November 2022 | Point of View

Segmentation in banking: Identify your most valuable customers to maintain growth

Take a data-driven approach to segmentation to meet your top customers

Segmentation in banking: Identify your most valuable customers to maintain growth

Even the most optimistic outlook on today’s economic environment is uncertain at best. Interest rates are climbing, loan demand has slowed, and talks of a recession mount. What’s more, the tidal wave of change in customer demographics and the long-awaited generational wealth transfer has arrived. 

Banks, in response, have been working diligently to map out a new customer experience, balance digital and traditional methods, and meet and service customers where they need it. 

In the face of these mounting challenges, banks must also maintain a growth-oriented mindset—and when uncertainty like what they’re facing now arrives, they’re tasked with choosing how to balance offensive and defensive strategies.

Defensive strategies often dominate, create imbalance, and include pulling back on new loan origination and focusing on credit management—turning lenders into portfolio managers. But these lending teams must shift strategies—to offense—and find new ways to identify, expand, capture, and preserve existing relationships. Doing this successfully requires lending teams to continually identify growth opportunities and focus their RMs’ time on those clients representing the greatest areas of growth.  

And yet, we find the majority of lending teams are still tied to old ways of selling. Many believe opportunities are evenly spread across the entire book of business. They assume RMs know how to find sales opportunities in their portfolios. 

We find that focusing on cross-selling equally across a book actually costs the bank significant lost revenue—while the best opportunities slip through their fingers. Up to 60% of RM time is spent with clients that lead to flat revenue for the bank, meaning two of three meetings are with clients that bring in less or the same revenue as the previous year. That’s a significant amount of time and effort spent with the wrong clients while other competitor banks and Fintechs are targeting the 40% that actually drive revenue. 

The solution? Segmentation—a top offensive strategy banks should employ to insulate and grow their commercial books. Even better, the pace of adoption of digital tools, analytics, and capabilities such as AI and ML mean this is an achievable strategy for most banks. Here’s how: 

Expand existing relationships through segmentation 

Commercial banking sales are driven by—and have historically been rooted in—selling through relationships and networking with centers of influence (e.g., accountants or attorneys, etc.).  This, in turn, leads RMs to new clients and new revenue streams. 

It’s become a challenge in today’s economic client because there’s often not a methodical plan to expand, repopulate, curate, and filter networks on an ongoing basis to insure ample, credit-worthy and effective referrals. It makes the old ways of selling less suited for today’s business and digital climate. 

RMs should instead shift behaviors from new client sales to deepening existing relationships. The transition begins by banks holistically considering how they segment clients—which impacts who they sell to, how they serve them, and where they invest.  

Beginning with layered data-driven segmentation, RMs can identify high growth and high value client customers. Next, execute predictive sales activities to target specific clients and opportunities to deepen account penetration, identify the most valuable clients, and drive revenue growth. 

Enhanced customer segmentation has a number of benefits, including: 

  • Accelerating prospecting: Target the customers and personas that mirror your most valuable customers 

  • Drive upsell/cross-sell opportunities: Position the right product for the right client at the right time 

  • Align support to value: Manage costs by providing appropriate support to customers based on the value they bring to your business—while driving certain segments to self-service models 

  • Improve investment targeting: Technology, customer engagement, and talent 

When these elements work in concert with one another, banks experience increased upsell of products and services, reduced customer churn, decreased cost to serve, and enhanced customer lifetime value. 

Improve your segmentation through data 

Data fuels segmentation activity—but it also plays a critical role in driving exceptional RM-client interactions. Commercial clients are seeking more personalized products, services, and experience via multiple delivery channels. While digital tools and omnichannel experiences continue to deepen their hold, banks are still mapping out a nuanced experience for retail and commercial customers that balances digital and traditional interactions. 

But this is only half the battle. Regardless of the setting (digital or traditional), RMs need data-driven insights on customer interactions and engagement to know how to interact with their client in order to deliver the exceptional, personalized experience increasingly desired by commercial clients. 

Data that already exists lies at the heart of a bank’s ability to fine tune segmentation, predict sales opportunities, and time interactions with clients in a personalized way. Without a clear understanding of the 360-degree profitability view, it becomes challenging to plan and segment holistic, high opportunity sales calls through proper segmentation and targeted sales activities. 

For banks seeking to better understand customer lifetime value and quantify revenue potential, data analytics does the following: 

  • Identify and quantify propensity of buy, upsell, cross-sell, to accelerate revenue realization 
  • Understand revenue durability and forecasts to improve lifetime value 
  • Evaluate customer acquisition, retention, and conversion to reduce churn 

As we look ahead to an increasingly uncertain economic outlook, bank lending teams will be asked to grow in the face of slower loan growth. Knowing your customers and being able to predict their needs is more important than ever. Coupled with the generational wealth transfer that is already underway, the ability to segment and identify your most valuable customers will be essential for any bank seeking to outperform competitors and serve both their clients and stakeholders. 

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