Banking Growth Strategy Starts with B2B Market Segmentation
Business to business (B2B) market segmentation of corporate banking customers for a large regional bank was used as a critical component to creating the growth strategy for this line of business (LOB).
The banking client deployed a disciplined 10 step process to develop its value proposition growth strategy. B2B market segmentation was the important first step.
Dimensions Create the B2B Market Segmentation
Two “firmographic” dimensions consistently linked to product usage and were used to create a B2B market segmentation framework. These two dimensions were the corporation’s annual revenue and industries served. Revenue stratified into four tiers:
- $100 million to $500 million
- $50 million to $99 million
- $25 million to $49 million
- $10 million to $24 million
Industries were classified into three segments:
- wholesale, retail, construction, mining and forestry
- manufacturing, utility, transportation, communication, real estate, personal services and business services
- health, social services, non-profit and professional services
Six Market Segments Emerge
Together, these two dimensions created a total of 12 possible combinations. These 12 combinations were compressed, based on behavioral data, to create six market segments:
- Upper cash centric
- Lower cash centric
- Upper mid market
- Core mid market
- Large community market
- Community mid market
In-Depth B2B Market Segmentation Profiles Enrich the Understanding
After the segments were created, the next step was to profile the six groups along a variety of dimensions that are important, including:
- top three credit products used, e.g., term loans, secured line of credit, credit cards
- the average balances for these credit products
- top three investment products used, including certificates of deposit (CDs), money market demand accounts (MMDAs), and long term investments
- investment product average balances
Four of the six segments were more credit-oriented, and two (upper cash centric and lower cash centric) were more investment/deposit oriented. The profiles also examined the segment’s service preferences and technology needs. Share of wallet (SOW), the total number of corporations in the footprint for each segment, the client’s current market share, the total balances in the footprint and the profitability provided additional important information.
Target Selection Deployed Using Criteria
With the B2B market segmentation in place, the next step was to select targets. There were two types of target segments sought, the first were acquisition market segments and the second set were consumption market segments. Acquisition segments represented strong future growth potential, while consumption segments were currently valuable and represented future value in deepening relationships and retention.
The Insight to Action and client team identified four target selection criteria to use in deciding between acquisition and consumption targets. Each of these criteria also had a rationale.
These included:
- High average balances. Higher balances typically translated to greater profits
- Relatively low share of wallet combined with high share of market. There were opportunities within the current customers to increase share of wallet
- Net opportunity or size of the segment. A larger opportunity was more attractive
- Ability of the client to serve. The client can meet their needs. Initially, this variable was not highly discriminating.
B2B Market Segmentation Priorities Emerge
Using the criteria along with management review, two acquisition target segments were identified with greater investment potential: Upper Mid and Upper Cash Centric. Unlike many segmentations, the net opportunity or sheer size was not the driving factor as two of the larger segments were not prioritized: Community Mid and Core Mid.
Moving forward, the focus for growth was on these segments, meeting their needs, and delivering strongly against them. The next step was developing the specific value proposition growth strategy, driven by these two B2B market segments.
The experts at Insight to Action have experience with B2B. Contact us to start a conversation.
