MARKET SEGMENTATION

Properly defining the needs of the market through market

segmentation is the key to the Banks successful, long-term
competitive positioning.
Market Segment -- . . . a group of customers with similar needs,
sharing characteristics that are strategically relevant.
Market-driven approach

Experience has proven the value of segmentation.

Reduce costs
Achieve stronger & more profitable market penetration
Improve the return on the investments made in marketing

The time has come for the Bank to begin defining the its business
objectives, strategies & tactical plans by focusing on the most
basic of all strategic questions:
What makes certain groups (consumers & businesses)
buy the Banks products, services & brand?

Segmentation Criteria
The design of a final segmentation scheme
was contingent upon specific selection
criteria:
Be applicable to financial services
products in the United States
Differentiate financial services usage
among the market segments (usage
patterns should differ as much as possible
across market segments)
Be predictive of financial product usage
among consumers & businesses within any
of the market segments identified
Require the collection of as little
information as possible by business
development personnel to categorize
households into a market segment
Permit the sizing of markets based upon
the availability of market information

Applicable
Applicable
to
to banking
banking
products

Require
Require
collection
collection
of
of minimal
minimal
data

Predicti
ve

Permit
sizing
sizing of
of
markets
markets

Differentia
Differentia
te
te usage
usage
among
among
segments

6
5
4
3
2
1

6-Task Approach to
Segmentation
Develop strategy
Prioritize the segments
Perform financial analysis
Profile the market & customer base
Describe the behavior of segments
Determine the basis for segmenting the market

Determine the Basis for Market Segmentation

The ultimate goal of the Bank's segmentation research is
To develop expected product portfolios (balance sheets) for each
market segment in the adopted market segmentation scheme,
including the incidence of usage by the market segment & the
level of usage (e.g., outstanding balances)
To develop a method to elicit the customer's current portfolio of
products in the sales environment & the financial institution where
he/she has the product
To identify products not in the prospect's product portfolio yet in
the expected portfolio

After reviewing the segmentation information it was

determined that a combination of age/income segmentation
and lifestyle/lifestage segmentation should be utilized.

Consumer Segmentation Framework

18-34

$100,000+

$50K-$99,999

Younger Upscale

$40K-$49,999

Under $30K

55-64

65+

Upscale
Older Upscale

High
Income
Credit
Driven

Credit
Driven

$30K-$39,999

45-54

35-44

Low
Income
Credit
Driven

Younger
Fee
Fee Driven

YoungerMiddle
Older
Middle
Middle
Market Market
Market

Older

Driven
Fee Driven

Middle
Middle Income
Income
Depositor
Depositor
Retired
Depositor

Lower Income
Low Income
Depositor

Depositor

First, we assessed the attractiveness of each segment.

Segment Prioritization Model

Segment
Attractiveness

Financial
Considerations

Marginal Contribution Potential per HH

Marginal Contribution Potential Footprint

Balance Sheet
Considerations

Asset Product Potential

Liability Product Potential
Fee Income Potential

Market
Considerations

2010 to 2015 Projected Growth

Banks HH Distribution

Weighted to the Banks unique needs

Then, we determined how well the Bank is positioned

competitively to compete for each of the segments.
Segment Prioritization Model

5
4
Competitive
Competencies

Is well positioned to target the segment

Has necessary competencies to target the segment

Is satisfactorily able to target the segment

Needs improvement to target the segment

Not positioned to target the segment

Based upon the combined scores related to competitiveness &

attractiveness, each segment was classified into a strategy cell.

Attractiveness of Segment to
the Bank
Unattractive

Banks
Competitive
Competencies

Weak

Average

Strong

Disinvest

Phased Withdrawal

Cash
Generation

Average

Phased
Withdrawal

Attractive

Double or
Quit

Custodial
Growth

Try
Harder

Growth
Leader

Leader

Consumer Segmentation Objectives

Objectives:

Evaluation

Accounts for financial behavior

between & within segments

Meets criteria

Useful for all areas of Retail Banking

Meets criteria

Ability to develop expected product

portfolios for each segment

Meets criteria

Ability to estimate market potential in

the market area for asset, liability & feebased products by market segment &
by geographical area

Available, but not currently included.

We will utilize a geo-demographic
market potential model.

Ability to determine the existing share

of each market held by the Bank

Available, but not currently included.

We will utilize a geo-demographic
market potential model.

Consumer Segmentation Criteria

Criteria:

Evaluation

Applicable to banking products

Meets criteria

Differentiates financial services usage

among the segments

With the expanded segmentation

scheme available to the Bank, the
framework meets our criteria

Predictive of financial services usage

Meets criteria

Requires the collection for as little

information as possible from customer
& prospects to match them to
appropriate market segments

Meets criteria

Be as simple as possible in application

for employees

Meets criteria

Demographic breakdowns comparable

to census data

Meets criteria

Consumer Segmentation Criteria

Capabilities:

Evaluation

Methodology is statistically reliable &

sample is large, local (not national),
includes consumer behavioral
information (e.g., product, delivery &
attitudinal)

Tie in with Satisfaction Survey is

strength. Expanded segmentation
scheme is not local, but the information
is sufficient for our purposes. Can be
analyzed by rural versus urban.

Provides sufficient number of segments

to produced mutually exclusive
behavior

Meets criteria

Provides mapping capabilities against

branch locations

Available, but not currently included.

We will utilize a geo-demographic
market potential model.

Provides product profitability

information in a way suitable for
determining segment profitability by
geographical appeal

Meets criteria.
We will import financial data into a geodemographic market potential model.

Segment Descriptions

Segment

Segment Definition

Financial Services Characteristics

Younger Fee Driven

Age: 18-34
Income: Under
$50K

Lowest Product Usage & Balances

ATM & Electronic Channel usage are keys
Key Loan Target: Used Auto; Deposit Target: Free
Checking

Emerging Credit Driven

Age: 18-34
Income: $50K $99K

Lower Loan Product Usage Except for Personal LOC &

Used Auto
Strong Electronic Channel Usage
Key Loan Target: Used Auto; Deposit Target: Free
Checking

Affluent Credit Driven

Age: 18-34
Income: Over
$100K

Stronger Loan Product Usage across all types

Stronger Electronic Channel Usage - especially Bill
Pay
Key Loan Target: Mortgages & Equities; Deposit
Target: Free
Checking w/Bill Pay

Segment Descriptions

Segment

Segment Definition

Financial Services Characteristics

Older Fee Driven

Age: 35-44
Income: Less than
$50K

Lowest Product Usage

Lobby & Electronic Channels are equal in importance.
Key Loan Target: None; Deposit Target: Trust &
Investment Services

Younger Middle
Market

Age: 35-44
Income: $50K to
$124K

Stronger Loan Product Usage across Real estate &

Auto types
Stronger Electronic Channel Usage - especially Bill
Pay; But lobby is growing in importance
Key Loan Target: Mortgages, Equities & Autos;
Deposit Target: Free Checking w/Bill Pay & Mutual
Funds

Younger Upscale

Age: 35-54
Income: $125K or
More

Strongest Loan Product Usage across all types &

Stronger Deposit Product usage
Stronger Electronic Channel Usage - especially Bill
Pay; not very lobby dependent
Key Loan Target: Mortgages & Equities; Deposit
Target: Interest Checking; Money Markets &
Investments

Segment Descriptions

Segment

Segment Definition

Financial Services Characteristics

Older Middle Market

Age: 45-54
Income: $50K to
$124K

Stronger Loan & Deposit Product Usage across all

categories
Weaker Electronic Channel Usage & Lobby is as
important as electronic channels
Key Loan Target: Mortgages & New Autos; Deposit
Target: Interest Checking, Money Markets & Mutual
Funds

Younger Low Income

Depositor

Age: 45 to 65
Income: Under $50K

Weakest Loan & Deposit Product Usage across all

categories
Weakest Electronic Channel Usage & very Lobby
dependent
Key Loan Target: None; Deposit Target: Free/Senior
Checking

Middle Income Depositor

Age: 55+
Income: $50K to
$124K

Stronger Equity Credit Usage & Stronger Deposit

usage across all categories
Weaker Electronic Channel Usage & very Lobby
dependent
Key Loan Target: HELOC; Deposit Target:
Interest/Senior Checking, Money Markets & CDS

Segment Descriptions

Segment

Segment Definition

Financial Services Characteristics

Older Low Income

Depositor

Age: 65+
Income: Less than
$50K

Weakest Loan & Deposit Product Usage across all

categories
Weakest Channel Usage across both categories
Key Loan Target: None; Deposit Target:
Interest/Senior Checking, Money Markets & CDS

Older Upscale

Age: 55+
Income: Over $125K

Strongest Loan Product & Deposit Product Usage

across all types
Stronger Electronic Channel Usage - especially Bill
Pay; not lobby dependent
Key Loan Target: Mortgages & Equities; Deposit
Target: Interest Checking; Money Markets; CDs &
Investments

The result is a total of 58 segments, within 12 lifestage

groups which were scored using factors that had the
greatest effect on their financial behavior such as age,
income, home ownership & family structure.
Customer data was linked with survey research, survey
data & household-level demographics.
By overlaying the two segmentation schemes, the types of
consumers are most likely to use the Banks products or
services are revealed. This& allows the Bank to group
segments with similar behaviors to realize the greatest
targeting efficiency & manageability.

Two of the segments with the highest deposit market

potential & projected growth rates are the Older Upscale &
the Middle Income Depositors.
They present the Bank tremendous opportunity if the Bank can
develop a compelling offer which appeals to older consumers.

The Younger Lower Income Depositor & the Older Lower Income
Depositor segments are more heavily represented in the customer
base than in the trade areas surrounding the branches. They
clearly represent an area of strength & opportunity; but, theyre
not growing segments.