Topic 5 Flashcards
Segmentation
Assists the business by identifying the most appropriate clients (market segment) and delivery of service to ensure clients’ needs are satisfied in the most profitable way, yet ensuring that ongoing value is experienced by each market segment
Market segment
A group of people or organizations sharing one or more characteristics that cause them to have similar product and/or service needs
Market segment criteria
- It is distinct from other segments (different segments have different needs)
- It is homogeneous within the segment (exhibits common needs)
- It responds similarly to a market stimulus, and it can be reached by a market intervention
Planning segmentation
- Business vision
- Analysis - external and internal factors (SWOT)
- Market position - how the business is perceived
- Target market - who the ideal client is
- Objectives - practice and financial
- Strategies - achieving the objectives
Implementing segmentation
Choosing a target market is the result of the business segmenting its client base and then deciding where to concentrate its efforts to obtain the best return on its investment
Market segmentation
The act of subdividing a market into distinct and meaningful subsets that might merit financial planning advice
Targeting
The act of evaluating, selecting, and concentrating on those segments that the business can serve most effectively
Mass-marketing approach
- Treats markets/target audiences as aggregates, focusing on common needs, not differences - it is a single marketing mix
- The business offers only one way of delivering service with the same set of products, regardless of the client (from a single marketing mix to targeting the mass market)
Segmented approach
Treats markets/target audiences as consisting of sub-groups, each having different needs, and focuses on the needs of one or more
Determining segmentation criteria example
Income of R480 000 per annum
Professional occupation
Value of assets of R3 million +
Age 35+
Demographic segmentation
There are well-defined demographics (race and gender, etc) in South Africa that can be accessed easily enough
Not sufficiently defined as it doesn’t relate to client needs
Psychographic segmentation
Assumes that the client needs are dependent on client behavior and, therefore, by segmenting on the basis of client attitudes, you can obtain a closer match to their underlying needs
Technographic segmentation
Works on the proposition that clients have differing attitudes to technology and, therefore, have different levels of acceptance of the use of technology in the delivery of financial services - Internet financial planning, telephone financial planning
Client relationship management focus
- Identify customers most likely to buy new products or services
- Improve customer service and satisfaction by knowing how to differentiate and customize
- Improve the link between corporate advertising, promotions, product management, and sales channels
- Increase sales effectiveness
- Target the design and marketing of products more effectively
- Support low-cost alternatives to traditional sales methods
- Coordinate the different aspects of marketing that affect the customer to achieve a loyal relationship
Basic universal rules of friendship
- Provide emotional support
- Respect privacy
- Preserve confidence and be tolerant of other friendships
Data marketing
Captures past transactions and purchasing history for future trends
Not-so-obvious information such as responses to different types of promotion and even types of intervention (like personal mail, etc) should be captured in your database
Types of data your database may contain
- Transaction data
- Customer and prospect access information
- Promotional information
- Product purchasing data
- Geo-demographic information
Transaction data
Information on commercial transactions between your business and the customer (for example, policies and investments purchased, policies not taken up, lapses, complaints, etc)
Customer and prospect access information
Information on how to contact customers and prospects (for example, telephone numbers, emails, etc.) and information on the nature of transactions between your business, the company you work for and the customer (psychographic and behavioral data)
Promotional information
Information on which campaigns have been launched (pilots and fully rolled-out campaigns), who has responded to them, and what the financial and commercial results were
Product purchasing data
Information on which products have been purchased, how often, how much, repurchased trends, life-cycle purchasing habits, cross-selling, and multiple selling statistics, type of business needs (for example, single premium vs. recurring premiums)
Geo-demographic information
Information about areas where customers live and the social or business category they belong to
Maintenance of data
Key element of relationship marketing
The value and validity of the data is dependent upon how up to date the data is and whether it contains information useful for planning sales and marketing interventions
Contact management tools
Used to reflect the action and reaction, the request and response, as well as the success or failure of the sequence of actions and activities
Including the responses and actions from the side of the prospect or customer
Contact management tools examples
- When was the contact made?
- What was the request/action/intervention?
- What will our business do about it?
- When and how will we respond?
- How is the process managed, and at which point was the customer’s need met, or did we achieve total customer satisfaction
Marketing audit
Establishes where the business is and why - and then provides the foundation for the implementation of an effective marketing strategy
Market audit questions 1
- Marketplace understanding: Do I know how well competitive firms are satisfying those needs? (Client survey)
- The needs of the company: Does the business have a clear statement of business objectives?
- The present and future service offering: have I evaluated the product range vs. competition recently?
- Pricing approach, policy, and structure (if applicable): Are my clients aware of the value that I deliver in comparison to the price? (Segmentation)
- Client care: Are my staff members committed to client care?
Market audit questions 2
- Public relations: With which target audience should I be communicating?
- Advertising: Are the messages to them persuasive?
- Sales promotion (marketing campaigns): Have specific promotion goals been set?
- Personal selling: should other methods of contacting clients be considered?
- Checking the marketing plan: Do we add a return on investment for marketing spend?
- Broader implications of the marketing audit: 1. Am I auditing early and regularly enough to allow adequate consideration of the key issues, not simply the current problem?
Selective client-aquisition policies
This approach assumes that not every potential client is worth the client-aquisition investment
It is critical because it often costs more to acquire a new client than to retain one, and the majority of the potential client base are not very profitable
Client-aquisition rules
Rule 1: Acquire any client as long as the discounted future value of the client exceeds the acquisition costs for that client.
Rule 2: When you broaden the acquisition effort, be prepared for lower response rates
Rule 3: The greater its profit from retention, the greater a company’s client-aquisition investment should be
Rule 4: The bigger the percentage of the initial acquisition investment that a company recovers in the first period, the greater its acquisition investment should be.
Rule 1
A company should continue to invest until it can no longer cover its investment on the last incremental client
A company will under-invest, stopping with prospects whose NPV is far greater than zero, but it fails to maximize its client equity
Rule 2 (linked to rule 1)
Assumes that companies target their best clients first, their second-best clients second, and so on
A company faces diminishing response rates as it tries to acquire more clients
Rule 3
The greater the retention rate or the higher the add-on selling potential, the more a company can invest in future clients
If future profits from a client are high, then the company can afford to lose more on its initial investment to acquire the client
Rule 4
Early returns determine the risk level of the investment
Although a discount rate can be used to adjust for risk, most managers prefer faster payoff investments because of the uncertainty of the future
Rule 3 and 4 acquisition strategies
- Full throttle
- Slingshot
- Pay As You Go
- Divest/Restructure
- Targeting
Full throttle
High-retention profit potential combined with short-term investment recovery makes now client acquisition a major opportunity
The company invests as much as possible in acquisition until the NPV of the marginal client is negative
The risk of this strategy is low, and its return is high
Slingshot
High-retention profit potential combined with a long investment recovery time calls
The long time until pay-out makes the investment risky
Used among Internet companies
Pay As You Go
Most appropriate when retention/profit potential is low and acquisition-investment recovery time is short.
The company invests as though all profits will accrue in the current period
Short-term profit goals drive the company’s investment
Divest/Restructure
A company must restructure its marketing system
Client acquisition will not pay out because the initial payback is low, and retention and add-on sales are low
The company will not be profitable in the long run, and it will have very low client equity
Client-aquisition tactics
The most effective way in which to acquire new clients is to compile a target market plan
Should be underpinned with the overall marketing strategy, which includes a client segmentation strategy, criteria, and different service levels identified with each segment
What is a target market
A group of people who share a set of characteristics
A specific group of clients for whom the financial planner would like to position the services he can offer
Can be set on the basis of sex, occupation, geographical area, needs, social groups, nationality, and a host of other things
Why is target marketing important
If your prospects are restricted only to your friends and family, you will find that your pool of people will dry up quickly
Focus your marketing efforts on specific market segments or target markets as this is the only way you are going to achieve your goals and build lasting, profitable relationships with the clients
What are the advantages of target marketing
- Specialist knowledge
- Reputation
- Prospecting
- Goal-setting
Specialist knowledge
Clients prefer to deal with someone whom they believe has specialized knowledge of their requirements
By concentrating your efforts on a specific group of people, you can become an expert at identifying and meeting their needs
Reputation
It is much easier to build your reputation in a specific market.
This provides opportunities for positive Word of mouth and referrals
Prospecting
Becomes much easier for a financial planner who works in an identifiable market because targeting a market helps you to focus your prospecting activities
Goal-setting
Once you are completely familiar and comfortable with your market, you will have a good idea of what its needs are, when its members are likely to buy, and what size of premiums you can expect
This makes it much easier to set personal goals and sales target
How to develop a target market plan steps
- Draw up a list of potential markets
- Decide on ten markets you think are worth looking at
- Decide on the two or three markets that are best suited to you
- Find out all you can about your target markets
Draw up a list of potential markets
- What type of people do you feel most comfortable with (characteristics)?
- List specific categories of potential clients
- Are there any markets that have access to your personal information?
- How many target markets do you have access to?
Groups under potential markets
- Geographic groups: your neighborhood, office building, campus, etc.
- Social group: sports club, service organizations, church, etc.
- Occupational group: your clients’ professions, government bodies, etc.
- Products: medical schemes, retirement income, etc.
- Language, culture, and social groups: cultural clubs, markets of a particular nationality
- Special needs groups: new parents, new homeowners, etc.
Decide on ten markets you think are worth looking at
Decide on the ten markets you think you would be most comfortable working in, from the point of view of your personality, level of expertise, and past experience
Decide on the two or three markets that are best suited to you with questions
- Will you be able to achieve your goal working in this market?
- Are you personally suited to the market?
- Is the market clearly identifiable?
- Is the market accessible?
- Is the market responsible?
- Is the market geographically concentrated?
- Does the group have common needs?
- Is the market large enough?
- Do people within the group interact and communicate with each other?
Find out all you can about your target markets
- Products/needs: What financial needs does the market have?
- Price: What level of premium will clients be able to afford, based on the salary/income structure of the market?
- Prospecting: How am I going to gather names?
- Training: Am I trained in all I need to know?
- Promotion: What marketing/sales aids are available that can help me?
- Resources: What resources are available to work the market?
- Goals: Where can I gain access to these resources?
Possible resources to help with your target marketing plans
- Market information
- Special needs package (e.g. education policies)
- Products and packages for specific markets (e.g. the female market)
- Marketing brochures and sales pamphlets
- Direct mail letters
- Advertisements
- Slides and scripts for seminar selling
natural market
The group of people to whom you can relate, with whom you like to work and with whom you work well
Benefits of finding your natural market
- Because you understand and can relate to the type of person you are dealing with, your fear of rejection is reduced.
- In dealing with people you like, you will find it easier to build long-term relationships, resell to them, and get good referrals
Steps of writing a marketing plan
- Understanding the marketplace
- Setting out target segments
- Personal marketing objectives
- Action plans and resource allocation
- Monitor, control, and review
Understanding the marketplace
- Review current market and customer behavior trends
- Review and analyse the political/legal/fiscal environmental issues
- Review and analyze the economic environment in which you operate
- Review and analyze the social and cultural marketplace
- Review and analyze the technological trends and environmental demands/changes
- Analyze local market conditions and demographics
- Define and determine the market in terms of total size, growth opportunities, and attractiveness
- Research competitors with respect to size, market share, reputation, production, distribution policies, marketing methods, international alliances, key performance areas, and staff issues
Setting out target segments
- Study corporate objectives and key performance indicators
- Review and analyze own company policies and focus areas
- Analyze customer base to determine current best/worst practices
- Source marketing information internally and externally. Audit the current internal marketing variables
Personal marketing objectives
- Short-term, meduim-term, long-term
- Be very specific: specify income, number of clients, assets under management
- Set objectives based on local or regional business strategies and key deliverables
- Design 7 Ps and the 4 Cs
Design 7 Ps
- Product: Which companies’ products are you selling?
- Price: What will your fee strategy be?
- Promotion: How will you advertise your services?
- Place: Where can clients access your services?
- People (human capital): Who is your target market, and how will you segment it?
- Process: What back office process do you have in place - are your needs - analysis, client data, and admin systems working
- Physical evidence: How will you measure all these facets
Design the 4 Cs
- Customer value: What value do you deliver to clients?
- Cost: Fee strategy, also in relation to value
- Convenience: Can you service your target market where and when they want to be serviced?
- Communication: What is your communication strategy?
Action plans and resource allocation
- Plan actions to realize objectives and to address key issues
- Compare action plans to forecast and budget
- Check the feasibility of plans with key roleplayers, key influencers, and responsible parties
- Estimate expected activity load of resources
- Consider the impact of all marketing activities on other parts of the business
Build action plans around the following
- Building and maintaining superior resources (admin support)
- Building and maintaining superior competence (continuous learning strategy)
- Building and maintaining superior motivation/attitude
Monitor, control, and review
- Set up revenue control budget
- Set up marketing capacity budget
- Set up capital expense and finance budget
- Design and set up information management tools
- Identify, brief (and empower) people to execute the marketing plan
- Provide for monitoring and control of performance
- Design and control a timetable that indicates which activities are to be executed, by when, by whom, to what standard
- Monitor and take corrective action if necessary
Retention
The proportion of clients remaining active with the institution over the period of time in question
Defection
Losing the client to a competitor
Detection in one product area can not be assumed to mean the failure of the relationship
Dormancy
The client is not contacted; inactive
Measuring levels of dormancy requires a clear definition that will need to take into account the nature of the product and the way in which clients use it
Clients make their policies paid up or stop contributing to certain investments, but will allow their financial planning service to fall into disuse
Retention vs. Defection
Lapsing a policy or not continuing to pay premiums can be the most emphatic indication that a client wishes to sever his relationship with you, but this does not necessarily imply defection
One product: Client retention will be a simple measure of continued product use
Several products: defection/dormancy in one product area does not necessarily constitute client defection/dormancy, so in pure retention terms, the relationship still exists
Measure client flows
- Measure new client gains
- Measure product (cross-sell) gains from existing clients
- Measure loss from clients that have defected
- Measure the number of clients that were inactive during the year
Questions regarding retention, defection and dormancy
- What product does this client hold?
- For each product, can the product usage be considered dormant?
- What is the active product holding at this time?
- What was the active product holding 12 months ago?
- What are the retention rates of the client and of the products?
Client defection
Classified into ‘the controllable’ and ‘the uncontrollable’
A series of mistakes will weaken a relationship, and if they are sufficiently severe or frequent, the relationship can break down.
An important source of future business growth and profit
Controllable reasons
The business can do something about the reasons.
Concern all those matters over which the financial planner ought to have some influence
Examples of “the controllables”
- The financial planner can modify the way he operates.
- Staff attitudes can change so that messages communicated to clients become more positive
Uncontrollable reasons
Are more difficult to handle
They result from a multitude of events, many of which affect the clients, causing them to sever their financial planning relationships, but over which the financial planner arguably has control
Some are not necessarily as emphatically outside our influence as others would appear to be
Examples of “the uncontrollables”
- Death of a client (but you can establish the “special financial services needs” for the bereaved and their family)
- The breakdown of a client’s marriage
- A client moving to a different part of the country
Reasons for client dissatisfaction
- Withdrawal of facilities
- Inconvenient business hours
- Poor client service
- Poor management of the account
- Unpredictable or erratic behavior
- Loss of convenience
- Refusal of services
- Poor client communication
- Lack of respect and good manners
- Lack of personal service
- Poor performance of the investment
- Loss of trust and confidence
Client service
The activities and programmes provided by the financial planner to make the relationship satisfying for the client.
These add value to the client’s relationship with the financial planning business
Key aspects of CRM
- To focus on service delivery
- Taking individual clients’ or target groups’ needs into consideration
Factors that drive customer loyalty
- Customer loyalty takes place when there is a combination of customer engagement
- Allegiance to the brand
Factors in the process of delivering services to create loyalty
- Relationships of long standing are negatively affected when severely out-of-the-ordinary (negative Critical Incidents) occur. This can cause a decline in customer satisfaction
- Proactive post-sales service (PPS): a supplier takes the initiative to contact a customer to provide service after a sale is complete. Leads to faster service delivery
- Adopting a customer-focused sales campaign can significantly increase business profits and return on investment.
Client loyalty factors
- Their perception of service received
- The value they feel in terms of service delivery
- Their emotional involvement with the business
- How they are treated and what their perception of the organizational culture is
How relationships are eroded
It is usually the continual dripfeed of a succession of small mistakes that leads to the collapse of a relationship
A new relationship will be immediately susceptible to a series of minor mistakes, whereas a long-term relationship will be able to resist the impact of such mistakes and even that of a possible disaster
Important factors in eroding relationships
- The magnitude of any particular incident
- Its relative frequency
Probability of client defection
These circumstances will be a function of the SEVERITY and FREQUENCY of the individual results
If the severity of these events is such thar it has a major impact on the client relationship, it will need only a few such occurrences to bring the client to the point of defection
Inversely proportional to the historical life of the relationship
Organizational behaviors under strategies for client retention
- Consider your company’s appearance and grooming
- Invite customers to sit beside a desk with the employee instead of across from them
- Get customers to interact with your business
- Clients are increasingly likely to have a positive impression of your company’s personality.
- Correspond regularly
- Introduce reward systems that motivate appropriate employee behaviors
- Stay close after the sale
Examples of staying close after the sale
- Mail ‘thank you’ notes
- Call to be sure the service has met their needs
- Send out new product information
- Send clippings of interest or newsworthy information that may reassure them of their good purchasing decisions
- Send birthday cards
- Invite people to participate in focus groups for research
- Call to thank them for referrals
Why is quality service important?
- 90% of all client contact comes through support staff. If these employees are not committed to developing client relationships, or have not been provided with adequate information and have not been sufficiently empowered, there is a very strong possibility that their extensive contact with the clients will have a negative effect on overall relationships.
- Services are transient, whereas goofs have a more permanent nature. Services are performances. Quality of service can, therefore, occur in real time.
Issues in developing quality service programmes
- Client service levels should be determined by research-based measurement of client needs and competitors’ performance. Quality must then be determined by talking to clients and based on regular research and monitoring
- The total quality concept should influence both the process elements and the people elements in the total product offering.
How to quantify the value of quality service programmes
Retention rates must be an important measure to provide quantification of the quality of relationships
Link the quality service activity to average client active life
Dissatisfaction vs. Satisfaction
High levels of satisfaction do NOT necessarily correlate with low levels of dissatisfaction.
The reason for this is that satisfaction and dissatisfaction are prompted by different motivations
Client behavioral styles
- Thinker
- Intuitor
- Sensor
- Feeler
Thinker style
Places high value on logic, ideas, and systematic equiry
Looking for order and logic
Will want a proper planned presentation with ample facts and supporting data, such as cash flows, as well as precision
Analytical
What to avoid when presenting to a Thinker
- Avoid coming across too strongly
- Avoid pressing for a response or a commitment
- Avoid disagreements or forcing a different opinion
What to expect from a Thinker during a presentation
- He won’t be very talkative
- He will ask many questions about specific detail.
- He won’t give you an answer immediately
- He will want to see literature covering your full presentation before making any decisions
Intuitor style
Places high value on ideas, innovation, concepts, theory, and long-range thinking
Wants the big picture or overview that meets his overall objectives
Needs to be given time and will be bored by lots of facts and data
What to avoid presenting to an Intuitor
- Avoid providing too much reading material
- Avoid dominating the conversation
- Avoid disagreeing with his ideas and suggestions
What to expect from an Intuitor during a presentation
- He will want to share his opinions and ideas
- He will make a decision fairly quickly
- He will appear very animated
Feeler style
Places high value on being people-oriented and sensitive to people’s needs
Makes small talk and wants to engage in meaningful interaction
Tends to be emotional and emotional needs appeal to him
Described as an amiable person
What to avoid presenting to a Feeler
- Avoid coming across as not listening
- Avoid appearing to be unsupportive
- Avoid conflict
What to expect from a Feeler during a presentation
- He will be concerned about the impact on the people
- He will make conversation easily and sometimes veer off the topic
- He will also take some time to make a decision
Sensor style
Places high value in action
Likes to be brief and to the point
Verbal communication is more effective than written communication
Wants a plan of action fairly quickly
Referred to as a ‘driver’
What to avoid presenting to a Sensor
- Avoid personal conversations about family, pets, etc.
- Avoid telling the Sensor what he should be doing
- Avoid wasting time and being unprepared
What to expect from a Sensor during a presentation
- He will be very decisive
- He will want to be in control
- He will want to know the bottom line as quickly as possible
