INTRODUCTIONHow To Use This Segmentation ToolkitTable of ContentsFollow the decision tree to see how much you may already know about customer segmentation. Your knowledgelevel will lead you to path A, B, C, or D. That path will then guide you through the toolkit elementsthat can benefit your organization the most.START HEREQuiteconfident.Howexperienced areyou with customerresearch andsegmentation?Somewhat,or not veryexperienced.No, really. Howwell do you knowyour customers?How well do youknow the marketyou’re consideringsegmenting?Somewhat, ornot very experienced.Could learn more!How interestedare you in learningmore?Not very interested.I’m more concerned withother issues and projects.Like theback ofmy hand.Do you haveany resourcesfor conductinga segmentationeffort?Interested.Tell me more.Yes I’m interested! I havesome budgetbut not much time.Maybe Icould diga bit deeper.Yes I’m interested! I havetime but notmuch budget.I know my customers reallywell. I’m not sure what thistoolkit can teach me that Idon’t already know.ABCDPath A offers afew basics to keepin mind for later.Some externalexpertise might reallyhelp your organization.Follow path B for timesaving options.There are somegreat ways to pickup knowledge withouthigh costs. Followpath C for low-costoptions.Skim the toolkit alongpath D. You may find afew tips and tricksyou’ll like.If you have both time and budget,consider looking over the entire toolkit.INTRODUCTION1MAKING THE CASE4ABCFINDING THE STARTING POINT13ABCSEGMENTATION PROCESS20Step 1: Define Your Objective21BCStep 2: Pick Your Population23BCStep 3: Brainstorm25ABCStep 4: Conduct Informal Qualitative Research29AStep 5: Dig into Existing Data30Step 6: Develop Hypothesis Segmentation34Step 7a: Conduct Additional Research36BStep 7b: Engage a Market Research Firm (optional)38BStep 8: Refine and Finalize Segmentation42BStep 9: Showcase Your Results45BCStep 10: Apply Your Findings47BCStep 11: Track and Measure49BCADDITIONAL RESOURCES50SOURCES52DDDCCACDDD
1ResourcesINTRODUCTIONIntroductionLook for these icons throughout the toolkit. Each indicates more in-depth information on a subject orhelpful resources.Case StudiesLearn from Other OrganizationsEvidence of the value of customer segmentation from financial serviceproviders who’ve invested in this approach and methods.ExperimentsPut Customer Segmentation into ActionPractical exercises that help you get closer to your customers andadd segmentation as a core competency. Many of these experimentscan be done in as little as an hour or two.ReferencesBuild Your Customer Segmentation Knowledge BaseCurated research and reference materials that build your internalknowledge base and increase the impact of customer segmentationwithin your organization.ToolsPlan and Execute Customer Segmentation ActivitiesRobust tools that help you integrate and manage customersegmentation initiatives within your organization – including projectplanning tools, key frameworks, and design methods.Traditionally, financial service providers have considered low-income consumersas a single segment. Microfinance institutions were formed specifically to targetthis segment – historically with a monoproduct offering. But some financial serviceproviders have begun to see more potential in the segment while others stillwonder what steps to take toward understanding it.Customer research such as the Financial Diaries and other demand studies showthat the low-income or mass market is not one single segment; people’s worries,wants, needs, and behaviors are nuanced.Customer segmentation allows organizations to divide a market into subsetsof customers that have, or are perceived to have, common needs, interests,and priorities – then design and implement strategies targeted toward them. Anessential tool, segmentation helps organizations serve low-income markets byunderstanding important common characteristics of their customer base, which canmake the difference between an underutilized service and one that resonates withcustomers.Segmentation also allows financial service providers who’ve previously onlyfocused on high-value customers to focus their energy on other value segments.The growth in the number of organizations that offer services to the poor showsthat this opportunity is real.This Customer Segmentation Toolkit provides practical guidance on how to usesegmentation to better serve the needs of your customers and improve customerexperience overall. Despite increases in access, there are still poor householdsthat don’t have access to a full range of financial services. Segmentation unlocksopportunities for innovation that can offer value to both customers and providers.THIS CUSTOMER SEGMENTATION TOOLKIT IS DESIGNED FOR: Organizations with a strong interest in or a mandate to serve low-income and massmarket customers. Financial service providers with business challenges that may be addressed by amore nuanced understanding of their customers. A wide range of senior leadership, mid-level managers, researchers, and analystsinterested in customer segmentation. It provides summaries, tools, links, and otherdetails.
2INTRODUCTION3Customer segmentationreveals nuances indemographics, attitudes, andbehaviors. These differencemay help you identify where yourproducts and services can fillunmet needs and provide themost value to you and yourcustomers.A bird’s-eye view of the marketmay tell you there’s an overallopportunity but provides no insightinto various customer needs orwho to focus on.This example looks at the market for financial services in a large unbanked population:When you begin to divide a market by key customer characteristics, big differences in customervalue reveal themselves. The pie chart below illustrates a segmentation exercise applied totransportation demographics. Each “pie slice” represents an opportunity area. Slices 2 and 4elaborate specific details uncovered in the segmentation.Number of PeopleVOLUME TOTAL MARKETOPPORTUNITYMarket Value:Average Opportunity:Number of People:Average OpportunityAverage OpportunityTOTAL MARKET OPPORTUNITY 100MThe market (5M people) seems to be interestedin a variety of products – from current accounts andsmall loans to savings products. Some people areserved by the competition, but a large portion(40 percent) are currently not served by any financialinstitution at all.INTRODUCTIONGROUP CHARACTERISTICS Need for financial transactions for their moderatelysuccessful businesses 20 percent are currently unbanked2135 18.75M 25 per year750KADAPTED MESSAGINGAppeal to efficiency (time and cost savings)4Number of PeopleVOLUME TOTAL MARKETOPPORTUNITYMarket Value:Average Opportunity:Number of People: 6.25M 10 per year625KNot a target due to segment size and lowaverage opportunity per customer
4ABCD5ABCWhy Conduct a Segmentation?Customer segmentation can help you divide a diverse market into a number of smaller, more homogeneousmarkets based on one or more meaningful characteristics. Segmentation helps you better understand yourcustomers and their various needs and wants.This chapter elaborates on how segmentation can help:A. Improve your understanding of current and potential customersB. Address business challenges and opportunitiesC. Identify and estimate market opportunitiesD. Tailor products, services, and customer experiencesE. Shape communicationsThe scope of your segmentation strategy depends on the maturity of your organization, the diversity ofyour market, your timeline, and budget.1MAKINGTHE CASECGAP Photo Contest. Photo by Wirawan. 2015D
A6BCDA. Improve Your Understanding ofCurrent and Potential Customers“When you engage with your customers and areopen with them, you earn their trust, they give youfeedback, and you can establish an iterative processfor co-innovation.”– Director of Consumer Insights, UnileverYou may be surprised to hear the variety of opinionsyour customers have about your organization andyour offerings. In essence, this is the goal of consumerinsights – to understand the “voice of the customer.”Transaction and sales data may be interesting fortrend analysis, but it won’t tell you why your customersbehave certain ways or what they maydo in the future.DSegmentation can help address the following challenges and opportunities:CHALLENGEOPPORTUNITYIncrease customer awarenessExpand customer baseReduce dormancyIncrease uptake of products and servicesImprove customer value propositionRETENTIONIncrease customer loyaltyIncrease customer lifetime valueEXPANSIONSave for stagnant growthEnter a new marketLaunch a new product or serviceUSEIn 2012, Bank BTPN launched BTPN WOW!, a mobile savingswallet designed for basic cell phones and geared towardlow-income Indonesians. Although already focused on andserving 1.4M mass market customers, BTPN wanted to tailorthe offering through deeper customer knowledge. Withthe help of CGAP, frog design, and Dalberg DevelopmentAdvisors, they launched a research project.CYou probably agree that increased customer knowledge is of value to your organization. A better understandingof the needs and wants of current and potential customers may be the key to addressing current challenges andunlocking new market opportunities.ACQUISITIONIMPROVING CUSTOMER UNDERSTANDING THROUGH RESEARCHBB. Address Business Challenges andOpportunitiesAbove all, customer segmentation and research allowsyour organization to improve the value propositionand experiences you offer customers through a betterunderstanding of their actual needs and desires.Case Study: Bank BTPN, IndonesiaA7For more details on choosing a business objective for your segmentation, see pages 21 and 22.The team interviewed 70 customers, agents, and expertsin the first round of research. Synthesized learningsresulted in the development of five relevant personas– representations of individuals based on attitudes,interactions, psychological profiles, aspirations, behaviors,and standard demographics.BTPN leadership remarked that this was the first timethey’d seen their customer base represented in such ahuman way. Targeting the new product to the right kind ofcustomers influenced the way it was rolled out.A bus driver counts his money, Indonesia. Photo by frog design. 2013
BCA8DC. Identify and Estimate MarketOpportunitiesA9BCExperimentsWHAT’S THE POTENTIAL OF THE UNBANKED CUSTOMERS IN YOUR MARKET?Two billion people around the world – more than half the adult population – are currently unbanked.1 Reachingeven a small portion of this market offers significant potential.Segmentation helps identify potential customers with the greatest unmet needs and the most willingness toadopt your products and services. Once you identify specific segments you can estimate the size of the marketopportunity to be gained by better serving them and prioritize resources accordingly.Consider the case study below about UBL Bank in Pakistan. Segmentation allowed the bank to estimate the size ofvarious customer segments and the opportunity to serve diverse needs.Download the Excel workbook (link below), and adjust the sample inputs to see the potential size of your market. Youmay be surprised at how significant it is!DATA INPUTSGenderIndonesiaSelect countryAge GroupDo not have an account because EducationYN ANYMale15-25Primary or lessFemale26-35Secondary too far away36-45University orgreater too expensive46-6060 lack documentation lack trust lack money religious reasonsCase Study: UBL Bank, Pakistan family member already has oneLOOKING AT THE UN(DER)BANKED MARKETUBL Bank carried out customer segmentation based on: Customer knowledge and use of financial servicesASSUMPTIONS Customer trust in formal financial institutions Degree to which customers saveIn the table below, the Heavy User and Early Adopter segments represent the highest per household marketopportunity and demonstrate the greatest willingness to use UBL’s products and services.This segmentation allowed the bank to identify the largest market opportunities and tailor value propositions to bestmeet customer needs.% of relevant unbanked marketattainedRevenue earned per person,per yearOUTPUTS20% 20.00OverallMarket AverageEarlyAdopter141,551,765Relevant unbanked population24,214,300Attained unbanked population1,210,715Potential Revenue 24,214,300Heavy UserOpportunityper HouseholdTotal unbanked CSuperSaverTo complete this experiment for your country or tocustomize inputs, download the full Excel workbook.D
A10BCDA11D. Tailor Products, Services, and ExperiencesE. Shape Communications“Any customer can have a car painted any color thathe wants, so long as it is black.”– Henry Ford, 1908In the same way that products, services, andexperiences can be designed to fit target segments,messaging may be adjusted as well. From masscampaigns to text messages to the language that tellersuse at the point of transaction, communications can betailored to particular customer groups.Henry Ford’s bold statement was accurate; his productwas so revolutionary that customer segmentation wasnot initially important. But as the market matured, it wastime to identify market segments and start adjustingproduct to the needs of various users.Cars with extra space and greater durability were builtfor farmworkers. More luxurious models were designedfor those seeking prestige. Fast forward to today andconsider the many models now available to meet themarket’s diverse needs and preferences.A key aspect of any product or service is the customerexperience attached to it. In interviews with customersabout the process they went through to transfer money,people described their experience and defined “good”customer service in a variety of ways.Traders, for example, were very impressed with the PINsecurity function and confirmation of SMS transactions.On the other hand, businesspeople were moreinterested in the prestige of the service and amenitieslike a comfortable waiting area, potentially with wifi.Centenary Bank in Uganda was excited to launch a newmobile bank offering, but their generic campaign hadachieved mediocre success.BCDUpon completion of a segmentation exercise, thecampaign message, “Take your bank everywhere,” wasreplaced with advertisements specifically tailored toeach segment identified.Centenary Bank used the ads to clearly communicatethe value of the product to target customers anddistinguish itself from the competition. The bank’scombined go-to-market efforts saw 38,000 users make130,000 transactions within the first four months oflaunch.Case Study: Oversea-Chinese Banking Corporation, ChinaCase Study: Centenary Bank, UgandaTARGETING THE YOUTH MARKETGO-TO-MARKET MESSAGING LESSONSOversea-Chinese Banking Corporation (OCBC) identifiedGeneration Y as a segment they wanted to target. Whatwas next? The bank dove wholeheartedly into in-depthcustomer research to identify new ways to shape theirofferings. As David McQuillen, OCBC Head of GroupCustomer Experience, put it, “We hung out with themat malls, ate dinner with them, went shopping andclubbing with them, and spent a lot of time looking intheir wallets and talking about money.”Without segmentation, Centenary Bank’s “Take your bankeverywhere” messaging was generic and did not resonatestrongly with customers:But once the bank used segmentation to understandtheir target customers, they were able to tailormessaging to address some of the pain points uncoveredby customer research:Some changes OCBC made for the youth market: Removed fees for customers under 26 Offered savings “jars’”with customizable names so customers couldsave specifically for their “new iPad” or a “trip to Bali” Offered 100 card designs so customers could personalize their experience Changed the in-person experience so special bank branches looked morelike a retail environment (i.e., an Apple store) than a standard bank Simplified the website to streamline online interactionsThree years in, increased sign-ups and evidence that the product is being used in many places makes this casea positive example of how to market to youth.“Access YourSalary”Salaried workerswanted towithdraw moneyin smalleramounts moreregularly, notjust all at once.“Make PaymentsDirectly fromYour Account”The youth marketwanted to spendless time in longbank queues andreceive fundsfrom relativesmore easily.“Save Time andTransportationCosts”The businesscommunitywanted to savetime by nothaving to travelto a bank tohandle dailytransactions.
A12BCD13ABA Final Note:Debunking Segmentation MythsBy now you’re probably convinced of the value of segmentation – but you may still havea few reservations. Let’s dispel some common myths:SEGMENTATION COSTS TOOMUCH.Segmentation doesn’t have tocost a lot. There are severalways your organization canproduce great results with fewresources, including focusingon information that’s alreadygathered and readily available.If you decide to make a largeinvestment in segmentation,return can be quite high. Buteven a small upfront budgetcan help ensure the successof a new product launch andimprove customer retention inthe long run.SEGMENTATION IS TOOCOMPLICATED. WE DON’TNEED IT.The segmentation process mayappear to be complex and itmay seem easier just to replicatesolutions that worked in othermarkets. But, for example, theexperience of mobile networkoperators trying to apply theM-pesa money transfer model toother countries provides morethan half a dozen reasons whythe copy-cat approach may notwork well.This toolkit lays out anddescribes the steps tosegmentation in a practical way,including tools and templatesthat simplify the process.SEGMENTATION IS ANACADEMIC EXERCISE ANDDOESN’T WORKIN PRACTICE.Although there are caseswhere organizations producesegmentations that are toocomplex for their needs, poorexecution of a good tool is nota reason to shy away from it.Segmentation can be a greatsuccess if you:1. Keep business objectivesclear and focused. Don’toverreach.2. Don’t completely outsourceto a market research firm.Use your expertise to guidethe segmentation.3. Ensure buy-in by keepingkey stakeholders involvedin the process.2FINDING THESTARTING POINTC
14ABCWhere Should You Start?A151BCDoes It Make Sense to Do aSegmentation Exercise Now?This chapter helps you navigate some important issues and identify a starting point in the segmentation process.Take the following quiz. Circle your responses, then add up your points to see where you fall on the scale atthe bottom of the page.1Does it make sense to do a segmentation now?2Based on your current situation, do you needa formal or informal segmentation?3Who should be involved in the segmentation process?DISAGREEUNSUREAGREEWe’re facing serious business challengesthat could be addressed through a betterunderstanding of existing customers0 points1 point2 pointsWe believe there are a significant numberof potential customers to serve0 points1 point2 pointsCurrently, we don’t have a strongunderstanding of our customers ortheir needs0 points1 point2 pointsManagement fully supportsa segmentation exercise0 points1 point2 pointsWe’re willing to commit a certain amountof resources to complete a segmentationexercise well0 points1 point2 pointsWe’re ready and capable of adaptingproduct offerings and communicationsto different customer groups0 points1 point2 pointsShould we take on a customer segmentation now?CGAP Photo Contest. Photo by Relativo. 20150-4 points5-8 points9-12 pointsNOT REALLY.Wait and revisitthese questionsin 6-12 months.YES.Consider a moreinformal process(see following page).DEFINITELY.Conduct a formalsegmentation(see following page).
A162BCA17BCFormal vs. Informal SegmentationFormal SegmentationSTEP1STEP2STEP3STEP4STEP5Ideally, segmentationis an ongoing processwhere insights feedback into evaluatingbusiness ompared withInformal SegmentationFormal SegmentationSTEPDefine Your Objective1STEPPick Your Population2STEPBrainstorm3STEPCondu