Segmenting customers based on current and future value is a popular practice in the financial services industry. Done right, it can allow a bank to focus on building strong relationships with its most valuable customers while also streamlining processes and creating efficiencies.
Nordea Bank in Northern Europe knows the power of customer segmentation. The company, which operates more than 1,400 branches in Sweden, Denmark, Finland, Norway, the Baltics, and Poland, uses a relationship banking model for its 9 million customers. It created a tiered segmentation strategy based on customer value. The strategy allowed the bank to navigate through recent economic turbulence. Nordea's income was up 11 percent and risk-adjusted profit rose 22 percent for 2009. And in the midst of financial instability, the company continues to grow. According to Reuters, Nordea is expected to post a 633 million operating profit for Q1 2010, marginally higher than the fourth quarter.
Claes Tell, head of sales and development for Nordea's retail banking division, details the particulars of its successful segmentation program: First, customers are placed into externally communicated Gold, Silver, or Bronze value tiers based on their balances. "That is the total sumof deposits and lending held with Nordea," he says. "And that in our world is a good proxy for customer profitability." The company looks at a customer's total balance across different products, not just in one product group or silo. Gold customers receive a Personal Bank Advisor who is responsible for serving their financial needs on a one-to-one level.
Externally, customers know which tier they're in and what balance is necessary to move to the next value tier; internally, Nordea focuses on attributes that show customers' potential value by segmenting customers further, into "balance builders" or "care" customer groups. Balance builders are those with high potential value, while care customers are high-value customers that should be maintained. "When we look at the contact policy that divides the group into balance builders and care we include whatever customer insight is available to understand future value/potential," Tell says. This includes life events, purchase history, channel usage, response rates to marketing campaigns, and the like.
Tell says that many customers in the current Silver or Bronze segment will receive Personal Bank Advisors, as well, because of their potential share-of-wallet growth. "Bronze and Silver potentials represent little current value, but we try to identify those with potential -- where we have low share of wallet or future potential --in order to make contact," he says. In addition, Nordea conducts targeted marketing and sales efforts designed for these high-potential-value customers. "[We] cross-sellas much as possibledepending on the business case for the specific activity," he says.
As a result of its focus on high-potential-value customers, in 2009 Nordea reported that the number of Gold and private banking customers increased by 158,000. Instead of acquisition, the company focuses on building the value of its existing customer base for long-term stability. Says Tell, "We, of course, want to focus our resources on where we can find the most potential."
Read more about Nordea's Customer Segmentation program in the Customer Strategist Journal from Peppers & Rogers Group.