Getting segmentation right: knowing who is going to vote 1 for you

If winning elections is predicated on having the strongest understanding of your constituents’ hearts and minds, then so too is a successful distribution strategy when it comes to your intermediaries and clients.  As the 2nd July federal election post-mortem continues to dominate news cycles, what is clear is that this is precisely where things have unraveled for some of our politicians and punditry alike.  Election aside, is it time for a review of your approach to understanding the hearts and minds of your customers and prospects?

Segmentation – the ability to carve up a diverse population into clearly defined subsets that exhibit homogenous characteristics, behaviors, or needs within – is a vital tool for any goods or service provider to understand where they win business, why they win, who to target and how to win.  Done well, it improves the efficiency and success of distribution resources and marketing efforts, increasing their cut-through, and provides a finger-on-the-pulse of emerging trends and risks.  However, if done poorly, it can lead to a build-up of unprofitable relationships and lead strategic decision-making astray – from the composition and structure of your distribution teams to the products and services you develop.

As a simple illustration, take for example our finding in the Tria Retail Wealth Insights Programme on portfolio construction trends amongst non-salaried advisers in Australia.  In the chart below, the market average shows almost no change in advisers’ expected use of model portfolios over the next 3 years.

Getting segmentation right - chart

Digging only one level deeper however, by using a well-thought out segmentation model, it is clear that model portfolios are very much out of favor amongst advisers who have a greater focus on high net worth clients (those with >$1m investible assets), (15% expect to decrease usage).  As an asset manager, if my distribution model is geared towards targeting dealer group head offices for inclusion into their proprietary model portfolios, it is unlikely that I would attract strong flows from their practices focused on high net worth clients.  Now depending on my strategy and target market, this might be an acceptable choice, however, if I’ve positioned my product to attract high net worth investors, how successful is my distribution model likely to be?

Key to establishing the right distribution strategy and model comes back to being able to conduct effective segmentation, for which the availability of good data on your target market is critical.  Platform providers have traditionally enjoyed a data advantage given their roles as administrators.  But for asset managers, the same level of data is often not available because of their disintermediation from advisers, let alone investors.

In conversations with asset manager clients who distribute to retail investors, many recognise effective segmentation is essential, but are hamstrung by CRM systems that aren’t well maintained or utilised.   The end result is often a simple platinum/gold/silver segmentation approach based on strength or size of relationship, which may offer little insight on potential opportunities or threats.

To overcome this, a highly disciplined approach to CRM is necessary. For dividends to pay off in the long run, distribution teams must be willing to expend the effort now to consistently capture and refresh quality insights about their intermediaries and clients, be they existing or prospects, advocates or detractors alike. And then that invaluable data must be used to segment the market appropriately (more on that another week).

When executed well, segmentation can drive real value: it is so much easier to convince someone to vote 1 for your business when you’re confident what you provide is what they’re looking for.


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