Customer behaviour and

market segmentation
Market research tests asked six basic questions
1. Who is the customer?
2. What does the market buy?
3. When does the market buy?
4. Who is involved in the buying?
5. Why does the customer buy?
6. How does the market buy?
The information gained has been used to improve the design of services,
relationships and bank communications.
Market segmentation
• Segmenting the market into customer groups with different needs,
buying styles and responses to promotions.
• Traditionally segmentation tended to be based on demographic and
geographic lines.
• psychographic dimension based on consumer behavior.
• Investigations on packages of products are more appropriate now
because most bank services are offered in packages seldom is a single
service offered on its own.
Conditions for effective segmentation
1. Identifiable. Be able to identify customers in each segment and
measure their characteristics.
2. Substantial. Must be large enough to be potentially profitable.
3. Accessible. Company should be able to reach its segments via
communication and distribution channels.
4. Stable. a segment should be stable enough for a long enough period
of time to be marketed to strategically.
5. Differentiable. Needs that are clearly different from the needs of
other people in other segments.
6. Actionable. Able to provide products or services to your segments.
Consumer behaviour and attitudes
• Traditionally bankers used a purely financial analysis to analyse their
customers or clients.
• This analysis presents only half the story.
• To understand the financial analysis fully, we need to look into the
customers' attitudes and behaviour characteristics.
• Behavioural characteristics are vital to understanding the customer.
Behavioural characteristics are basically
influenced by three sets of factors
• External factors arising from influential persons and reference groups.
There are two types of reference groups: membership and non
membership. Membership groups are various groups to which the
individual belongs. These include occupation, age, social class,
geographic, and so on. Non-membership groups are reference groups
that the individual admires or aspires to belong to.
• Internal factors arise from internal attributes of an individual. These
have been identified as motives, attitudes, learned behaviour and
perception. They differ from individual to individual owing to a
person's cultural background, upbringing, education, location, etc.
• The consumer process. This is a series of stages through which a
customer goes when contemplating the purchase of a bank's service.
When a customer is satisfied with his present situation he is said to be
in a cognitive balance or homeostatic position. When he is aware of
other more desirable conditions than he is presently experiencing, he is
said to be in a cognitive imbalance position.
Factors influencing bank customers' behaviour
Culture
• Culture especially important away from the country of origin.
• Overseas Asians to be associated with their own respective national
banks.
• Feel more comfortable in requesting a loan, remittance of funds.
• In countries with large immigrant populations some overseas banks
even have branches in major cities where there is a concentration of
their own emigrant workers, and not just in the capital city.
Social class influence
• Consumer behavior towards banking is very much a function of social
class.
• Banking nowadays is no more a privilege of the upper classes.
• People of lower social classes tend to borrow funds for personal use
while the upper classes tend to borrow for purposes other than
consumption, for example, company loans, home improvement loans,
etc.
• People of higher education and socio-economic standing have more
favourable attitudes towards credit than others. They tend to use credit
cards more often to buy now and pay later.
• The higher the social class a person belongs to, the greater the
probability of him/her having an inclination to save.
• The lower socio-economic classes do save, savings tend to be non-
investment in nature, primarily as a security shield.
• Income may not be the most important factor in determining economic
behaviour.
Social factors
• Reference groups
• The effects of the 'need to relate' may be outlined as follows:
1. When information supplied to the consumer agrees with the information
he receives from his reference group, the attitude towards the product
will be more favourable.
2. Accordingly, where information presented to customers is contrary to
information from the reference group, an unfavourable attitude is
formed.
3. Where there is uncertainty as to the reference group's requirements, and
the information received is contrary, the uncertainty towards the
product/service is increasing.
4. The customer's cognition is increased when information received
reinforces the information provided by his reference group.
• The reference group is used as a basis to evaluate the information
presented by the bank.
• Information for the reference group always carries more weight in the
consumer' s mind than information provided by the bank.
• The bank marketing staff should
i. know the consumers' reference groups for every segment,
ii. incorporate this to enhance advertising appeal, and
iii. know that different reference groups exist for different segments
and consequently one single bank message cannot appeal to all the
customers.
Middle-class customers are more concerned with financial advantages
and disadvantages of a loan, while the lower socio-economic classes are
more concerned with their security aspect of undertaking a loan.
Family
• Purchasing decisions are to some extent dependent on family and friends.
• For students opening accounts for the first time, parent influences rank
second only to branch location.
• The younger the customer the more probable his purchasing decision is
influenced by his parents.
• The availability of services for the young, encouragement offered by the
banks to promote the 'savings habit' in younger children.
• New student accounts are often decided on the advice given by friends
and relatives.
• Banks could give benefit to a student who recommends the patronage of
another.
Roles and status
• Role and status is more useful when related to the age and life-cycle
concepts.
• When the consumer is a child his major source of influence is parental.
When independent and unmarried his decision is partly based on
socio-economic factors and partly on psychological factors. On
finding a partner his role changes and so does his purchase decision,
perhaps switching banks for easier future planning or some other
reason. On marriage the usual practice is for husband and wife to
patronise the same bank, usually with the decision resting with the
husband.
Internal factors
• This refers to the thought process within the consumer.
• Psychological influences.
Motivation and perception.
• The consumers gather that banks are profit-making institutions, not
always holding the consumer's interest at heart, and sometimes are even
mistrustful of banks.
• People have often regarded banks and bankers as 'cold', 'aloof', and 'for
the rich'.
• Physical arrangements on the banking floor, interior decoration and
counter positions, booths and lighting, have all been changed to create an
atmosphere of friendliness and warmth.
• People are more afraid of depositing cash into a machine instead of into a
Attitudes and beliefs
• Most people are dissatisfied with the traditional services offered by the
banks and would readily switch to some other service or package of
services when given the chance.
• Banks can design services and products to suit the two underlying
dimensions that consumers demand convenience and security. A third
dimension has been recently added, that of service.
Personal factors
• These include life-cycle position, age, employment status, economic
situation, lifestyle and personality.
• Socio-economic variables have been used as common segmentation
variables, especially occupation, education and income.
The consumer process
Stages in bank customers' decision process
Stage Information required Means by which banks can inform

Cognitive balance Comparative position information Promotion, personal communications

Cognitive imbalance Demonstrative information Advertising, word of mouth

Awareness Alertive information Advertising

Information search Relevant information Advertising, promotions

Knowledge Detailed information Brochures, personal communications

Evaluation behaviour Comparative information Advertising, word of mouth

Preference Comparative information Advertising

Decision Contractual information Personal communication

Post-purchase Continual information Advertising in mass media

Some major bases for segmentation in banking
Some major differences between bank customers of
different social classes
Psychographie segmentation
• Independent, relatively aggressive entrepreneurs respond more
effectively to a personal selling approach characterized by passive,
unstructured advice-giving, whereas the more dependent, less
aggressive middle management of branch offices of large corporations
respond better to a more structured, authoritative sales presentation.
Segmentation of retail v. corporate markets
• The bank market can be broadly divided into retail (or mass market)
and corporate (or individual market). The current trend is towards the
retail market but the importance of small businesses in the corporate
segment should not be ignored. Hence the corporate market can be
further categorized into large companies and small companies, but
speeialised services are essential in the case of multinational
corporations.