Enhancing Your Assets

Magnus Spence explains how a better understanding of customers through needs-based segmentation generates many benefits and leads to greater profits.
Segmentation is not easy, which is perhaps why it has not been applied properly and effectively in European asset management. Implementation is costly and involves more than just a few marketing geeks – the active involvement of the chief executive is crucial, for example.
But the rewards are huge. The first firms to truly crack segmentation will generate real competitive advantage and will increase their profitability.
Huge benefits
Proper customer segmentation generates several benefits, including: more sales; more profit; greater organizational effectiveness; and a more robust strategy.
Know your customer, intones the UK regulator, and no doubt others elsewhere in Europe will follow. Good advice.
Understanding customer needs allows companies to cluster them into distinct and meaningful segments, and distinct tailored propositions can then be developed for those segments that the provider chooses to target.
The narrower and clearer focus allows companies to understand better the sources of revenues and costs, and thus profit. Segments that are already profitable can be harvested, and unprofitable segments with potential can sometimes be turned around.
The better focus also improves the bottom line by cutting out waste and unnecessary effort throughout the marketing chain: fewer wasted communications to the wrong customers, lower product design costs, and less misdirected effort in the sales teams.
Effective segmentation makes a more effective organization – more sensitive to changes in customer behaviour and attitude, and thus less likely to be “caught out” – and more likely to be able to respond to such changes quicker than competitors.
Management decisions will tend to be more structured and decisive. For example, companies will be faster and more confident in introducing or withdrawing products, altering pricing and in deciding when to quit a falling segment or enter or develop a rising one.
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