Segmentation Applications in Banking - Data Mining Techniques in CRM: Inside Customer Segmentation - page 264

The second segmentation was based on more general behavioral criteria such
as purchase frequency and volume, cash advance usage, and payment behavior. The
segmentation covered all active consumer card holders and revealed six distinct
groups, among which were a group of revolver customers, a group of cash advance
users, and a group of heavy purchasers/transactors.
The two segmentation schemes were combined in the end to provide a
complete view of customer behaviors.
SEGMENTATION IN RETAIL BANKING
There is no ''average'' customer. The customer base comprises distinct persons
with differentiated needs that should be handled accordingly. In times when all
banks seem to recognize the importance of customer experience and its effect
on loyalty, segmentation is a principal strategy for improving relationships with
existing customers and for luring customers from the competition.
Segmentation aims at the identification of homogeneous groups of people
with dissimilar requirements that should be managed with customized strate-
gies. A widely used segmentation scheme in retail banking divides customers
according to their balances, product ownership, and total number of transac-
tions into groups such as ''Affluent,'' ''Mass,'' ''Inactive,'' and so on. These core
segments, although established and undoubtedly useful in providing a first fun-
damental separation, fail to provide the necessary insight for the development of
specialized management based on identified customer needs and behaviors. In
order to design ''personalized'' products, rewards, and incentives, a more refined
approach is needed that would further segregate the core segments and reveal
the different customer typologies in terms of demographics/life-stage position,
psychographics (attitudes/opinions/perceptions), profitability, and behavior. Dif-
ferent segmentation criteria correspond to different segmentation schemes which
could be combined in such a way to help marketing in the design of tailored
customer-centric strategies.
In the next sections we will focus on the efforts of a bank to develop an effective
segmentation solution that would represent the different types of relationships with
its consumer customers.
WHY SEGMENTATION?
Different people use different banking products and services for different reasons.
However, they are all part of the bank's customer base and demand a handling that