take? How?Types of segmentationApproach to research

40 minutes DESIGN: How do I apply it? Mini-case: CommunicationsCase Study: Credit Card PositioningAPPLICATION ACTIVITY

20 minutes DELIVER: How do I lead my organization?Involvement chart. StrategiesDISCUSSION


Gayatri Murthy

CGAP

Raghu Kolli

Leapfrog

Investments

Facilitators


1

What is it? Why is it valuable?SEGMENTATION

• Definition• Value to your business • Value to low-income customers• Beyond demographics• Myths & more


• Title

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• Point

• Point

• Point

What is your experience with

customer segmentation?

DISCUSSION

Share how familiar you are on a scale of 0-3 on one hand.


What is customer segmentation?

“Customer Segmentation is the subdivision

of a market into discrete customer groups

that share (or are perceived to share)

similar characteristics.

• It’s a powerful means to identify unmet

customer needs.

• Companies that identify underserved

segments can then outperform the

competition by developing uniquely

appealing products and services.”

Source: Bain, 2017

Picture: Jeanette Thomas


Why is it important for financial inclusion?

There is a pyramid at the bottom of the pyramid.

2.6 B people live on < $2 per day

665Mcasual laborers or low-wage salaried workers

180 Mmicro entrepreneurs

610 Msmallholder farmers

Even looking at a rough segmentation based on livelihoods reveals diverse market opportunities.

Each sub-market has varied cash flows, planning, and aspirations.

Source: Oliver Wyman, 2007


Identifying a market can reveal an exciting opportunity, but it provides little insight on how to act.

~$100MTOTAL MARKET OPPORTUNITY

Source: CGAP Segmentation Toolkit

Why conduct a segmentation?


Segmentation can help you identify the highest value market opportunities and serve them the best products and services.

~$100MTOTAL MARKET OPPORTUNITY

~$25MTWO ACTIONABLE OPPORTUNITIES



Segmentation can be useful across a range of business applications.

IDENTIFYING MARKET

OPPORTUNITIES

DESIGNING THE OFFERING

DELIVERING THE OFFERING

BUILDING LOYALTY

UNDERSTANDING & SERVING YOUR CUSTOMERS

- Market sizing- Opportunity

segments- Unfulfilled needs- Market positioning

- Use cases- Features- Customer

Experience

- Marketing strategies

- Pricing- Channels- Messaging- Communications

- Incentives / Rewards

- Ongoing engagements

- Retention

PRODUCTS, SERVICES, EXPERIENCES

SEG

MEN

TATI

ON

A

PP

LIC

ATI

ON

PRODUCTS, SERVICES, EXPERIENCES


“Great. Now I just need to find some good

demographic data, right?”

Slow down!Sure, basic market data is a good starting point.

But it only goes so far… it’s one of the basic myths

of segmentation.


What are some myths about segmentation?

Its expensive

Isn’t it just demographics?

Isn’t it expensive?

Is it more products?


MYTH ONE: ISN’T IT JUST DEMOGRAPHICS?

• Male• Born in 1948• Live in London, UK• Both in the top .1% of income

Photo by Aron Van de Pol on Unsplash

Shouldn’t we offer them similar products, services, and messaging?

Both of these people share nearly identical demographics:


Demographics aren’t king.

Ozzy OsbourneSINGER, SONGWRITER, ACTOR

LEAD VOCALIST OF THE HEAVY METAL BAND BLACK SABBATH

Prince CharlesROYAL, NAVAL & AIR FORCE VETERAN, PHILANTHROPIST

PRINCE OF WALES, HEIR APPARENT TO THE BRITISH THRONE

Source: HBR, What You Need to Know About Segmentation, 2014



Gender isn’t everything.

Source: HBR, What You Need to Know About Segmentation, 2014



Brand in pink or rethink privacy?

Context: Lead Foundation’s customer research

revealed a segment of women left unserved in

Egypt. They valued privacy but could not meet

collateral requirements for individual loans.

Solution: Lead introduced a “woman’s loan,”

with a smaller loan size and less collateral

requirements, and individual privacy.

Result: Women clients went from 18% to 37%

of the portfolio and male’s uptake was also

influenced.

Use gender meaningfully & contextually




Its expensive




Demographics are a great starting point, but segmentation can be about attitudes and drivers, livelihoods, or engagement. It could be about different priority groups of customers, who represent different levels of business value.

We’ll discuss types of segmentation more in the next section.

Not at all!


It doesn’t have to be! Your organization can produce great results with few resources, including focusing on information that’s already gathered in-house and readily available.

We’ll discuss formal and informal segmentation and approaches to research in the next section.





Not always.


Not always. It could mean the same product tweaked for different use cases– either in its delivery, incentives, or features. It could help you tailor sales and marketing strategy, arrange business functions, or simply to better understand the customers you are serving. .

We’ll share some cases in future sections





It’s much more than that!


REFLECTION ACTIVITY

Segmentation at Work


Segmentation starts by a company reflecting on their business challenges or opportunities.

What are some of the challenges or opportunities in the room today?


What’s a business

challenge you’re facing

that might benefit from

segmentation?

WHAT’S YOUR CHALLENGE?

WHO/WHAT MARKET DOES IT IMPACT?

WHAT ARE YOU CURIOUS ABOUT?

REFLECTION ACTIVITY


Does a segmentation make sense for my organization now?

REFLECTION ACTIVITY



Where do you stand?

• Tally up your points

• Share your reflections

Use this as a lens as we dive into additional details about the types of segmentation and techniques for doing it.

REFLECTION ACTIVITY



2

What approach do I take? How?SEGMENTATION

• Types of segmentation• Types of research• Case in action


GENERAL SPECIFIC TO YOUR OFFERING

CONTEXTUAL BEHAVIORAL PSYCHOLOGICAL

Simple data points often readily available, such as gender, income,geography, etc.

Behaviors or practicesrelated to an offering or a range of offerings

Relevant beliefs or values related to financial management or an offering; needs, interests, goals and aspirations

VARIABLES

• Age• Gender• Income• Education• Location• Ethnicity

• Usage/non-usage patterns• Financial strategies• Feature usage• Point of access• Timing and seasonal rhythms

• Attitudes towards risk• Specific or similar product usage• Hobbies• Religious/political beliefs• Interest in new technologies

EXAMPLES

• Males living in rural areas• Students with mobile devices• Low-income adults

• High loan use, low savings• Repatriation recipients• Traditional savers

• Financial worrier• Rationalist – emotionally removed

from financial decision-making• Young go-getters• Community influencers

What are the various types of segmentation?



GENERAL SPECIFIC TO YOUR OFFERING

CONTEXTUAL BEHAVIORAL PSYCHOLOGICAL

Simple data points often readily available, such as gender, income,geography, etc.

Behaviors or practicesrelated to a specific offering

Relevant attitudes, beliefs, or valuesrelated to financial management or an offering; needs, interests, goals and aspirations

ADVANTAGES

• Easy to understand• Easy to target• Data often readily available

• Highly predictive of (current) consumer behavior

• Identifies underlying drivers and beliefs

• Provides insight for messaging and advertising

• Intuitively appealing• Fits well with brand messaging

DISADVANTAGES

• Not predictive of behavior• Stereotyping• Not always relevant to product

development

• Does not guarantee future behavior• May not provide insights for messaging

• Difficult to identify segments• May not predict behavior, especially

for financial services• Difficult to identify segments


What are the various types of segmentation?


What do various segmentation approaches look like in action?


ILLUSTRATION


A Kenyan Bank shifts from demographics to attitudes and cash-flows


CASE STUDY

INDIVIDUAL SEGMENTS BUSINESS SEGMENTS

Custom segments allowed for the design of an SMS financial

advisory product that was tailored to each situation.


How do I conduct a segmentation? Formal or informal?



Quantitative research may not always require a survey

Look within your own data

for insights



Use a mix of qualitative and quantitative approaches to help you define and understand your segments


START HERE

INFORMAL QUALITIATIVE RESEARCH


Where to start? Pick your population.


Think about how your newly specified business objective may influence relevant customers.

Would you like your segmentation to be tactical in nature, i.e., focus on specific groups?

Or should it be more strategic and benefit from considering a wider population? Do you want

to acquire new customers or retain current ones? Your answers to these questions act as

guidelines for who to consider. A few other questions to consider:

• What’s the total population set that uses or may use your products or services?

• Do you want to review all of these populations?

• If not, why exclude certain customers?

CUSTOMER CENTRICITY SERIES | SEGMENTATION MODULE Source: CGAP Segmentation Toolkit

How did Digicel Haiti define its target population?

CASE STUDY

Digicel decided to focus on their own mobile network customers who used some form of P2P service already

OBJECTIVEExpand customer base through awareness campaign, and sharpen value proposition of their transfer product.


3

How do I apply it? SEGEMENTATION

• Mini-Case: Centenary Bank, Messaging with Segmentation• Case-Study: McKinsey, Credit Card Crowding, Positioning & Customizing• Activity: Applying Segmentation


A single message can only get so far in a crowded market.

Without segmentation, Centenary Bank’s “Take your bank everywhere” messaging was generic and did not resonate strongly with customers.

CASE STUDY

A Ugandan bank uses customer research to tailor communications & features



A Ugandan bank uses customer research to tailor communications & features

CASE STUDY

“Access Your Salary”Salaried workers wanted to withdraw money in smaller amounts more regularly, not just all at once.

“Make Payments Directly from Your Account” The youth market wanted to spend less time in long bank queues and receive funds from relatives more easily.

“Save Time and Transportation Costs”The business community wanted to save time by not having to travel to a bank to handle daily transactions.

SALARIED WORKERS YOUTH BUSINESS COMMUNITY



“When segmentations fail, its often because

more energy has gone into deriving the

segmentation than thinking through

implementation.”

MCKINSEY

New frontiers in credit card segmentation: Tapping unmet consumer needs, McKinsey, May 2014

CASE STUDY


CASE STUDY

Credit Card Crowding: Why segmentation?

Business challenge

• Acquisition #s declining - Less people are signing up and staying

• Rewards race - Competitors are offering more and more rewards to incentivize sign-ups

• Rewards handcuffs - All players must give rewards in this context

Key question

How do issuers retain newly

acquired customers?How do they fulfill customers’ needs more precisely

without piling on features that add needless cost,

complexity, or are not valued by users?



CASE STUDY

“….maintain a profit margin and

generate demand for the product by

providing only the benefits that

customers value. The challenge is

aligning the right value proposition

with the right consumers.”


Credit Card Crowding: Why segmentation?


CASE STUDY

Credit Card Crowding: How they segmented

Industry standard segmentation

Demographic

• Measures: income, age, education, etc.

• Sources: KYC data, census reports, etc.

Behavioral

• Measures: financial transactional

• Sources: provider databases, credit bureau reports, etc.

Enhanced segmentation

Psychological:

•Measures: attitudes, needs, aspirations, motivations, etc.; why customers use their card

•Sources: primary source qualitative and quantitative research

“Armed with enhanced segmentation, card issuers can not only craft better value

propositions but also identify groups that are not well served by current offers.”

Who?demographics

What?behavior

Why?psychology



Prosperous& Content

Richest segment

Use credit cards for 59 percent of their purchases

Love rewards and dislike revolving debt

Deal chasers

Second richest

Frequent balance transfers to capture 0% financing

In win-lose game with issuers, trying to steal bait from their offer traps

Financially Stressed

Poorest segment

Use credit cards to meet struggle of daily needs

Unable to control spending; value simplicity and transparency, need mechanism for limits to spending

Recovering credit users

Low- middle income

Avid budgeters, rarely use credit card for daily purchases, carry relatively low balances

Highly risk averse, fear financial institutions as unsafe and predatory

Self awareavoiders

Middle income

Avoid using credit cards, carry moderate debt

Blame selves rather than issuers for debt problems, worry about overspending if have a card

Demographic

Behavioral

Psychological

CASE STUDY

Credit Card Crowding: Segmentation Results


Noun Project, Rodolfo Alvarez and Magicon

POORLY SERVED BY EXISTING PRODUCTS


MINI ACTIVITY

Credit Card Crowding: What would you do?

Pick a segment.

What are their needs?

What is the opportunity?

What features or messages might resonate?

Financially StressedPoorest segment

Use credit cards to meet struggle of daily needs

Feel unable to control spending; value simplicity and transparency, need mechanism for limiting credit spend


Recovering credit usersLow- middle income

Avid budgeters, rarely use credit card for daily purchases, carry relatively low balances

Highly risk averse, fear financial institutions as unsafe and predatory

Self awareavoidersMiddle income

Avoid using credit cards, carry moderate debt

Blame selves rather than issuers for debt problems, worry about overspending if have a card


The segmentation

identified

corresponding needs

that can be addressed

by a credit card

products and select

features.

Financially StressedA mechanism allowing them to impose their own spending limits.

Enable them to carry a credit card designed specifically for larger purchases that take time to pay off.

CASE STUDY

Credit Card Crowding: Segmentation Results


Noun Project, Rodolfo Alvarez and Magicon


Needs

Opportunity

Recovering credit usersNeed reassuring they can use card without triggering a penalty rate.

A product that helps them budget their spending—for instance, by allowing them to define spending “buckets” for various merchant types with monthly limits

Self awareavoidersSimilar to recovering credit users

A card that could instantly calculate the scale and duration of monthly payments for a given purchase at the point of sale.


Basic Features Segments

Prosperous

and content

Deal chasers Financially

stressed

Recovering

credit users

Self-aware

avoiders Rewards ✓

Balance transfers offers ✓

Easy account management ✓

Low fees and interest ✓

Occasional special deals discounting or

rewarding existing balances

✓

Simple and transparent fees, rates and

terms

✓ ✓ ✓

Self-imposed spending limits ✓ ✓

Budgeting with distinct purchase

categories

✓ ✓

Daily needs positioning ✓ ✓

Avoidance of mishaps that trigger fees ✓ ✓

Payoff horizon for each major

purchase

✓ ✓

Swipe to installment loan ✓ ✓

CASE STUDY

Credit Card Crowding: Applying the segmentation


The issuer was able

to match features

drawn from existing

products with

specific segments

based their needs

and attitudes; they

did not have to

develop entirely new

products but instead

a matrix of features

matched to specific

segments .


“When an issuer’s objective is to attract new customers and drive revenues

and growth, it should use the segmentation to structure not just product

design but the whole acquisition process from customer targeting to

segment positioning to delivery.

That means starting with a needs-based segment, developing a card with

features to meet those needs and promoting it by explicitly communicating

how the features satisfy the needs.”

MCKINSEY


Advanced segmentation can drive design and customization across the full customer life-cycle


MINI CHALLENGE

Applying Segmentation


MAIN ACTIVITY

Applying segmentation

The Context

• A large MFI wants to expand from offering group-loans

to low-income urban women to serving new customer-

groups with individual loans.

• They have identified a market opportunity in “micro

entrepreneurs”– especially in food, retail, and transit.

• They launched a basic individual loan product, but need

to distinguish themselves in a market full of general

offerings, especially as a new player in the individual

banking space

Product Individual Loan

Amount USD 2000-10000

Interest 27-33%

Payback period 6-18 months

Basic Product Offering



MAIN ACTIVITY

The segments

The Tight-rope walker

A customer who is struggling to

keep his/her business running. This

could be a start-up, or an older

enterprise hit by an unexpected

shock. Shocks tend to erode

personal savings

The Juggler

A customer who has managed to

strike a careful balance between

their personal and business finances

with some savings. He/she wants to

maintain stability for their

family/keep business manageable

The Trapeze Artist

A customer who has some

characteristics like the juggler, but

with one key difference – he/she is

ambitious.



MAIN ACTIVITY

Reflect on your segments

What are your segment’s unique needs/ challenges?



MAIN ACTIVITY


How would you design for this segment?



MAIN ACTIVITY


How else would you serve their needs?Messages, bundling, etc



MAIN ACTIVITY

Share about your segment and tailored offering



4

How do I guide the process in

my organization?

SEGMENTATION

• Positioning• Involving the organization• Living segmentation


Enlisting your organization is central to successfully applying your segmentation.

Involvement breeds buy-in.

Understand underlying motivations.

Keep it human. Tell a sticky story.

Don’t wait till the end to share your findings. Engage stakeholders in the process of segmentation to ensure buy in and application.

Everybody has different motivations––some are driven by outcomes or data, others by novelty or stories. (Perhaps you need to segment your stakeholders!)

We all want to be compelled and feel connected to others. Frame your segments in memorable ways and share salient stories to illustrate needs and opportunities.



Think of who you might involve and how. Here are a few examples:

• Design and user research

• Strategy

• Marketing

• Product development

• Analytics

• Sales

• Information technology

• Customer support


Three ideas to take home to make segmentation a living process and renewable organizational resource.


Two comprehensive resources to dive deeper: for you or to share with your colleagues


“Segmentations are viewed by too many of their

sponsors as one-time, go-for-broke efforts to provide

a comprehensive portrait of customers that can

inform all subsequent marketing decisions. In our

view, segmentations should be part of an ongoing

search for answers to important business

questions as they arise.”

DAVID MEER, PRINCIPAL, PWC

REMEMBER!


What questions do

you still have about

segmentation?

DISCUSSION

What is most

valuable to your

work?

What’s one thing

you’ll try out?


STAY CONNECTED WITH US:

www.cgap.org @CGAP Facebook LinkedIn


This module was designed in collaboration with .

based on content from the Segmentation Toolkit created by CGAP and Hope Associates.

www.dalbergdesign.com


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gayatri murthy, cgap raghu kolli, leapfrog … · discuss how to apply and integrate segmentation...

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