A Little Something for Everyone
To segment customers fairly as well as profitably, Stockholm, Sweden-based Nordea Bank sought a customer-segmentation strategy that would allow it to reduce its call-center staff and associated expenses without lowering customer service. The key was a system that ensures each customer is assisted by a service representative with the appropriate skills.
For example, Nordea wanted its high-end customers to be transferred to representatives who had been trained to provide high-touch customer service — and to make a very persuasive cross-selling pitch at the conclusion of the interaction. Low-end customers would be routed to reps trained in the bank's online service system, to encourage those callers to use the Web for service issues in the future. That channel "is critical to our success," says Martin Karlsson, Nordea business IT manager, "since it is more cost-efficient, and also very convenient for customers."
Nordea Bank implemented customer segmentation software provided by Daly City, California-based Genesys two years ago. In Nordea's 14 contact centers across Sweden, Finland, and Denmark, the bank has increased the time spent talking to customers by 24 percent, yet it has increased its number of employees by only 15 percent. "We use the interactions to provide added value for the customers and for the bank, which means simultaneously advising on and selling products that would benefit the customer," says Karlsson. "It's very useful to match customer segments to specially trained and qualified agents. A call from a customer that is more profitable to the business deserves more high-level attention and service."
Brian Bingham, manager of customer care research at research firm IDC in Framingham, Massachusetts, puts it even more strongly. "Losing a high-end customer can have a profoundly negative effect on a company's profitability," says Bingham. "If they have urgent needs requiring satisfaction immediately, and they're forced to go through the same channels as low-end customers, they will become dissatisfied. There's an old expression, 'it's significantly more expensive to acquire a new customer than to retain an existing one.' "
Many CRM analysts recommend a value-based segmentation model similar to the one in place at the Credit Union of Texas. "You want to create a target list for a sales campaign based on the attributes of the customer," says Steven Bonadio, senior analyst at Meta Group in Stamford, Connecticut. "Knowing the customer is everything. You want to understand who they are and what is their relative value to the enterprise, not just here and now but into the future. Then you tailor the appropriate level of service or customer experience."
But Smith from Aberdeen warns that "appropriate customer experience" should not, in the case of low-end customers, translate into inferior service. "It goes back to the primary question — is the segmentation strategy predicated on serving the customer better, or just corporate interests and the bottom line?" she says. "When you say you're improving customer experience, are you really? Technology is not a panacea; it must be managed."
Even among high-end customers, continues Smith, "there are cases where a husband and wife each have checking accounts at a bank, and even though the wife is the actual breadwinner, she's kept on the phone punching digits because the husband is perceived as the decision maker in the gold bracket." Adds Smith: "That's why it's incumbent to household the entire family — you don't want to distance one member. I've seen five-member families each barraged with the same marketing material in the mail on the same day. Talk about a 'customer experience.' "
The Pared-Down Approach
Fireman's Fund Insurance in Novato, California, evaded many of these concerns in its customer segmentation strategy. The solution: Keep it focused on sales and marketing, and not on service. The insurer uses data warehousing software provided by IBM Global Services and data analytical tools from Cary, North Carolina-based SAS to identify the best customers in each of its markets. "Knowing who our best customers are on a niche basis, and then householding them, lets us know how best to service their insurance needs," says Michael DeVoe, Fireman's Fund senior director of customer research and strategies.
Adds DeVoe: "We discern the number of insurance policies in a particular household and then, using internal data and external demographic data, we create a 'life-stage segmentation.' As these customers age or move into larger homes, we know the products best-suited to cross-sell them, or the loss-control advice they may need."
Segmentation strategies give insurers an opportunity "to do something with all this customer information we have," continues DeVoe. "Historically, it's been very cumbersome to get our hands around this data because, like other large financial services companies, we tend to be structured along silos and have legacy systems that are not integrated. We've got three Ph.D.'s here now who are highly analytical people who do nothing but integrate all this data using the various tools. It's a minor investment for something that is generating millions in profit, simply by tailoring marketing to customers individually."
Or as the Bard wrote in another context, "Suit the word to the action, and the action to the word."
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