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

26 September 2016
Financial service providers have traditionally categorized low-income customers into a single market segment. The CGAP Customer Segmentation Toolkit is designed to help FSPs identify subsets of customers that have common needs, interests, and priorities – then design and implement targeted strategies.
Download PDF: 
English (30 pages)
24 May 2016
This report examines how smallholder families in Tanzania manage their income and expenses, along with the challenges they face that often lead to financial instability. These findings are based on a nationally representative survey of smallholder households conducted in 2015.
Countries: 
Download PDF: 
English (118 pages)

From Our Blog

17 February 2016
For governments, the collection of sex-disaggregated data begins
 a virtuous cycle, where its availability informs stronger, evidence-based policymaking and helps regulators evaluate the effectiveness of policies intended to promote financial inclusion.
Countries: 
Men ice fishing on a lake in Turkey
14 January 2016
In the past 20 years, microfinance in Eastern Europe and Central Asia has become understood under the larger umbrella of inclusive finance. During this shift, several important changes have occurred.