Donald Yeo - Re-evaluation of Bank’s Segmentation Approach 1  

Pakistan Philippines Malaysia New Zealand Indonesia

Singapore Thailand

Australia

India

Taiwan Hong Kong

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2009 2010 2011 2012 2013 2014

In th

ousa

nds

Number of wealth individuals (APAC ex China Japan)

Source: Datamonitor

Apart from the major growth region of China and the existing wealthy clients in Japan, we will see most markets growing by 100% in 4 years’ time. Major growth centres are India, China, Hong Kong, Taiwan, Australia, Singapore, Thailand as well as Indonesia. Growth in mature economy like Japan will be moderate. It is therefore advisable to segment the market based on the geographical location of these clients and beef up operations in largely young markets like India, China as well as Taiwan, Hong Kong and South East Asia. As most HNWI are internationally mobile, local teams comprise of local language speaking wealth managers should be stationed at international banking and commercial hubs like Singapore and Hong Kong to better serve these HNWI. For example a Non-resident Indians team can be stationed in Singapore to address NRI needs out of India (in South East Asia).

Geographical Segmentation

Japan

China

Total

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

2009 2010 2011 2012 2013 2014

In th

ousa

nds

Number of wealth individuals (China, Japan and Total APAC)

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After segmenting the market by geographical location, we would ideally want to be able to ascertain the customer lifetime value with the bank. To achieve this, we can first segment by gender, then determine their source of wealth to construct a profile of the HNWI. We can group them into different levels of sophistication and orientation. For e.g. HNWI who accumulated their wealth thru income and investments would have better understanding of products and hence value information like macroeconomic insights, world equity markets outlook and other research materials to help them decide on the products that they will eventually purchase.

Gender, Source of Wealth, Sophistication & Life Stage Segmentation

Source of wealth

Entrepreneurship (First and second generation business owner)

Inheritance (marriage, family inheritance)

Income & Investments (inclusive of property, stocks, and other instruments)

Sophistication & Life stage

(different kind of HNWI would display different level of sophistication and dependent on their life stage, they

would prefer different sets of asset class for investment)

Lifetime Value (Build CLV models based on

projected revenue contributed by customers according to the type of

instruments they will purchase, frequency, amount and personal network, for e.g. friend referrals)

Entrepreneurs who lack experience in investments have different level of sophistication and also less knowledgeable in financial products, they will value simple products that offers capital protection. Bear in mind that at different life stages, both males and females might have varying needs and interests in different types of instruments. This kind of segmentation could look subtle, but as wealth management is a relationship business, it is good to segment by gender as well to offer men or women specific products. For e.g. education trust for female HNWI might go well with them because women are historically more nurturing and always plan ahead for their children’s education.

Donald Yeo - Re-evaluation of Bank’s Segmentation Approach

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3  Donald Yeo - Re-evaluation of Bank’s Segmentation Approach

Why segment like this ?

Expressed needs of HNWI (source: Datamonitor)

The need for personal relationships

Investment portfolio performance

Where are the investments opportunities ?

Why do we segment like this? Based on a recent survey by Datamonitor, HNWI want better personal relationships with their wealth managers. On top of their needs also include good investment portfolio performance as well as advisory information on the various investment opportunities available in the market. By segmenting in such a way (geography, gender, source of wealth, life stage, sophistication & orientation), we are able to address the needs more accurately as depicted in the survey. Different country have different profile in terms of needs, one clear example, Singaporean HNWI have lower need for tax advice than their region peers because of Singapore’s transparent and efficient taxation system. In the segmentation process, the bank can also identify the most profitable group of customers (based on the CLV) and create the necessary positioning for the target group(s). This will help in the overall process in the process of acquisition of new customers and even client retention. We can utilize the set of information of our segmentation to develop intimate customer relationship and understanding, and using these to build models for the CRM.

> 50% of clients have face to face contact with relationship managers less than once every

quarter

What clients want to discuss 1.  Performance of their overall portfolio (56%) 2.  Where the investments opportunities are

now (53%) 3.  Portfolio allocations (44%)

Typical needs of a HNWI (vary by country) 1.  Asset management services 2.  Tax advice 3.  Inheritance advice 4.  Simple transparent investments

Insights “Sophisticated” clients buy products & services (1) “Unsophisticated” clients are sold products & services

(1) source: Oliver Wyman

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Steps To implement this, investment in a proper technology architecture is needed. Private banking systems deal with a lot of highly sensitive and confidential data which every bank should protect for its own interest. In view of this, high security standards need to be in place. Once the technology problem is solved and data has been input to the Business Intelligence system (with masked data), the segmentation can then be carried out. A sophisticated Customer Relationship Management (CRM) system is needed to help improve the bank’s intimacy as well as calculating CLV of the customer. Apart from this, to ensure the segmentation exercise works, wealth managers (WM) need to be educated that the segmentation process is to help the bank to build deep understanding of the clients, thus able to develop suitable client offerings that will in turn increase their personal income.

Implementation Consideration

Bottleneck Without strong participation from the WM, it is difficult to get enough insights to make the segmentation a success. Another main obstacle is the ability to collect useful data. Hence, a reliable market research agency is needed to provide valuable insights in this area to facilitate the segmentation exercise. As the motive of segmentation is to help the bank in identifying potential customers, a strong team of wealth managers need to be built to help manage the potential influx of customers. (Competition for talent is getting more intense in this region in recent times). A key point not to be forgotten is that the bank should improve communications with customers by creating multiple touch points and ensuring customers have easy access to contact the WM. Strong understanding of clients will enable the bank to improve the quality of its segmentation.

Donald Yeo - Re-evaluation of Bank’s Segmentation Approach

Develop suitable client offerings

Drives superior proposition

Achieve better performance

Deep understanding of clients