What customer profiles are there in private customer business

Joining forces: the common strategy. Customer segmentation for private customer business


1 Joining forces: the common strategy for customer segmentation for private customer business Publication: June 2003 BVR

2 Table of contents List of figures ... IV List of tables ... 28 Customer segmentation for private customer business Page I


4 5.2 Description of the data fields Master data Basic segmentation Consulting segmentation Financial status Solutions according to requirement fields The implementation of customer segmentation in the EDV FIDUCIA Basic segmentation as a database marketing service Alternative procedures for basic segmentation under NBS Basic segmentation with applications in the GEBOS banking process Basic segmentation with applications in the banking process RUBIN Consulting segmentation Outlook status Requirement areas Outlook RBG basic segmentation Current rbg applications Further processing Consulting segmentation Outlook discussion guidelines Customer without consulting segmentation Customer with consulting segmentation Type 1: The cautious financial type 2: The open-minded financial type Type 3: The sovereign financial type Institutions in the customer segmentation working group for private customer business Page III

5 List of figures Figure 1: Process model of strategic planning ... 8 Figure 2: Possible business areas of a bank ... 9 Figure 3: Sales force in the focus of the basic segmentation ... 14 Figure 4: Foundation of sales force ... 16 Figure 5: 7 - Level concept for data quality ... 18 Figure 6: Pre-level concept for basic segmentation ... 23 Figure 7: 5-level concept for basic segmentation ... 24 Figure 8: Target customer matrix ... 26 Figure 9: Content of consulting segmentation ... 33 Figure 10: Characteristics of the financial types ... 35 Figure 11: Financial type test ... 36 Figure 12: Financial type assignment ... 37 Figure 13: Values ​​for potential analysis ... 40 Figure 14: Evaluation of potential analysis ... 41 Figure 15: VR-FinanzPlan ... 44 Figure 16: Control cycle of customer management ... 44 Figure 17: Determination of net market time ... 47 Figure 18: Electronic customer information card ... 50 List of tables Table 1: Criteria and values ​​of the basic segmentation ... 2 Table 2: Determining factors of the segmentation criteria ... 13 Table 3: Values ​​for determining the basic segmentation ... 14 Table 4: Formation of family groups ... 20 Table 5: Strategic thrust depending on the earnings potential ... 46 Customer segmentation for the private customer business page IV

6 1 Introduction For the banks, the systematic, active control of sales activities and the corresponding efficient use of resources are becoming more and more important from the point of view of income and costs, especially in view of falling margins, demanding customer behavior and competitive pressure. It is crucial for sales success to recognize customer needs, strengthen customer loyalty and win new customers. It is imperative to focus on financial planning that goes beyond all phases of the customer's life, taking into account all situations of need. A customer-oriented market development requires differentiated information about the customer's situation as well as an adequate customer approach. In particular, this requires precise knowledge of the customer's economic circumstances, their product requirements and their attitudes to financial issues. It is important to recognize the potential of the existing business relationships with different customers and to use it for sales activities. In addition to the support provided by a modern IT infrastructure, further requirements for an individualized, needs-based customer approach are high data quality, permanent employee qualification and a customer-oriented corporate culture. A consistent sales orientation of the bank is also decisive. With the report of project 1 Active and efficient market development, including the redesign and differentiation of the revenue streams in the FinanzVerbund, the analytical and systematic foundations for customer segmentation in private customer business have been laid, among other things. Based on this, implementable concepts and practical instruments had to be developed in the further project work. The working group on the further development of basic and advisory segmentation at the BVR has taken up the foundations of project 1 and - initially for private customer business - developed it into a self-contained two-stage model of basic and advisory segmentation. The basic segmentation groups the customers according to the financial criteria of net income, financial assets and contribution margin in three different segments: service customers, support customers, individual customers, which are ideally reflected in the orientation of the bank organization. The following values ​​(see Table 1) were used as a basis for the criteria for assigning customers to the respective segments. These criteria are to be understood as OR criteria, i.e. if one of these criteria is exceeded, the customer is assigned to the next segment. Customer segmentation for private customer business Page 1

7 Monthly net income Financial assets Contribution margin 1 Service customers up to 50,000,000 to support customers up to 250,000,000 to individual customers over 250,000,000 if necessary, corrected databases in the bank. In contrast, the information on advisory segmentation can only be determined through a personal conversation between the customer and the bank employee. The advisory segmentation (see Chapter 4) includes: determination of the financial type, risk determination in accordance with the WpHG, potential analysis. Here, the customer manager 2 in the credit union is to be supported by means of a standardized conversation guide. The results from the consulting segmentation then flow into the basic segmentation process, if there are any effects on the financial situation. The information and data collected should then be available to the bank employee on an electronic customer information card. The aim of this customer information card is to indicate the current scope of the business relationship to the customer advisor immediately and at any time during contact with the customer, as well as to give sales signals. The customer information card is intended to support the supervisor, on the one hand, in tailoring the conversation individually to the customer, but on the other hand in proceeding in a standardized method. By including the data centers in the working group on the further development of the basic and consulting segmentation, it was ensured that the requirements developed in it were already coordinated with the AGR project Data Warehouse / CRM in the conceptual phase, system-technical interfaces were recognized early on and taken into account in the implementation. The segmentation model is also incorporated into the training concept of the cooperative academies (GenoPE). 1 The DB III calculator from VR Control, which is decisive for determining the values, is not yet widely available. After the full introduction of the DB III calculator and the corresponding empirical values ​​are available, the working group will still determine the values ​​that are relevant for the segmentation of customers according to contribution margins. 2 Since the designation (customer adviser, customer adviser, private customer adviser, individual customer adviser, service employee, etc.) is very different in the banks, the working group on the further development of basic and advisory segmentation has agreed on the term `` customer representative ''. Customer segmentation for private customer business Page 2

8 A systematic customer segmentation is a decisive prerequisite as well as a central starting point for numerous other tasks of the resolution of the BVR general meeting on June 13, 2001 in Bonn, such as B. Distribution channel strategy, concept for determining the market exploitation or standardization of the product range. The effectiveness of such a sales-supporting instrument with regard to a success-oriented sales strategy in the network and a rational use of resources therefore requires its extensive and standardized implementation. The present guideline has been developed as a guide for the implementation of a basic and advisory segmentation within the bank organization. It is aimed at the board of directors and the sales manager. When carrying out segmentation projects, the cooperative banks are supported in particular by the regional associations or the cooperative academies and consulting companies as well as the computer centers. Chapter 2 highlights the importance of customer segmentation in terms of business policy for sales and the organization of the bank. The question of why a customer segmentation is necessary for every credit union active in sales is investigated. In this context, the benefits of the basic and advisory segmentation as well as dependencies on other existing processes within the credit union are shown. Chapter 3 shows the process of basic segmentation. This basically begins with the review and, if necessary, improvement of the data quality. In addition to the procedural model, the effects on the sales organization and the bank's control system are also made transparent. The content and implementation of the advisory segmentation is the subject of Chapter 4. Here, too, the effects on other banking processes and management are explained. For a targeted customer approach, the necessary information and data must be available at all times in up-to-date and comprehensive data quality and quickly and clearly accessible by the customer service representative. Chapter 5 shows the field contents of the standardized customer information card for those responsible for customers in the cooperative banks. Chapter 6 describes the implementation of the basic and advisory segmentation in the EDP. The various systems of the cooperative computer centers with which the basic and advisory segmentation can already be carried out today will be presented. The chapter is rounded off with an outlook on the future implementation of the electronic customer information card. All participants in the Working Group on the Further Development of Basic and Consulting Segmentation agreed that accurate consulting segmentation can only be achieved through corresponding statements by the customer about himself. The basis of the consultation segmentation is therefore the customer discussion. In order to support the person responsible for the customer in conducting the interview, guidelines have been drawn up, which are set out in Chapter 7. Customer segmentation for private customer business Page 3

9 Chapter 8 lists the institutions that have participated in the working group on the further development of basic and advisory segmentation. Customer segmentation for private customer business Page 4

10 2 General 2.1 Significance of customer segmentation in terms of business policy In order to do justice to the current and future conditions in the banking market from the point of view of costs and earnings, a customer-oriented self-image in sales, a clear segmentation of customers, a structure and process organization geared towards sales, as well as comprehensive relationship management necessary to the customer. A clear customer segmentation is not an administrative end in itself, but a prerequisite for a differentiated, optimal exploitation of customer potential. Previous concepts of customer segmentation are still based exclusively on financial criteria, the so-called hard factors (e.g. monthly net income, financial assets, age, etc.) and are oriented towards the past. The sales-oriented design of the customer-bank relationship, however, also requires additional information that provides information about how, the optimal customer approach, in order to achieve a high degree of probability and intensity of use. Therefore, the previous segmentation criteria must be supplemented by soft factors. The customer segmentation must therefore take place in two dimensions: on the one hand, the basic segmentation according to economic (hard) factors, on the other hand, the consulting segmentation according to (soft) factors such as the financial typology, the WpHG classification or the potential of the respective customer. While the cooperative banks already have the data for the basic segmentation for existing customers, usually through technical support and documentation, the data for the advisory segmentation must first be determined in the customer meeting. The entirety of the customer-related data (for both basic and advisory segmentation) is transferred to the electronic customer information card. This card links information from different systems to a meaningful customer profile. This opens up important prerequisites for the credit union's advisors and supervisors for optimal sales performance: Individual response to customer requests Individual customer approach Recognition of new sales opportunities Savings for customers who are less worthy of investment Higher advisory skills Differentiated and systematic market development Customer segmentation for private customer business Page 5

11 Note: segmentation is not selection! The two terms segmentation and selection are often mistakenly confused or used synonymously. While segmentation is basically about subdividing a heterogeneous target group into homogeneous subgroups, selection means the selection of certain customers from a population. In the context of customer segmentation, therefore, all (!) Customers are generally considered and divided into homogeneous units. A selection can take place within the segments in order to ultimately carry out market cultivation based on the earnings potential. The reason for this selection could be: B. be that only a certain grouping within the individual customer segment comes into question for a financial service. In the case of segmentation, all customers are consequently considered; within the scope of the selection, only a selection is made under certain aspects. 2.2 Benefits of customer segmentation The two-dimensional segmentation approach of basic and advisory segmentation creates a multitude of advantages which, on the one hand, benefit the credit union in terms of business and sales strategy and, on the other hand, are reflected in the benefits for the customer: By improving transparency, precise planning, processing and fine-tuning can be achieved of the customer segments. The undifferentiated use of resources with high, uneconomical wastage is avoided. A better result is achieved from a cost / benefit perspective. As part of the consulting segmentation, the future potential of the individual customers can be estimated or determined. The sales expenses are based on the earnings potential and from the earnings already generated from the customer relationship. Sales activities can target potential customers. Marketing campaigns can be implemented with a higher probability of completion. Since the range of services can be tailored to the individual customer segments and thus to the individual needs / expectations / requirements of the customer, a higher level of advisory competence is created and the bank becomes more attractive for the customer. The increasing unmanageability of products / services on the banking market creates uncertainty among customers. This uncertainty is reduced by a demand-oriented and type-specific offering of financial services, and customer satisfaction as a prerequisite for long-term customer loyalty increases. With the length of the business relationship, the intensity of the relationship and use and the chances of achieving a higher return normally increase. The deployment of staff and the qualifications of the employees should be based on the different advisory requirements of the customer segments. Customer segmentation for private customer business page 6

12 2.3 Effects of customer segmentation The long-term orientation of the Volksbanken Raiffeisenbanken is a decisive factor in successful competition. It requires strategic planning and a coherent marketing concept. The basic segmentation is a component of the strategic analysis as part of the strategy-finding process. It can only influence the strategic sales orientation in the context of further analysis results.Classification in the strategy-finding process The process of finding a strategy (see Fig. 1) begins with setting goals, which, in addition to defining corporate policy, includes the formulation of the mission statement and target planning. The prerequisite for the formulation of the overall bank strategy, the strategies of individual business areas and functional strategies is transparency with regard to the framework conditions and data that determine the future opportunities of the bank. This business field analysis to be carried out in advance of the strategy formulation includes both a company and an environmental analysis. In addition to considering the actual situation, a prognosis about the future situation must be given in both analysis areas. The analysis of the environment relates to the opportunities and risks of Volksbank Raiffeisenbank with regard to developments over the next five to ten years that will influence the bank from outside, but which it cannot exert any direct influence.It provides both quantitative and qualitative forecasts, which are presented with the help of scenario technology. Surrounding areas to be examined are z. B. Population, economic development, legislation, changing values ​​in society, customer needs and behavior and competition. The company analysis focuses on the internal strengths and weaknesses of the bank and also includes qualitative and quantitative data. In addition to business data, from a sales perspective, the areas of customers, products and services, sales channels, sales philosophy, results management, marketing, employees, technology and organization are to be examined and assessed in a strengths / weaknesses profile. By compressing the information into decision-relevant data, the strategy formulation can begin and the strategy implementation can be implemented. Customer segmentation for private customer business Page 7

13 Target formation phase Business field analysis Strategy formulation Strategy implementation Self-understanding Sales understanding Management understanding Cost, income and risk understanding Service understanding ... Business analysis Customer segmentation ABC analysis Environment analysis Market attractiveness Market positioning Forecast / early clarification Corporate strategy Business field strategy Functional strategy Operational planning Functional planning Budgeting Figure 1: Process model of strategic planning Necessity to verify the Market development strategy The basic segmentation provides the bank with information on customer potential from its own portfolio through a data-supported analysis of customer volumes, income and contribution margins and is thus a component of the company analysis. It must be taken into account that the corresponding data regarding the customer's external engagement (insofar as he discloses this) is not available or is only available to a limited extent and therefore usually only a limited picture of the customer based on the information available to Volksbank Raiffeisenbank is available. With the help of other instruments such as B. market potential analyzes, competition analyzes, customer surveys, etc., statements are generated on market shares, attractiveness of individual micro-markets, product usage quotas, population structures, milieu typifications in the market area and the resulting needs of residents with regard to the financial services to be offered. The networked consideration of these results provides information about the success of the previous market cultivation, the quantity and quality of unused market potential and gives clues for an optimization of the market cultivation. On this basis, the previous market cultivation strategy must be checked and, if necessary, adapted to the changed framework conditions. Clear, comprehensible positioning in business areas.Based on the above explanations, a clear, comprehensible derivation and positioning in business areas resulting from the overall bank strategy is recommended. The central question at the business area level is how the bank intends to operate in a particular business area in order to be able to compete successfully. Customer segmentation for private customer business page 8

14 A business area serves one or more customer groups offers certain product bundles is in competition with certain competitors The aim of this specification of business areas is to provide clarity and measurability in statements on strategic positioning and, in particular, on market development strategy. Figure 2 shows a mixture of possible business fields. It must be ensured that the business fields are defined either according to customer groups (e.g. private, corporate customers) or product groups (e.g. securities business, old-age provision, insurance). Strategic goal Main areas of service Retail business Private customers Corporate clients Target groups Securities business Foreign business Travel Market presence System support Insurance Old age provision Real estate Figure 2: Possible business areas of a bank When formulating a business area, the following aspects must be defined / concretised: Strategic aim Main focus areas Target groups Market presence System support / tools According to the respective processing strategy (inactive, selective, intensive) the business areas are underlaid with hard factors by corporate planning. That means, for example: budgets, growth rates and figures from customer and market analyzes. The strategic business areas should be designed for a period of three to five years and be fully integrated into bank controlling. As part of the planning during the year, reporting must be made available for management. These results are used to manage and control the individual areas of the bank. Customer segmentation for private customer business page 9

15 2.3.4 Deriving / verifying the strategic marketing mix If the success of a Volksbank Raiffeisenbank in a highly competitive market depends to a large extent on satisfying certain needs of certain customers better than the competition, its product range must be of the same size, quality and price Exactly meet the expectations of these customers. However, if one compares the financial performance of a cooperative bank with those of its competitors, it can be seen that there are no major differences: products and services are largely interchangeable. If the Volksbank Raiffeisenbank wants to distinguish itself among certain customer groups, the most important differentiating criterion compared to the competition is its information and advisory competence (= service quality) through the offer of individual problem solutions. After defining the strategic goals of the respective business areas, the question of how the bank intends to process each business area in terms of product, price, sales, personnel and communication policy must therefore be answered within the framework of the specification on the basis of the basic marketing strategy. The provision of services is to be organized under the priority that the service meets the requirements and expectations of these customers as well as the business interests and the possibilities of the bank (concentration on core competencies). The various customer groups are differently attractive to the bank, depending on the Volksbank Raiffeisenbank's target system. A high income usually goes hand in hand with a greater ability to save, and higher profit margins are generated at constant costs through high volumes. In this context, support represents an additional effort that has to be compensated for by additional business and / or by reducing the risks. According to the results of the basic segmentation, it can be assumed that these conditions can be met by the individual and support customers, but in no way by the overwhelming number of service customers, since the number of additional contracts that can be achieved with service customers through intensive support can be quite high However, the closing volume is usually relatively low. Cost-intensive and personnel-intensive support is only economically sensible from the point of view of the customer contribution margin, and graded in the support customer segment, and is necessary from a competitive point of view. To intensify the service customer business, individual support is the wrong tool because it is too expensive. This also applies if the need for care is assumed, which is derived from the respective needs. This necessity always arises when a complex requirement situation encounters a complex financial offer (bundle of services) that triggers correspondingly high expectations in the customer with regard to the individuality, intensity and scope of the support services provided by Volksbank Raiffeisenbank. Wealthy private customers differ, for example, from non-wealthy private customers in terms of their expectations and demands of a bank with regard to customer segmentation for private customer business page 10

16 the investment business. As a result, the demand relevance for certain products and services in the various segments develops differently. As a result, all marketing-political activities should be geared towards the different motives, attitudes, needs and demands of the customer segments, or independent marketing concepts for each customer segment, from product, price to distribution channels and communication policy, should be developed. After the strategic marketing mix has been derived at the business unit level, the organizational, technical and personnel conditions must be checked, adjusted if necessary and implemented tactically and operationally.Selected structural and procedural organizational aspects Homogeneous customer segments form the basis for future strategic, tactical and operational Orientation of the cooperative banks. According to the principle of structure follows always strategy, the organizational structure of the bank must be geared towards the individual customer segments. Only then is it possible to differentiate between sales. Each segment is to be viewed as a separate sub-market and processed accordingly. Not only does every sub-market have to be profitable (profit center), but every managed customer relationship should generate a positive contribution margin. Cross-subsidization between the business units should be avoided. Within the sales area, strategic business units (SBUs) with their own market responsibility (sales, earnings and risk responsibility) are to be formed for the individual customer segments. Service customers are served in a standardized manner and supplied via self-service or ISB devices. Support customers are assigned a direct contact person. Customer care takes place primarily in larger branches (head offices) or in corresponding competence centers. Individual customers are looked after by highly qualified customer managers. The mobile advisor plays a special role here (the bank comes to the customer). The qualifications of the employees and their assignment to the individual segments are based on the respective consulting requirements within the segments. In particular, the assumption of adequate support requires that not only the customer segments, but also the tasks as well as the professional and personal requirements for the job holder are clearly delineated (see Chapter 4.3.3). The aim, scope and content of the support as well as the technical and personal requirements analogous to the customer segments must therefore be clearly defined and documented in a task description and a requirement profile. In particular, there is a need to relieve processing and administrative tasks so that a corresponding net market time (target: 80%) is guaranteed. Customer segmentation for private customer business page 11

17 2.3.6 Basic aspects of sales management The basic and consulting segmentation determine sales management. Basically, two aspects are relevant here: 1. Distribution channels There are different distribution channel preferences between the segments. In the context of multi-channel sales, sales channels must be differentiated accordingly. This means that the classic stationary sales via branch offices must be supplemented by the development or corresponding offers for online banking, call centers, mobile banking, mailings and mobile advisors. The distribution channel mix must be designed in such a way that the customer can use his preferred sales channel, but this is profitably organized from the bank's point of view. Incentives are to be created so that customers who do not need advice can use electronic sales channels as far as possible. This can relieve the burden on branch sales. The sample sales agreements between the BVR and Bausparkasse Schwäbisch Hall and R + V Versicherung support the inclusion of the sales force of the affiliated companies in the sales organization. The bank's sales organization must ensure that the sales channels are not designed individually but in an integrated sales channel concept. 2. Sales controlling The previous control instruments in sales are to be developed segment-specifically. The establishment of an efficient sales management system must be based on the following questions, among others: What sales potential does the customer segment / customer have? Which minimum turnover / deals are / are to be achieved in which period? (in future: control of the goals via the contribution margin) What is the minimum contact frequency of the consultant with his customers? How does the centralized or decentralized acquisition take place? How is the IT support carried out? How is the sales support for employees carried out? How does the target and remuneration system have to be designed? How should the sales success be measured (key figure system)? How does the sales reporting have to be designed? Customer segmentation for private customer business page 12

18 3 Basic segmentation 3.1 Content In order to optimize the success of the customer and that of the bank, it is important that the bank's most attractive customers are defined and known by name. Based on this transparency, customers are given intensive advice and support in accordance with a defined quality. Every employee should be able to understand which advisory and support services the customer can expect from the bank. The basic segmentation assigns the customers to one of the three private customer segments, service customers, support customers, individual customers and is ideally the basis for the alignment of the organization in the bank. Criteria and values ​​The basis for the grouping of private customers are the financial criteria of monthly net income, financial assets and contribution margin 3. The criteria for this Segmentation should be understood as OR criteria. All regularly incoming payments from the customer such as salary, rental income, interest and dividend income are summarized under the monthly net income. Expenses that can be directly assigned to these inputs must be deducted. Financial assets include the fixed assets held by the bank (current account, savings, fixed-term deposit, time deposit, money market accounts as well as securities and investment custody accounts) as well as the corresponding association volume at Bausparkasse Schwäbisch Hall, R + V Versicherung and Union Investment. Segmentation criterion Net income Financial assets Contribution margin (not yet available) Determining factors Individual or household income! separated according to type of income! Recording of the spending situation of individual and household money assets! Bank volume (current account, savings, fixed deposit, time deposit, money market accounts, deposit B)! Association volume at BSH, R + V, Union Investment Individual or household contribution according to DB III calculator Table 2: Determining factors of the segmentation criteria 3 The DB III calculator from VR Control, which is decisive for determining the values, is not yet available nationwide. After the full introduction of the DB III calculator and the corresponding empirical values ​​are available, the working group will still determine the values ​​that are relevant for the segmentation of customers according to contribution margins. Customer segmentation for private customer business page 13

19 In the case of families, there is an aggregated view of the family network parallel to the individual consideration. Financial assets Monthly net income Contribution margin 4 Service customers up to 50,000,000 to support customers up to 250,000,000 to individual customers over 250,000,000 using Table 3: Values ​​for determining the basic segmentation The basic and advisory segmentation is never an end in itself, but serves to increase the productivity and quality of a bank. The sales force arises from the advisory service at the point of sale and is shaped by each individual employee in sales contacts. The basis for this is a high level of activity combined with high quality advice in order to achieve the desired return per customer. An optimal data quality as the basis of the basic segmentation is a fundamental requirement. The increase in quality and income also requires consistent and targeted management work at the point of sale. The entire customer segmentation process must take into account all influencing factors that allow the targeted contribution margins per customer to be siphoned off over the long term. Figure 3: Sales force in the focus of the basic segmentation Overall, this creates the basis for targeted resource and quality control in sales. 4 The DB III calculator from VR-Control, which is decisive for determining the values, is not yet widely available. After the full introduction of the DB III calculator and the corresponding empirical values ​​are available, the working group will still determine the values ​​that are relevant for the segmentation of customers according to contribution margins. Customer segmentation for private customer business page 14

20 3.1.2 Formation of customer segments / target groups If, as a result of the basic segmentation, the structures in the private customer business of the Volksbanken Raiffeisenbanken are considered, the following is noticeable: The service customers with a share of approx. 70% of all private customers hold a maximum of 50% of the financial assets, while the others 25% support and 5% individual customers hold a total of at least 50% of their financial assets with Volksbanken Raiffeisenbanken. Against this background, the focus should be placed on the cost, profit margin and quality-oriented market development under the primacy of holistic and needs-oriented customer advice / support. For the bank-specific formation of customer segments (deviating from the proposed sizes) and within other conceivable target groups, some requirements must be observed: Firstly, target groups / segments should not be too small (critical mass).This should primarily be seen against the background of necessary employee qualifications, substitution problems and experience curve effects. Second, the segments / target groups should be easy to identify, for example in the internal customer database, in order to be able to efficiently develop targeted sales activities and to be able to subject marketing activities to a success control quickly and efficiently. The decision on the number of target groups to be defined must be made as part of the strategy for market cultivation. This depends on the economic situation of the bank, the economic importance of the respective target group and the behavior of competitors. Few target groups have the advantage of concentrating all resources on a few sub-markets, but harbor increased entrepreneurial risks. The market potential of the segment / target group and their stability must be taken into account here. The definition of several target groups enables the processing of a larger market; Risks are therefore more widely diversified. However, the marketing activities to be designed are correspondingly more complex. Customer segmentation for private customer business page 15

21 3.2 Data quality as the basis of the basic segmentation Initial situation and implementation experience The data stocks in the data centers have grown significantly over the decades. While in the past, pure master data from customers or accounts was managed, the data available today provides well thought-out sales approaches, usage potential, sales impulses, customer reviews, etc., beyond hard information. The technical possibilities have become almost revolutionary not only in the PC world, but also in mainframe systems further developed. Falling prices for constant new developments in technology will continue to enable new applications and evaluation options in the future. Fixed structures have been formed that are constantly being filled with new content through the continuous processing of the data material. Potential financial type risk Figure 4: Foundation of sales force In order for this data warehouse to be permanently stable and usable, it needs a solid foundation. Before customers are allocated to customer segments through the basic segmentation, the database must be reliable and secure. Experience shows that many sales concepts in banks are built on sand, i. H. Although the data basis is unchecked and unprocessed, complex segmentation approaches and sales concepts with corresponding instabilities are built on them. As simple as the criteria of the basic segmentation are, the statements from the EDP are often questionable: Experience has shown that up to 40% of the evaluated data require a prior check. The efficiency of the sales department suffers as a result. If you look at the current state of the existing data, you will find a whole series of striking weaknesses: Almost 10% of the customer bases are duplicated, although the customer actually only exists once. This situation often results from mergers, system changes or different approaches in sales. Family members cannot be combined into a group at the push of a button, so that relationships have to be laboriously traced in the IT system. Classic special target groups such as freelancers, tradespeople, craftsmen or associations are not clearly defined. Often more than half of the existing customer bases are encrypted incorrectly or not uniformly. Up to 15% of the customer base is inactive. In many cases the bank details only exist pro forma. Customer segmentation for private customer business page 16

22 This means that the banks are increasingly caught in a field of tension between short-term success and sustained securing of functioning sales. Meaningful control information is becoming a key factor in securing livelihoods. The focus is on data quality as a source of information and evaluation basis. Objectives Modern data processing in the cooperative banks allows the most diverse applications to be closely interlinked. B. Use potentials are shown and sales approaches are generated from this. At the same time, there is soft information in the customer file, which, linked with hard customer or account data, enables detailed target group segmentation. In particular, data mining or database marketing applications promise an even higher accuracy of hits when addressing customers. The data quality thus forms the stable foundation of a large data warehouse for the entire sales department. Comparable to the construction of a house, in which the soil condition on rocky or sandy subsoil is first examined for possible environmental pollution, contaminated sites and other disruptive factors, many influencing factors from the data control the quality of the subsequent segmentation. Therefore, various criteria for security must be checked in advance and problems resolved. This is the only way to ensure that the (sales) house to be built does not develop any cracks or that statements of the segmentation remain dubious. EDP ​​can only deliver value-adding and productive information if transparency and reliability can be demonstrated in the data material. Data quality is therefore a goal-oriented task for every company, which like all other business processes must be organized efficiently and productively. The benefits of high data quality must be compared with the costs incurred for securing the quality level in comparison to applicability: Data quality is an important production factor. This results in starting points for their handling: While today legally necessary data (legitimation data) and deviations in interest and fee controls in accounts are usually checked very meticulously, sales-based customer data tend to lead a shadowy existence. This deficiency needs to be remedied in advance of the basic segmentation using a concrete process model. This procedural model is described below using the example of a construction project. Customer segmentation for private customer business page 17

23 3.2.3 Process model for optimizing the data quality Step 1: Define criteria for the data quality Figure 5: 7-step concept for data quality In order to build a stable and solid house, detailed preliminary planning is necessary at the beginning. The static calculations are based on the nature of the soil. This also includes examining the future building land in detail. But what should you look for? For quicksand, water veins or even contaminated sites? Here, the selection of relevant criteria is necessary in order to carry out targeted tests. This idea can be directly transferred to the data quality as the foundation of the basic segmentation: Which data is the important basis? How up-to-date are these data? How reliable are the entries? Which criteria are necessary for the assessment? This information only makes a valuable contribution to the segmentation process if it is properly recorded and updated. Targeted analysis criteria and an exact definition of quality create the basis for a detailed and target-oriented review of the data material in order to minimize the potential for errors in the basic segmentation. Step 2: Carry out analysis of the data Transferred to the construction project, the analysis of the soil properties is carried out according to a consistent plan in order to check as many criteria as possible in one work step and not have to constantly drill new holes for test probes. The respective banking systems allow more or less complex evaluations in the legal customer base. Here, too, the aim is to illuminate as many analysis criteria as possible in a single work step and, if possible, only evaluate real errors. The analysis ultimately provides information on sources of error and the fields of action to be derived from them. Now it is clear on what ground the house can be built and whether additional support mechanisms need to be installed. On the other hand, the question of the distance at which the supports will be driven into the ground and how they must be designed cannot yet be determined at this point in time. The results of the analysis must first be collected and bundled into statements. Customer segmentation for private customer business page 18

24 Step 3: Reflecting on the data quality The analysis of the existing data provides a status report on the current status of the data quality for a wide range of data fields and content. Usually there are many hints and errors that build on or depend on one another. In this sub-step, the evaluated results are to be put in direct connection with the objectives and analysis criteria, their meaningfulness to be critically reflected and deviations to be identified. For the basic segmentation, very specific data fields have to be checked and especially this content has to be secured. The analysis also provides many other starting points for improving data quality. It is therefore necessary to differentiate which effects certain error constellations have: A duplicate customer base not only affects segmentation, but also influences sales activities and makes income statements and control statements more difficult. In contrast, a missing or incorrect phone number only means manual effort the next time it is used. Therefore, the pool of identified errors and notes must be viewed in detail and the associated processing effort must be described using random samples. The overall success of the measure is guaranteed through appropriate priority plans and proper implementation models. Step 4: Identifying fields of action and establishing priorities For the construction project, first of all certain prerequisites are created that allow the creation of a stable foundation (lowering the groundwater level, digging a construction pit, etc.). Transferred to the data quality, the analysis is evaluated in detail in this step and core fields of action are identified from it. The top priority here is the provision of the data necessary for the basic segmentation. Other topics can be edited in a later step. The mostly large number of error or test notices prohibits the simultaneous processing of all aspects: The complexity of the entire portfolio and the innumerable network of relationships in the customer portfolio require a structured approach. Therefore, the precise evaluation of the error messages with a clear derivation of the fields of action is a decisive guarantee of success in order to carry out the basic clean-up quickly and in a resource-saving manner and to guarantee high data quality. Step 5: Clean up the data and carry out optimization measures Up to this step, all the necessary prerequisites have been created in order to proceed with the processing in a structured and resource-saving manner. Now the contaminated sites can be removed individually according to a defined plan without always having to consider new aspects. The work on the foundation takes place in a very targeted manner in certain construction phases or milestones. These milestones are each subdivided into a large number of dependent individual steps. Customer segmentation for private customer business page 19

25 The following example uses the formation of family units to illustrate which aspects have to be taken into account: Detailed examination of the family units formed today in the EDP system (family commitments) :! How many are formed at the time of the data analysis ?! What criteria was the education based on ?! How is a family defined in the bank ?! How is uniform education ensured ?! When do customer bases leave the engagement? Who is doing the update? The example makes the result clear: father mother community customer base child total family income 2,500,, - volume total: of which investment volume bank,,,,,,,,,, - of which deposit,,, - of which network volume 5,000,,,, - Table 4: Formation of family groups The graphic shows that when viewed individually, the customer bases are more likely to be found in the middle or lower segments of the bank. If the volumes for the entire family are aggregated as a new customer base, the family could already be placed in the individual customer segment via income. Step 6: Regularly check implementation successes The cleaning of the subsoil (the data material) takes place according to a fixed plan with a clearly defined procedure. The planned milestones will be achieved successively. The partial steps carried out are to be assessed individually and conclusions to be drawn from their implementation, as there are dependencies with direct effects on the overall success and the process speed. Newly emerging findings flow directly into the further steps and it is guaranteed that all contaminated sites found are removed piece by piece with high precision. Due to the constant upheaval and strain on the database, the newly gained quality threatens to collapse again in a short time. Here, too, the evaluation of the detailed work steps makes a valuable contribution to gaining and applying further knowledge and skills to ensure future data quality. Customer segmentation for private customer business page 20

26 Step 7: Carry out a critical appraisal and final assessment The provision of the prerequisites for basic segmentation is, like clearing bombs on the building site or laying a water vein, a very time-consuming process. The more precisely the submitted plan is implemented and the specifications are adhered to, the greater the success of the implementation. At the end of the processing, it must therefore be ensured that all the necessary aspects have really been cleaned up. A detailed final analysis certifies the new quality in the customer base and creates the status for the future data quality of the company in almost one hour. Concept for sustainable protection The final evaluation provides impulses for possible further fields of action. Once the foundation with the basement rooms has been poured, it must be checked regularly for possible damage. Is water getting in? Have all the building blocks been processed properly or can cracks appear? Data quality is not an end in itself, but represents a decisive tool for corporate management even after the basic segmentation. Therefore, its stability must be permanently guaranteed through quality assurance. Various measures are required for this: Regular monitoring of the quality standard in clearly defined rhythms; Clear responsibilities in further analysis and processing; Development and application of simple and efficient analysis tools with specific objectives Conclusion Data quality is the decisive foundation for basic segmentation. The analysis requires a clear, structured approach in order to identify the decisive sources of error quickly and in a targeted manner. The necessary fields of action are to be assessed as a result of the analysis and priorities for processing are to be defined. The adjustment must be consistent, resource-saving and according to a defined milestone plan. After the basic cleanup, the data quality must continue to be maintained regularly and according to a specific concept. This applies not only to the basic data as a platform for basic segmentation, but also to further fine-tuning of the customer groups and the subsequent consulting segmentation. The bank has thus created the basis for a transparent basic segmentation and has defined a key success factor for the major construction project, targeted and successful sales optimization. Customer segmentation for private customer business page 21

27 3.3 Carrying out the basic segmentation Initial situation and implementation experience Many banks have already carried out customer segmentation in the past. The implementation of the segmentation has i. d. Usually oriented towards what is feasible and not what is necessary. This is reflected in the quality of the results, e.g. B. to the assigned customers (without taking family structures into account), to the assigned customer quality (highly endowed support resources often do not bear the customer responsibility for the most profitable potential of the bank and often spend their time with standard advisory services) etc. This means that some of the customers Profitable earnings opportunities are lost because the right advisor is not available for the upcoming asset and financial decisions. In return, the low-income customers experience the full performance competence of the bank. Outflow are stagnating or declining income with growing market opportunities. Objective The basic segmentation therefore serves the structured and profit-oriented allocation of all target customers to the coordinated customer segments in order to enable improved market development. The result of the segmentation is refined by means of defined allocation and plausibility checks, whereby it is checked in particular whether the volumes / income of a customer have or could lead to corresponding income (presumption of allocation). The financial assets of a customer are only a pre-tax variable for the contribution margin. Do the right things and do things right: At the required time, submit the right recommendation to the right customer with optimal advisory competence in order to realize maximum profit opportunities and customer satisfaction. The basic segmentation does the decisive preparatory work for this.The mix of data-supported segmentation and individual information refinement improves the basic segmentation in the long term. The revolving check in consulting contacts optimizes the internal view of the segmentation by comparing the consulting offer with the existing customer expectations. If the coverage area deviates, a decision must be made to change the future customer / bank relationship. Overall, the implementation of the basic segmentation should generate the right support and advisory service for the customer (added value) and at the same time meet the bank's earnings expectations. Customer segmentation for private customer business page 22

28 In summary, the basic segmentation makes the following contributions to aligning the sales force of a Volksbank or Raiffeisenbank: Optimizing the transparency of the bank's existing customer potential according to volume or Income criteria Income-oriented plausibility check, i.e. volume and ability to save enable the desired income from the customer relationship to be achieved the different earnings potentials of the customers Efficient and targeted resource management Prerequisites In order to steer a ship safely to its destination, preparatory measures for the voyage must be taken. As part of the basic segmentation process, these measures consist of the optimization of sales data and the bank-specific design of the prerequisites shown here. Once the measures have been completed, the ship is ready for the journey and the subsequent basic segmentation contributes the necessary tests to ensure that it reaches its destination safely. Figure 6: Pre-press concept for basic segmentation Pre-press 1 The customer segmentation matrices are defined: The criteria for an assignment to the defined customer segments are defined. The rough segmentation grid is determined in the following decision-making process: Which criteria are the bank-specific customer segmentation based on? How are the customer segments designated? Which bank-specific criteria and size classes separate private customers into broad segments? Customer segmentation for private customer business page 23

29 As a result, the bank-specific customer segmentation matrices are created as a preliminary service for the basic segmentation. Preliminary stage 2 Advisory associations are formed or taken into account: Advisory and liability associations are taken into account in the rough segmentation: In order to achieve a meaningful asset and financial analysis of married private individuals, dependent individual customers or joint customers must be brought together as families in associations. The upstream data quality optimization is a condition and ensures the correct, automated consolidation of consulting groups. Preliminary stage 3 The allocation rules for the special groups are coordinated: In terms of quantity, they are actually marginal groups. But economically independent private individuals and associations are in practice often assigned to customer segments that do not contain the expected / required consulting services. Therefore, assignment criteria for these special customer groups are to be defined in the following. In the case of economically independent private individuals and associations, the assessment of the future use of services is in the foreground of the individual allocation to the customer segment of private or corporate customers. The first rough segmentation forms the basis for the further allocation and plausibility checks within the customer segments. In four steps, income and risk-oriented plausibility checks lead to the result of the basic segmentation. Figure 7: 5-stage concept for basic segmentation Customer segmentation for private customer business Page 24