How To: Customer Segment Intelligence Gathering

In a previous post, we discussed the uses for and value of customer segment intelligence in SaaS companies. This post focuses on the approaches to gathering customer segment intelligence and provides a framework for developing an intelligence-gathering approach that meets intel objectives most efficiently.

In EMI’s experience, companies often under-invest in customer and market intelligence because they either perceive that doing research is too expensive and time-consuming or they have done research in the past that didn’t deliver value. With a focused research approach in which methodology is aligned with objectives, however, neither of these should be the case.

Start with an Objective

As the previous sentence suggests, successful research always starts with a clear, strategic objective. Often that objective will emerge out of anecdotal identification of potential gaps in knowledge, for example:

  • Penetration in a particular industry isn’t as robust as you would have expected based on the fit between the industry’s needs and your software’s benefits
  • Sales closes significant new contracts with several customers from an industry not explicitly targeted through marketing
  • A group of customers are not succeeding in implementing the software as quickly as other customers
  • Several larger customers cancel or reduce their subscriptions

In each of the examples above, observations of behavior leads to questions—What is driving less-than-expected industry performance? How did these customers find out about us and can we target more like them? What are the impediments to implementation? Why are larger customers cancelling? These questions can then be turned into research objectives: understand how to increase penetration in an under-penetrated or emerging segment; identify customer experience improvements that can improve time to implementation and retention.

Sometimes the need for research arises when a business begins to pursue a new, untested venture. Common examples would be the development of a new product/service, the enhancement of an existing product/service, or the pursuit of an entirely new market.

While the genesis of the research may be different, the approach must be the same. Discipline around objective definition is vital to avoid trying to answer every question about the de novo opportunity. For example, if the research needs are in the area of product development or enhancement, potential objectives are:

  • Collect “blue sky” input to build a list of potential new features for customer segments with high growth potential
  • Test the value to existing customers segments of new features that have already been defined

Each of these two objectives drives a different research approach. Whatever your objective, defining it and maintaining it as your lodestar throughout the research development process is the key to efficiently capture the insight you need and avoid gathering information you don’t need.

Identify Your Methodology

“Research” does not always mean a survey. In fact, it is likely that customer data analysis, secondary market research, in-depth interviews, and/or focus groups could be better methods for achieving your research objectives.

The key to determining which method will best meet your needs is articulating the kind of insights you need and the most logical source of those insights. For example:

  • Do you need to identify differences between customer segments or find what all customers have in common?
  • Are you trying to gather initial, guiding information to develop a list of potential new features or are you trying to understand the relative value of features that have already been conceived?
  • Do you want to understand what existing customers value or the size of the potential new market for your product?

The answers to questions like these will guide whether you pursue qualitative focus groups, interview or survey existing customer, analyze customer usage data, gather secondary research into industry trends, or conduct broad market surveys.

Know When to Stop

There is a famous quote from French author Etienne de Saint-Exupery: “Perfection is attained not when there is nothing left to add, but when there is nothing left to take away.” Perfection may neither be obtainable nor even a desirable goal in research, but the need to limit and control the compulsion to add—questions, completed surveys, interviews, data—is both strong and vital to research quality and utility. The goal should always be to do the least amount necessary to ensure well-grounded decisions and outputs. If you can’t articulate how a question will contribute to better decisions or outputs or how collecting more data is likely to change decisions or outputs, it’s time to stop.

Customer intelligence is a vital tool for identifying and scoping new market opportunities, grounding product development decisions in an understanding of customer value, and honing in on causes of under- or over-performance. Amassing this intelligence isn’t easy, but when approached in a disciplined, grounded way, it almost always produces a measurably positive ROI driven by new revenue and/or productivity gains.

Bank’s vertical industry focus bears fruit

Over the past three years, the commercial sector has been the primary focus for bank loan growth efforts. In 2010 and 2011, strong commercial loan growth rates were generated as the economy recovered from the 2008-2009 financial crisis and subsequent recession. The commercial lending market started to get more competitive (as evident in declining yields), so many banks have turned to vertical industries to maintain and even accelerate commercial loan growth rates.

The following table summarizes vertical industry performance for some of the leading U.S. banks:

The following are 10 quick steps for banks to market effectively to specific vertical industries:

  1. Size the opportunity (industry size and growth rate)
  2. Profile the industry, covering growth prospects, key opportunities and threats, financial usage and needs, as well as the typical financial decision-making process
  3. Identify high-potential sub-sectors (with strong growth potential and unmet financial services needs)
  4. Identify industry clusters in particular geographies within in the bank’s footprint
  5. Analyze competitor industry-targeting initiatives
  6. Assess the bank’s current ability to meet customer’s financial needs; develop and implement strategies to fill product/service gaps in-house or via partnerships
  7. Develop a marketing plan around industry-specific media, such as trade publications, associations, events, and social media channels
  8. Deploy dedicated industry banking teams
  9. Create customized collateral and sales tools to support these teams
  10. Publish industry-specific content (videos, webinars, case studies, articles, newsletters, reports)

Credit Card Issuers Focus on Affluent Segments

The recently-announced credit card issuing deal between Wells Fargo and American Express highlights issuers’ focus on targeting the affluent market. Over the past two years, Wells Fargo has been successful in increasing credit card penetration of its retail bank households from 27% to 35%. To grow penetration further, the bank has realized that its needs a broader credit card portfolio to meet the needs and usage patterns of customer segments. It has revamped some of its cards and offers, but still lacks a high-end card. The deal with American Express will serve to fill this gap.

The changes in credit card outstandings by FICO segment for different issuers in the two-year period between end-June 2011 and end-June 2013 clearly illustrate the growing importance of affluent consumers to issuers’ credit card portfolios:

Issuers are now turning their attention to outstandings growth (see our recent blog on 2Q13 credit card metrics), with even the three largest issuers (Chase, Bank of America and Citi) all reporting that the extended period of outstandings decline is coming to an end. However, the scars from the financial crisis will linger, and issuers remain reluctant to extent credit to consumers with low FICO scores (these consumers are increasing being offered alternative payment products, such as secured and prepaid cards).

So, EMI expects that most issuers will be looking to build outstandings from consumers with higher FICOs (generally above 680). In this increasingly competitive environment, the following are 5 ways that credit card issuers can effectively market to the affluent consumer segment:

  1. Leverage market and competitive research to develop products and features that are tailored to affluent customer needs and behaviors, and that compete strongly against competitive offerings.
  2. Build card positioning and acquisition offers around spending rather than borrowing. Given their spending patterns, more affluent customers are more likely to respond to spend-based incentives (e.g., bonus points, tiered rewards programs) rather than aggressive introductory or go-to interest rates.
  3. Develop marketing for the entire customer lifecycle. The traditional focus in the card sector has been on new cardholder acquisition, which has frequently resulted in other stages of the lifecycle being neglected. Issuers should develop a series of communications and offers based on other key stages of the customer lifecycle, such as the first 90 days (activation opportunity) and card expirations (retention and upsell opportunities).
  4. Analyze customer spending data to develop usage stimulation offers for cardholders with no/low usage.
  5. Develop synergies with other bank units that also serve affluent clients. Traditionally, credit card operations were operations as a separate silo with a bank’s organization. More recently, bank have overhauled their structures and strategies with customers, rather than products, the central focus.  And hitherto disparate units (such as credit card and wealth management) are starting to come together to develop synergies in areas like product bundle development, cross-sell campaigns, and two-way referral arrangements.