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

30 May 2017
This Data Set User's Guide provides information on the methodology used for the 2016 CGAP Smallholder Household Surveys in Bangladesh.
Download PDF: 
English (156 pages)
18 April 2017
Generating greater value for customers is good for business. Research from a developed market context has found that customer retention leads to a decrease in operating costs, while a decrease in customer satisfaction leads to a decrease in return on investment.
Download PDF: 
English (4 pages)

From Our Blog

A refugee filling an application at the UNHCR registration center in Tripoli, Lebanon.
11 July 2017
1 comment
Reaching low-income people with financial services during a crisis can help them overcome adversity – and it starts with understanding their needs.
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: