Customer-base segmentation is a key tool used by financial service providers to understand their target populations and design products accordingly. A well-executed segmentation exercise differentiates existing and potential clients of a service provider into meaningful groupings, thereby allowing products to be designed, marketed, and distributed with greater sophistication.
Identifying meaningful categories of customers, however, is only half the battle. Having comprehensive and reliable data is essential to a segmentation strategy, as it helps define segments, target these segments accordingly, and monitor and adjust them over time. But this data is not always readily available to front-line staff. For a segmentation framework to be effective, agents or front-line staff must also be able to discern proposed client types in the real world. When data is difficult to access, this means that segmentations must also be based on observable characteristics.
Our work with the City of New York’s Office of Financial Empowerment illustrates this approach to qualitative segmentation, which can complement data effectively. By interviewing users of OFE’s financial counseling services, we found that clients’ experiences divide largely along two fault lines: level of engagement with the service; and their financial constraints. The four resulting typologies can help OFE direct its services more efficiently, focusing more effort on those who need it, and streamlining services to those with one-off needs. Most importantly, the typologies we identified resonated strongly with counselors in a validation focus group, suggesting an intuitive usability for the ground-level team—an essential test for any client segmentation framework. As a result of this our resulting programmatic recommendations proved both relevant and well-justified.