From time to time, we all get newsletters or emails from companies that appear totally irrelevant to us and not related in any way to our businesses and challenges – I hope you don’t include this particular newsletter among them! These communications simply make you wonder why you are “on the list” and the end result is that they usually just annoy you.
How do your clients feel when they get general correspondence from you, where it’s not about their specific financial plans or policies? Do they find them relevant to them and their challenges or instead do they end up feeling that they are simply on a list that a communication has been sent to without any thoughts as to relevancy? Are you actually annoying them and potentially damaging your client relationship.
However it’s not just about marketing messages. The days of “one size fits all” are over in all aspects of your relationships with your clients. You need to send interesting and engaging communications that are relevant to them, and also deliver services that your customers actually want and are willing to pay for. Different clients have different needs so you need to be able to adapt your services to meet these different requirements. You also need to be able to manage your own scarce resources; primarily your time and money, by allocating them to maximum effect across your clients. This is where segmentation comes in.
So first of all, what is segmentation? One definition of it is, “a strategy that involves dividing a broad target market into subsets of consumers who have common needs, and then designing and implementing strategies to target their needs and desires. In short it is tailoring your marketing and service propositions to meet the needs of your different customer groups.
Segmentation for Financial Advisers
So you want to start segmenting your clients. The first step is to decide the factors that you are going to use. Well-developed segmentation models will use a number of these to drill down to smaller sub-groups of customers. Some factors used by financial advice firms are;
- Revenue from customer – maybe averaging any initial commissions over a number of years before adding to renewal commission.
- Premium levels
- Assets under management
- Potential for future business
- Customer profile
- Income levels
Tailor your services
Most financial advice firms that operate segmented models use profitability and potential as the key differentiating factors. They aim to provide a better service to those clients who deliver greater value to the firm. However I have also spoken to a number of advisers who claim that they sub-consciously do this segmentation – that their best clients get their best service. However when you dig below the surface, it usually emerges that it is the clients they know best that get the best service, not necessarily the clients who require or deserve the best service.
Some advisers argue that they operate a gold plated service for all clients, irrespective of their value to the business. Is this right? Well yes, your less valuable clients will be delighted with this as they receive a premium service for effectively low cost to them. However how do your better clients feel? They are delivering a lot of value to you but not getting any additional value in return… So you are pleasing your less valuable clients, at the expense of your best clients!
Once you have completed your segmentation exercise, you then need to tailor your propositions specifically for each group. Multiple propositions are probably the route to go; however they should be built on an incremental basis, defined by customer value. Your least valuable clients get a basic service. Your next tier of clients get a better service – more frequent meetings, reviews, communications, access to people etc. and your best clients only get your gold plated service – all of the above with extra trimmings on top!
You may also find as a result of your segmentation that you have been very successful in attracting business from one particular segment – a specific occupation, a geographical area, businesses in a certain sector etc. Can you corner this niche? Make yourself the resident expert and go-to guy in this population?
By analysing your client base, the exercise helps you to identify those target groups that you are actually most successful with. Lots of advisers say to me that they want to work with high net worth individuals. Segmentation will help identify how successful you are currently at achieving this; do these HNW individuals make up a big share of your client base? If not, segmentation can help to get you away from wishful thinking, and while here is absolutely nothing wrong with aspiring to work with different groups, maybe you need to reinvent your service propositions to attract these people and make your aspirations a reality.
Your marketing approach
To also briefly illustrate the importance of segmentation from a marketing point of view, consider an advice firm that has a number of group pension schemes and also a lot of individual clients too. These separate groups need tailored communications – your HR Director / CFO clients don’t want to be hearing all of the time about personal finance issues. Likewise your individual customers have no great interest usually in challenges to DB schemes etc. So segmentation from a marketing viewpoint is very important too.
In summary, is segmentation worth the trouble? Well yes it is as segmentation leads to better service outcomes for clients, and makes your business more efficient and ultimately more profitable.
Are there advisers out there who approach segmentation differently? If so, I’d welcome your comments!