Market Segmentation

Even a seemingly universal product like Coca-Cola needs to be adapted to the preferences and behaviors of various consumer segments; the drink is not the same everywhere. In addition to packaging and marketing distinctions, the level of sweetness and effervescence are adapted to local tastes.

The challenge—and opportunity—is to find ways of dividing the market for financial services into segments that allow for a more nuanced and deeper understanding of each segment’s needs, wants, and behaviors. This understanding can in turn drive the design of a suite of products, marketing approaches, and delivery channels that meet the customer’s needs.

A 2007 study commissioned by the Bill & Melinda Gates Foundation showed that of the world’s 2.6 billion poor people living on less than $2 a day, only 180 million were micro-entrepreneurs. The same study showed that there are about 600 million smallholder farmers and 800 million youth. Designing appropriate financial services to address the specific needs of these diverse segments is an important priority.

At the market level too, we need a better grasp not just of demographics, but the behaviors that might distinguish segments. A recent CGAP study of low income consumers in Mexico found that livelihoods influence income structures, which in turn drive attitudes and behaviors, and financial management strategies. For segmentation truly to benefit an institution, research results must be actionable. Structuring the research question purposefully and then selecting the basis for segmentation (e.g., behavior, geography, livelihoods) are critical first steps.

Translating the needs of market segments into financial services, product features, and delivery channels remains a challenge. Financial service providers need to evaluate their own capacity and strategic objectives to find the appropriate balance between developing products that meet universal needs versus serving the distinct needs of specific segments, and individuals.

Topic Contact: Alexia Latortue

Publications

24 March 2014
To develop a deeper and organizational level of understanding customers, a cross-functional team at Janalakshmi, a microfinance institution in India serving over a million customers in urban areas, applied a design thinking process facilitated by innovation consultants.This brochure describes the process and the tool used to create customer profiles.
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English (943.26 KB)
08 May 2013
The evolution of money from physical cash to digital form is redefining financial services as an information business. This, in turn, is generating optimism around the long-term prospect of cashless or “cash-lite” societies.
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English (512.44 KB) | Spanish (1.33 MB) | French (1.21 MB)

From Our Blog

21 July 2014
Serving young clients can be difficult for banks driven by short-term profit goals. But capturing the youth market can help give financial service providers a competitive edge in the long-run.
16 April 2014
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CGAP and Bankable Frontier Associates have begun a study that examines the financial lives of smallholder agricultural families in Mozambique, Pakistan, and Tanzania. Here, we look at how we chose an appropriate site in Pakistan.
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