EY's 8 Banking Customer Segments: Where's Your Focus?

EY recently released its 2014 Global Consumer Banking Survey. They surveyed more than 32,000 customers across 43 countries to evaluate 31 banking experience elements. As I read through it, I began to think how a community financial institution would turn what EY learned into action.

They parsed global financial services into eight different segments. "Each customer segment has different priorities, so developing targeted strategies requires careful attention to customer experience, channel preferences, priorities and behaviors." These segments are:

1. Upwardly Mobile - Young and highly educated. Have relatively high household incomes. Are prone to defection from their financial institutions. And value financial advice over multiple channels.

2. Elites - Older with high education and high household incomes. They are heavy users of online channels and value do it yourself financial management tools.

3. New World Adopters - Young and highly educated, they are indifferent to using either a bank or a new market entrant (non-bank). 

4. Balancers - They are comfortable with online channels but value a relationship with their financial institution. They don't open and close accounts frequently.

5. Safety Seekers - The largest segment of the population, safety seekers are less educated and typically have less cash flow per household. They prefer to use the branch.

6. Traditionalists - Less educated and more limited in terms of income, traditionalists own the fewest banking products but are willing to listen to new ways of interacting with their financial institution. They also value being rewarded for their loyalty.

7. Self Sufficients - Older, less educated, and have less financial resources. They have low levels of trust in financial institutions and are not likely to open or close accounts.

8. Unhappy and Unmovings - They are the most critical of their financial institution and the financial industry as a whole. They have a high incidence of complaints, and a low incidence of satisfaction with problem resolution. But they are unlikely to move accounts.

As I read through the list and the more detailed information about each of these segments, I thought through the different strategic approaches to each segment. And it struck me. Why build a strategy to attract and satisfy each of these segments? Their interests are so different, in many cases.

Would it be a more efficient allocation of strategic resources to pick the most populous and growing segments listed above in your markets, and build your strategy around them? Not only will you focus on the products, delivery channels, and brand that is most attractive to a select few segments, but you won't burn energy (i.e. resources) trying to be all things to all of these segments.

But that is not the way community financial institutions were built. We put a branch up in a town, and we tried to serve all eight segments, plus the business community, in that town. Our culture is infiltrated with employees that believe this is our strategy. And perhaps it is.

Now we realize that in this highly competitive landscape, perhaps we should be known to be excellent at serving a few of the above segments, and/or segments of the business community. Because the investments required to chase them all dilute our already heavily taxed resources.

Should community financial institutions focus on only a few segments, or develop strategies for them all?

~ Jeff

Bankers: Here's What I Do

Content marketing gurus tell us not to put sales pitches in your content. But I would like readers to know what I do in case they want greater context to blog posts, or are generally curious people, as I am. So here goes... 

What The Kafafian Group does, by Jeff Marsico

We help financial institutions perform better. How?

We manage and moderate the strategic planning process. From strategy team retreat, to the operating plan, to financial projections. We build strategy components, such as capital plans and strategic alternatives analysis. Yes, financial institutions should regularly perform a strategic alternatives analysis so the Board and Senior Management know who can be bought and at what price, what others can pay for you, and the present value of your strategy. A focused strategy and a disciplined strategic planning process is critical in our changing industry.

We perform profit improvement projects that help financial institutions increase revenue, decrease costs, and allocate organizational resources consistent with your FI's strategy. Today, more than ever, we must focus our resources on the most profitable endeavors in order to build an enduring future. Sometimes senior management deems it preferable to have an outside firm perform this project because of our perspectives from multiple FIs and business models, and our ability to cut through organizational barriers.

We do general advisory work to FI senior management and Boards of Directors. This has included management studies, retainer advisory so senior managers have a go to resource outside of the FI to evaluate significant decisions, assisting the Board perform day-to-day management duties while the FI searches for a new CEO, valuations for private FIs, etc. 

We measure the financial performance of business units, branches, products, officers, and feed customer profitability systems. We do this on an outsourced basis so those FIs that don't have the resources to do it themselves can build an accountability culture at the business unit level. We review results and areas for improvement regularly with senior management. This service includes funds transfer pricing, cost allocations, equity allocations, and most of the other tasks associated with getting an FIs profitability reporting up and running. You might be surprised to read that credit unions also avail themselves of this service. They care about profits because it is their sole source of capital.

We do merger advisory. We are a niche player in whole bank, branch, fee-based business merger and acquisition work. Niche because we don't typically go from FI to FI, pitching deal ideas. We react to client senior management request for assistance, and work hard to achieve client objectives, and get deals done so long as they are additive to the client's long-term performance, as deals should be, right?

So there it is. Contact me if you would like our help. Thank you for reading.

~ Jeff

Flawless Execution: Plan, Brief, Execute, Debrief

How do we connect our strategy to our vision? Can bankers identify, in high definition detail, the bank they want to become to remain relevant to their constituencies, and translate this future bank vision into action?

Regular readers of Jeff For Banks know I recently read Flawless Execution by former Air Force pilot Jim "Murph" Murphy by my post about defining your High Definition Destination. Far be it from me to send multiple shout-outs to an Air Force guy. The Navy has more planes (GO NAVY!). But, as the book's title suggests, Murph has some interesting thoughts on execution that I think can help banks bring vision to the ground floor.

Murph outlines how pilots plan for missions in a model represented in the accompanying picture. Could this work for community financial institutions? Let's walk through an example.

Suppose the FIs vision, or "high definition destination" is to be the number one business bank in the counties served for businesses with less than $10 million in revenue. The strategy team identifies a few Strategic Objectives that are critical to achieving the vision. For example, one Strategic Objective could be to develop a robust, yet simple suite of products designed to make the business persons' lives easier.

In the Flawless Execution model, a team would be assembled with all functions critical to the execution of the Strategic Objective present... commercial and retail banking, IT, compliance, marketing, etc. A plan is developed with responsibilities and timing. The team completes the game plan, and disperses to execute, re-assembling for regular updates and inter-dependencies.

After the product suite is developed and launched, per the plan, the team comes back together for a debrief to dispassionately discuss surprises, hurdles, miscues, and successes. This debrief is critical to organizational learning, ensuring the next Strategic Objective is executed better than the last. Yet, in my experience, the debrief rarely happens. 

Part of the reason is the increasing lack of candor in banking, and our society as a whole. I dedicated a blog post to this subject over three years ago, and I haven't noticed much improvement. How do we construct a culture of continuous improvement if we do not recognize execution flaws and impediments through a candid, yet dispassionate and impersonal debrief process?

Fighter pilots debrief this way because flaws in plan execution could end up in tragedy. Get better or risk death tends to add greater urgency than get better or have your FI relegated to the dust heap of irrelevance. 

But, as the numbers bear out, FIs need to get better at execution or risk irrelevance.  

How do you execute and do you debrief?

~ Jeff