It’s Time to Rethink Segmentation

What do credit unions and airlines have in common? Think about the relationships airlines develop – they build status for people like Bronze, Silver, Gold or Platinum. These categories are set based on several factors (frequency of travel and finance factors including airline credit cards and in-app purchases). Credit unions take a similar approach to segmentation.

Whether running an airline or credit union, the problem is that this type of broad-stroke segmentation does not allow organizations to fully understand consumers. These categories fail to provide an accurate view of how consumers use services and interact with the organization. And, consumers are expecting more personalization.

Airlines are starting to ask for customers’ unique preferences: Lucy, who prefers to book last-minute and fly first-class, now has the option to get more points and share a medallion status with her spouse for a reward, since the upgrades were meaningless to her; and Tom gets to airports early, so club access is his top priority, and he only wants upgrades if they are for an aisle seat. Both Lucy and Tom may be Platinum status, but they do not hold the same values for marketing or reward preferences. The level of segmentation is evolving.

There isn’t a standard way for credit unions to segment members; some use the size of the account as a determining factor, while others look at the length of the membership or number of accounts. Perhaps the most common is ranking members based on their account balance. All of these methods fail to consider transactional, behavioral and product usage data. Such data allows credit unions to learn a members’ interest and loyalty, equipping them to provide more personalized recommendations for products and services. Similar to how airline rewards are evolving, this helps credit unions provide more meaningful value to members.

Proper segmentation makes members feel known and understood; it builds stronger relationships. For example, a credit union may notice patterns in a member’s behavior, such as more money going out to third-party providers and hopefully offer a better financial tool to manage their money. Or, perhaps another member jumps on any promotional offer on their credit card, but doesn’t use it much, there may be a better rewards program for them. Taking this relational approach to banking keeps credit unions from becoming a commodity and builds relationships based on more than rates.

Better segmentation can also help credit unions with timely and appropriate communications. For example, if a member is considered a “saver,” the credit union should consider personal outreach by checking in quarterly with targeted communications. Savers generally have a high lifetime value due to low attrition and high income, which is why consistent outreach and sensitivity to attrition is important. Conversely, “borrowers” or “super spenders” may benefit from an annual outreach to drive awareness and migrate deposits to digital. These insights can help credit unions determine the right contact models.

Implementing a new approach to segmentation and taking the time to learn about member preferences can elevate the banking experience to become more relational. Personalized segmentation can help credit unions develop relevant strategies that deepen and strengthen member relationships. In a time when every deposit matters, credit unions need to maximize the relationships they have – it all begins with knowing members better.

Scott Earwood is the Director of Community Solutions at White Clay, a Louisville, Ky.-based provider of data and consulting services to banks and credit unions.