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Customer Segmentation: Digging Out of the “Free” Service Expectation

World Class Service, for Free!

Those of us in the banking industry that have been around a little while can remember the days when customers routinely paid for the services they consumed.  It seems shocking to the average banking consumer today, but checking wasn’t always free, paying bills meant buying stamps and writing checks(which  they had to purchase), and transferring money from account to account involved visiting a bank branch, or at least an ATM.  As technology evolved in the 90’s and the 2000’s, the delivery of financial products and services evolved quickly to embrace the idea of customer self-service and “fee free” products and services.  Banks competed vigorously in the marketplace with this approach  and saw the ability to offer add-on services such as overdraft protection, linked credit cards, HELOC accounts , automatic payment of NSF items (for a fee), and minimal compensating monthly balance requirements as a way to offset the costs of  these “free” perks.  Consumers responded strongly to this new world, and why not? Free is good.

Victim of Success

Flash forward to 2012 and years of consumer expectations that have deeply entrenched the mantra of  “free” services during a time when regulatory actions, tight consumer credit, and reduced fee generation avenues for banks has caused unprecedented pressures to find ways to rationalize the cost of supporting payment platforms without impairing the  “24/7”  high functioning payment environments consumers now see as a “so what” when choosing  relationship banking options.  Several high profile attempts to begin charging fees to consumers have been met with outrage and national media coverage resulting in many of these attempts to be abandoned or altered.  In short, the message that world class payment platforms are free worked too well.

Changing the Conversation Through Segmentation

When most banking professionals think about customer segmentation they consider the historical approaches involved in creating new products and services.  In the past, segmentation strategies included analyzing  traditional  information sources such as internal customer history data, customer surveys, third party marketing studies and purchased external structured data to help drive a vision of the marketplace and consumer. While these avenues still provide value in designing attractive products and services to consumers, web-based payment providers such as PayPal, Amazon, Groupon, Living Social and others are creating segmentation in real-time by leveraging the emergence of  location-based, time limited offers. Having the ability create offers in real-time by linking a “check-in” on a social media application such as Foursquare to a payment account creates an opportunity to not only drive customer loyalty at that moment, but most importantly, provides an avenue to collect data concerning a consumer that previously was not available from traditional marketing research sources.

By enriching traditional data sets with new data attributes such as location-based data, as well as using social analytic data like demographics, geographic and psychographic insights from big data solutions, banks can understand consumer behaviors and create products and services that resonate with them at an individual level.  For instance, understanding that a customer visits a local coffee shop every weekday could result in a personalized account offering with a five dollar monthly service charge, that earns the customer 10% off all purchases at coffee shops.  The potential to create and offer a broad array of segmented products to appeal to consumers and demonstrate a new level of value is key to the industry finding sustainable revenue streams that consumers feel add value to their existing “free” products.  Bank of America’s newly launched “Bank Amerideals” ™ product which allows consumers to get offers that relate to their purchasing behaviors  is a great example of using payment data to proactively offer real-time deals to consumers.  While these initial customer segmentation steps haven’t resulted in new accounts with monthly fees, it has driven consumers to be incentivized to make more debit and credit purchases on their linked Bank of America accounts, and as a result, will increase income for the bank.

Long-term Strategy

In the long-term, banks that continue to hone their segmentation strategies will be able to demonstrate to customers that they understand a particular customer’s needs  better than other competitors.  By continually showing the consumer the value in the relationship the bank can provide, and by creating new products based upon those values, banks will be able to generate new income streams from consumers thus starting to turn the tide of  the “free” mindset to a mindset of value. You can learn more about Perficient’s Business Intelligence expertise and view client success stories on our website.

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