Fintech Customer Acquisition - Market Segmentation

This blog has been produced with support from Ipsos Mori, a sincere thanks to Paul Stamper (Paul.Stamper@ipsos.com) for his help and input.

This blog attempts to answer two key questions: Why do fintechs need to start marketing to specific target customer segments? And how should they go about identifying the right segments to target?

Why must fintechs segment the market?

Fintechs have a tremendous opportunity to capture a significant proportion of the addressable market for their products or services, before the incumbent banks’ innovation workstreams start catching up. Once incumbent banks are offering products and services which compete directly with fintech offerings, customers will have less reason to switch and the inertia which characterises retail financial services will make it harder for fintechs to gain new customers. The current situation offers a unique opportunity for fintechs to market their products or services and build their brands to capture market share.

However, the opportunity is not necessarily an easy one to grasp. Not only are fintech brands competing with the big, established brands of the incumbent banks, they are also competing with each other; it is an increasingly crowded space. Large scale customer acquisition also comes with a significant price tag; mass market advertising doesn’t come cheap. So, what can fintechs with limited marketing budgets but big ambitions do?

As argued in a previous blog[1], the most practical way for fintechs to compete with the incumbent banks is to differentiate themselves in the minds of their customers. In order to do this, fintechs must identify groups of potential customers, who are likely to be more open to their products or services and target their messages at these customers.  In other words, they need to segment the market so they can focus on fully meeting the needs of particular sub-groups in the market. Selecting smaller, homogenous targets also makes the task of marketing more manageable.  It is now possible to focus on targeting those specific customer segments more effectively with the marketing tools and budgets available. Once acquired, fintechs need to ensure these customers come back again and again and are fully monetised. This is not to suggest that mass-marketing will be of limited value to all fintechs. Where a fintech’s products or services have universal appeal, mass-marketing would be the right thing to do. However, for others, where needs are only fully met within particular sub-groups, targeted marketing would be a better use of limited resources.

Content marketing: Through an understanding of the needs of specific target segments, fintechs can ensure that they explain the value they provide to those target segments very clearly, through all their channels.  So, blogs, videos etc should talk consistently to the value drivers of the target segments, indicating how the fintech’s products or services would address their needs. The same principle should be applied to direct marketing content, in starting to develop an on-going relationship with these customers.

Customer lifestyle: Fintechs would benefit from identifying the points within the lives of their target segments, when the need for their products or services arises or is the greatest. This information can then be used to effectively target those customers through advertising, optimising the efficiency of marketing spend and effectively reducing acquisition costs. For example, by paying for just the search terms that are relevant to these points within the lives of their target segments, fintechs can be more targeted and reduce their cost per click.  

Customer buying journey: By developing an in-depth understanding of the purchase journey of their target segments, for the relevant products or services, fintechs can precisely target these customers during the awareness and consideration stages of their journey. This would again, result in a reduction in acquisition costs. Fintechs should go a step further, by adapting (and perhaps rebuilding) their customer journeys, so they align to needs of their target segments e.g. by removing friction, introducing new digital channels etc.  

Social media: Fintechs should optimise their brand personality and how they educate customers on social media, such that they target the selected customer segments.

Public relations: In engaging with the media - the press and journalists, fintechs can ensure they have great stories to tell in terms of the positive social impact they may be having. This again can be optimised to target those specific segments.

Affiliate programmes: If affiliate programmes are a fintech’s main customer acquisition channel, then these need to also be optimised to target those specific segments e.g. customers acquired through comparison or aggregator sites, ensuring higher conversion rates and reduced acquisition costs.

Together, these activities would ensure that a fintech’s marketing spend is optimised for maximum impact. Once adoption within the target segments reaches critical mass, word of mouth will then in turn ensure far wider adoption.

How could fintechs segment the market & identify target segments?

Using a combination of quantitative and qualitative customer research approaches, fintechs can create an in-depth market segmentation based on the needs, attitudes and behaviours of financial customers. Having identified the most suitable and attractive target segments, fintechs should go further and create detailed profiles that cover things like digital & media behaviours, financial product holdings, channel preferences and purchasing triggers. Such a market segmentation should also, ideally identify second and third wave opportunities alongside the initial, early adopter target. This would then inform messaging and media planning over the medium-term.

Before considering in detail how to approach a segmentation exercise of this sort, it is worth highlighting some of the challenges that may need to be addressed when segmenting the market:

• We need to ensure that our market segmentation is actually predictive of customer behaviour;
• Our approach needs to be designed to take account of the fact that customer attitudes expressed in research can be subject to biases and perceptions which mean the results can risk being unreflective of actual behaviour;
• In a market, such as that being generated by the fintechs, characterised by innovative or unconventional products or services, we need to ensure our approach allows for customers’ potential lack of familiarity with new ideas.

A well designed and thought-through programme, following the principles outlined below, should allow fintechs to address these challenges.

Find below a high-level view of the market segmentation approach:

Landscape  ->  Segment  ->  Profile

• Landscape: Gather insights and hypotheses to inform dimensions of the segmentation
• Segment: Quantitative research to develop personas and qualitative to bring them to life
• Profile: Detailed profiling of target segments to aid marketing & media planning

Gather insights and hypotheses to inform dimensions of the segmentation

Fintechs would benefit from interrogating their own customer data, alongside other market and competitor sources to identify some of the key characteristics which will help to form a segmentation.  As well as key demographic variables such as age, gender, employment, life stage or geographical considerations, a range of other factors could play a role. Find below some examples of dimensions to consider:

Who to target and when? - Usage & Behaviour:

• Current financial product holdings & financial needs
• Demographics/firmographics
• Media and Tech usage

What drives them? - Heart & Mind:

• Attitudes, beliefs, needs and emotions that underpin decisions (i.e. better deal; save time; convenience; access/choice)
• How will they respond to messages as a result?

How do they make decisions? - Individual characteristics & External influences:

• What local factors affect decision-making?
• Which specific barriers to address?
• What are their socio demographic characteristics?

In addition to looking at existing data sources, fintechs should conduct primary qualitative research amongst current and potential customers to gain a deeper understanding of their needs and get a sense of the extent to which their proposition(s) appealed to different groups.

Quantitative research to develop personas and qualitative to bring them to life

Having identified the dimensions which will feed into a segmentation, fintechs should undertake quantitative research studies with a mass market audience to develop their segmentation.  This exercise would produce a series of market segments, differentiated by characteristics of relevance to the fintech’s offer and profiled with relevant attitudinal, behavioural and demographic variables.  By establishing the likelihood of each segment using the fintech’s products or services, fintechs could identify potentially lucrative segments which may not be represented within their customer base as yet. The quantitative segmentation would be followed by a second qualitative exercise, with participants selected to represent the segments.  This programme would explore the complexities of needs, attitudes and behaviours within each segment. This will not only allow a fintech to gain a clear picture of who each of these segments are, but in combination with the quantitative profiling data, allow the building of personae around each segment. It will allow the fintech to highlight differences and nuances between segments.

Detailed profiling of target segments to aid marketing & media planning

From the market segmentation, fintechs would identify the specific customer segments they would like to target. Target segment selection may be based on segment size, needs, current product holdings, behaviours, likelihood to adopt etc as they may be appropriate to the fintech. For each of the target segments, fintechs may want to further develop detailed profiles in order to aid marketing & media planning. This could be done by linking the target segments to media databases (such as TGI). At this point, it would be opportune to involve your media partner, if you are working with one to ensure the target segment profiles work for them.

A significant benefit of creating digital profiles, is that it allows the fintech to monitor and validate segments once the comms campaign is live:

• Are the targeted comms reaching the intended audience?
• Is the fintech seeing adoption of their products or services among these segments?

In conclusion, fintechs have a significant opportunity before the incumbent banks start to innovate, therefore fintechs must:

• Segment the market.
• Optimise their product or service and customer experience for the specific target segments.
• Market their products or services to the specific target segments.
• Build their brands amongst those specific segments.

Haydon & Company Limited | Rishi.Chauhan@HaydonandCo.com

All external research and reports have been referenced explicitly. The views expressed in this blog are solely my views and are not of any other organisations.

[1] https://www.finextra.com/blogposting/18475/fintech-customer-acquisition---beyond-early-adopters