Investment managers are struggling to differentiate themselves in the eyes of investors.
This is a challenge I come across often and something I enjoy finding solutions to. These managers are targeting the same cohort of people, with the same kinds of messages. So, the question in their mind is always – how can we stand out?
The answer: market segmentation.
Defining market segmentation
Segmenting a market means identifying – not creating – ways to group clients and prospects based on common needs. The clients and their ‘needs’ already exist; you must identify which of these ‘needs’ to use when segmenting the market.
The ‘needs’ you use to group clients should relate to those ‘needs’ your products and services solve. If there is something unique about the products and services you offer, the ‘needs’ you group by shouldn’t be identical to the rest of the market.
Market segmentation can feel like an ambiguous topic, but it’s not one to put off for another day as it can be a strong source of competitive advantage.
Segmentation in context
To establish a more concrete understanding of market segmentation in your mind, I’ve answered five common questions about it below:
- Sales already have their own way of segmenting clients – can we come up with a segmentation model that only the marketing team uses?
If market segmentation is all about understanding what your clients need, and organising how you think about and interact with your clients based on those needs, then shouldn’t every part of your firm want to agree on what those needs actually are?
Segmentation, when done properly, means aligning how a firm views its market and its clients. It’s important that every team in your firm is on the same page regarding the ‘needs’ they’re solving for, and has these needs at the forefront of what they’re working on.
Not to mention that both marketing and sales functions are far more effective when they’re aligned and integrated. Put in the effort to get the right people around the table to agree a segmentation model that everyone agrees on and understands how to use.
- What should our segmentation decisions drive change in?
In a nutshell, almost everything. The vast majority of what your firm produces should be in the name of addressing client needs, and if your segmentation model organises these needs into clearly actionable groups it should regularly be referenced by all internal teams.
Here is a short and far from exhaustive list to give you an idea:
- Market research
- Product and service development
- Product and service value propositions
- Brand positioning and messaging
- Marketing communications
- Campaign targeting
- Channel mix
- Distribution strategy and prioritisation
- Pitch books
- Client servicing approach
- Client portal experience
- …and much more!
3. How many segments should we have?
There is no ‘one size fits all’ when it comes to the right number of segments. If you’re deciding how granular to get, consider that the best segmentation model is the one that actually gets used. If you get carried away creating loads of detailed segments, it’s unlikely the majority of your firm will understand the model, let alone use it.
Also keep in mind the amount of resources you have to support the number of segments. You may wish to identify a larger number of segments, then combine some segments into one group and treat all those segments in the same way. The audience will never know it, I promise. Just because you’ve identified a particular segment doesn’t mean you have to treat it in a special way.
As as example, a firm might be prepared to work with 40+ segments. Others would need to simplify to only six. And another firm might identify 60 segments, prioritise 21, and divide those 21 segments into 7 groups (3 per group).
Segment on needs that matter to your clients and to a degree that makes sense for the resources you have available.
4. What if we don’t have the data we want?
In every role I’ve ever had, data has always been a hot topic. Everyone always wants more data, better data and different data. Typically, we are sitting on too much data – and it’s never in a useful format that we can trust. As is often the case with B2B firms, the data also never gives you an end to end view of the client lifecycle.
Here are my two tips to help you get started:
Use your CRM data. It’s real data about your actual clients. If you don’t know what data points you have on your clients and prospects, get to know them.
If you don’t have the data you want – find a proxy for what you’re trying to segment by and use that instead. Don’t wait for more or different data, just get started.
You don’t need all the data to make some segmentation decisions, you just need a few valuable pieces. Work out which ones they are and just get going.
5. What if our lack of data means we’ve incorrectly segmented some clients and prospects?
Your segmentation model, and the data behind it, will never be perfect. It’s highly likely you will have assigned multiple contacts to an incorrect segment – and that’s okay. Many of us are self-confessed ‘perfectionists’ (guilty!) but we need to become comfortable with getting things wrong. Of course, it’s still important to continually optimise the accuracy of your segmentation – but you should be cognisant it will never reach 100% accuracy.
I like to think about the ‘worst case scenario’ when it comes to data and accuracy. What’s the worst case scenario here? You might send a marketing email to a contact that contains a message that doesn’t resonate. That’s not the worst thing in the world, especially when you compare it to the mass-marketing strategies of days gone by.
Why should we use segmentation?
If you undertake market segmentation and do it to the best of your ability, you will instantly provide yourself and your team with an improved understanding of your audience and the opportunity to provide them with better solutions or products. So the question shouldn’t be why should you use segmentation, but why haven’t you started already?