Although it may sound rather complex, market segmentation is actually very simple. It is the practice of dividing your target market into approachable groups. Market segmentation creates subsets of a market based on demographics, needs, priorities, common interests, and other psychographic or behavioural criteria. In other words, rather than putting all your potential clients into one bucket and approaching them in the same fashion, you divide them into groups and communicate to each group differently. A Fractional CMO can help with this, especially if they have knowledge or expertise in your market.
Benefits of segmentation
Market segmentation is crucial for businesses. By segmenting the market, you increase the benefits each segment derives from your product or service. And by meeting your segment’s needs and delivering a higher value proposition to them, you also increase the odds of a sale. The main advantages of market segmentation include improved targeting, tailored messaging, and enhanced customer satisfaction, but there are other benefits.
- Increased resource efficiency (allowing management to focus on certain client types e.g. the ‘low hanging fruit’)
- Higher customer satisfaction
- Greater potential for brand loyalty
- Improved client retention
- Stronger market differentiation
- Better targeted digital advertising
Market segmentation helps organisations to identify prospects who are most likely to buy. Marketers will get to know their customers better so that they can provide a better service. Furthermore, budgets can be more closely allocated on the basis of the investment and return needed from different segments. Smaller segments may be easier to dominate (niche marketing). Overall, marketing and sales activity will be closely focused, leading to more sales, lower costs and higher profitability.
How to segment your market
You can segment your market by more than one method. The four main types of market segmentation are demographic (e.g. age, gender, income), psychographic (beliefs, values, lifestyle), geographic (country or city) and behavioural (habits, usage and interactions with your brand).
Segmentation can also be needs-based. This involves grouping people based on their shared needs; instead of grouping them based on data like age or location. Once you identify a common need, you can learn more about why your customers make certain buying decisions based on that need. In the world of B2B fintech, this is often the best approach.
Segmentation within investment management
Many investment management software vendors segment their market by client type, for example, hedge funds, asset managers, private equity firms, wealth managers and so on. Within these segments they may also define strata or bands based on AuM (assets under management), which generally means smaller or larger firms with differing levels of technology resources at their disposal. Other bands may be based upon the investment strategy being deployed (e.g. long-only), which means that they may use some elements of the functionality available in the software in a different way or more than others.
Most of the time there is a geographic element to segmentation within investment management software. An important driver for this is the varying levels of regulation in different jurisdictions, which may require slightly different processes or compliance steps.
Within each segment, a critical factor is always the decision-making process and the key players in this regard. For example, in one segment the key decision maker may be the Chief Operating Officer, in another the Chief Risk Officer, in another the heads of desk e.g. equities, in another the Chief Compliance Officer, and so on. In smaller firms it may well be the CEO, or a combination of the CEO and CFO.
Most investment management software is expensive and therefore the buying process involves a long list of job titles within the ‘business’ and the IT departments, some of which are buyers and some are influencers. These job holders have differing needs and drivers, and often differing reasons for buying your software. It is vital that you address these individuals through tailored messaging.
How can a Fractional CMO support fintech ventures with their market segmentation?
A Fractional Chief Marketing Officer can support fintech firms by taking them through a number of distinct stages.
DATA ANALYSIS
Data-driven insights are key to effective market segmentation. An FCMO brings expertise in analysing customer data, demographics, psychographics, needs, and behaviour patterns to identify distinct market segments. How valuable those segments are and how competitive they appear to be should also be addressed.
IDENTIFYING THE RIGHT TARGET MARKET SEGMENTS
After the market segmentation process has been completed, the FCMO must then develop profiles for each market segment. This will then allow the firm to determine which market segments they want to enter.
CUSTOMISED STRATEGIES
An FCMO will then craft customised marketing strategies for each identified market segment. For example, it may well be that in one segment, turning up at the one big trade fair for that group of customers will generate enough leads to fill the pipeline for the following twelve months. In another segment you may need to do a combination of digital marketing and content creation to reach the right people.
CREATING BUYER PERSONAS
Before crafting your messaging, it is often worth spending some time creating personas for your key decision-makers – and this is especially relevant for startup fintech ventures. The idea behind creating a buyer persona is to facilitate the segmentation of the market so that the brand directs its marketing and communication efforts to people who have a real possibility of becoming customers. This means not only an increase in profits from sales but also an even greater growth in your ROI.
Some characteristics you’ll give a buyer persona include geographical location, job title, age, interests, and more. Your goal is to understand this individual’s goals and challenges. This way, you can understand their pain points and provide solutions through your products or services. Who are the kingpins in your segments’ decision-making process and what do they look like? How will you reach them?
MESSAGING
At this point your FCMO will highlight the significance of personalised approaches in maximising engagement and conversion rates. For example, hedge funds do not like to be addressed in the same way or likened to asset managers, as they regard themselves as different (though in some respects they are similar). Your messaging to a hedge fund manager should generally not be the same as to that of a traditional asset management business or a wealth management firm.
ADAPTABILITY AND FLEXIBILITY
An FCMO’s flexible nature enables quick adjustments to market dynamics and emerging trends. They are usually well informed about each segment through years of experience and gather market intelligence along the way. FCMOs will adapt segmentation strategies to address changing preferences and market conditions. Often this will mean responding to regulatory changes.
COLLABORATION AND INTEGRATION
The importance of collaboration between FCMOs and internal teams, such as sales, product development, and customer service should be noted. FCMOs integrate market segmentation insights across all facets of the business to ensure alignment and consistency. They can’t work in isolation.
MEASURING AND ITERATING
FCMOs should have a role in establishing metrics and KPIs to measure the effectiveness of the segmentation strategies adopted. Firms should always remember the iterative nature of market segmentation and FCMOs must look to continuously refine strategies based on performance metrics and feedback from the sales team.
An experienced Fractional CMO drives ROI for businesses, and they can help fintechs at all stages to target diverse market segments – an imperative for business success. It is a simple process and one that will pay back dividends. Ambitious fintech organisations can gain a competitive edge through tailored, data-driven market segmentation strategies.
Refine your market segmentation approach with the support and experience of our renowned FCMO, Russ Bryan. To arrange a discovery call, contact us today.
