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In an effort to deepen engagement, credit unions increasingly utilize member segmentation. This strategy had its roots in the early 20th century when marketing evolved away from a “one size fits all” mentality to a realization that a firm’s customer base could be viewed as consisting of multiple groups whose needs and preferences differed. Therefore, overall organizational goals could be optimized by tailoring marketing efforts according to segment.
What is Member Segmentation?
Member segmentation is the process of identifying shared characteristics among members to categorize them into distinct groups. Even in the early days when credit unions were typically founded as affinity groups, decision-makers discovered their members were not simply an undifferentiated amalgamation of people. These leaders quickly understood that valuable opportunities would be missed by taking a monolithic approach to marketing. With an understanding of member needs and preferences by segment, products, services, and communications can be customized to meet each group's demands.
Among attributes that could be used to create segment strategies are demographics, location, behavior, financial needs, and psychographics.
Types of Segmentation Strategies
Demographic – Demographics refer to factors that define a population, including:
- Age
- Gender
- Income
- Education level
- Occupation
- Marital status
- Family size
- Ethnicity
- Religion
An example of segmentation based on demographics would be targeting single people ages 18 to 25 who are employed and earn over $35,000 annually. They might be receptive to offers for credit cards or auto loans.
Geographic – Although a member’s geographic location often falls under the demographics category, it can stand independently as a segmentation attribute. Members can be grouped by country, city, climate, or population density. Based on geography, products and services can be adapted to align with local preferences or seasonal demands. For example, rural members may be more interested in offers to finance all-terrain vehicles than city dwellers.
Behavioral – During their tenure with the credit union, members exhibit behaviors that can be used to categorize them into groups. Examples are spending patterns, usage rates, brand loyalty, and customer journey stages. Consider members whose “entry” product was a new car loan arranged via the auto dealer. Such members may never think of acquiring any other credit union products or services unless directly targeted with offers to broaden their holdings at the institution.
Psychographic – While demographic and geographic segments describe “who” and “where,” psychographic segments focus on “why.” Typical psychographic attributes are:
- Lifestyle
- Personality traits
- Values
- Beliefs
- Interests
- Social status
An example of using psychographics in tandem with other attributes would be to target older, high-net-worth members (demographics) who self-identify as risk-averse (psychographics) with offers for guaranteed interest rate certificates of deposit.
However, unlike the previously described segment types, the credit union must take additional steps to acquire psychographic information. This can be accomplished in several ways:
- Surveys and questionnaires
- Focus groups and interviews
- Social media analysis
- Website and app analytics
- Member feedback
- Third-party data
- AI and machine learning analysis
For all the above data-gathering techniques, the closer psychographic data can be linked to an individual member, the more valuable it is.
Benefits of Segmenting Members
Credit unions can expect many benefits from a member segmentation approach to marketing.
- Personalized messaging – Targeting specific segments makes marketing messages more tailored, increasing the likelihood of a member receiving relevant and engaging information that resonates with them on an emotional level.
- Enhanced Member Experience - Member experience is improved when they perceive their specific needs and preferences are being addressed. Members who feel valued and understood will likely remain loyal in the long run, increasing overall member retention.
- Efficient Resource Allocation – By identifying their most valuable member segments, credit union decision-makers can prioritize resource allocation to maximize marketing dollar effectiveness.
- Product Innovation – The segmentation process uncovers nuances of member needs and pain points that can guide the development of new products and services. Better aligning new offerings to specific preferences will lead to potentially higher sales and greater member satisfaction.
- Improved Cross-Selling and Upselling – Analysis of member segments is likely to reveal new cross-selling and upselling opportunities. Well-executed segmentation strategies vastly increase knowledge of member needs and preferences, leading to new ideas for marketing existing products and services.
- Refined Customer Journey Mapping – Customer journey mapping can be taken to the segment level. Paths, preferences, and touchpoints can be tailored to each group to increase engagement, long-term loyalty, and enhanced brand perception.
Steps to Implement Member Segmentation
Implementing member segmentation requires careful preparation to clearly understand what groups are being targeted and how they will be approached.
Step 1 – Define goals and objectives
This step intends to clarify “why” the organization is undertaking the effort. If improved member engagement is the goal, then this will guide the development of the overall segmentation program. Therefore, communicating clear and detailed goals to all stakeholders is imperative. For example, all must agree on what “engagement” means, why it’s important, what specific, concrete results (e.g., revenue amount, membership growth percent, retention increase, etc.) are desired, and what metrics will be used to track results.
Step 2 - Identify key segments based on relevant criteria
This step can range in complexity. If, for example, only demographics are used to define segments, then the organization may already have the data needed to select the groups. If psychographic information is to be used, then time and effort are required to collect that data. The segmentation identification step can be even more complex and costly if multiple characteristics, such as demographics and psychographics, are used together.
The aim is to identify segments that will ultimately meet the Step 1 goals. Yet, since many marketers lack experience in this area, getting it exactly right the first time is unlikely. Therefore, a segmentation strategy will more likely reach success by taking an iterative approach where segments are chosen, results are evaluated, and refinements are made based on experience. Credit unions might consider retaining a marketing consulting firm with segmentation expertise to reduce the number of iterations, although it would entail more upfront costs.
Step 3 - Develop targeted engagement strategies for each segment
The Step 2 process of identifying segments will yield insights to drive the design of relevant products and marketing messages. To increase member engagement, each segment needs to be thoroughly understood in terms of what marketing actions will most likely move them toward feeling a closer relationship with the credit union. For example, a social media program might motivate the younger set, while older members may be more receptive to a direct mail campaign.
Step 4 - Test, measure, and refine strategies over time
As noted above, marketers should expect the execution of a segmentation strategy to be iterative. The results of a campaign are measured and compared against the desired goals, and if they fall short, adjustments are made for the next round. These could range from simple product and messaging tweaks all the way to significant segment reconfiguration.
While it may add greater complexity and cost to a credit union’s marketing efforts, member segmentation promises to significantly increase the attainment of higher goals for member engagement and overall organizational performance.
