The Under-Tapped BankingConsumer Segments of the World – The Youth July |2010
The Under-Tapped Banking Consumer Segments of the World –The YouthThe first in a series of articles aimed at identifying strategies that banks shouldfollow for tapping into the potential value certain consumer segments hold forthem…The cost of acquiring a customer in the financial services industry has traditionallybeen quoted as being 5 – 10 times higher than the cost of retaining a customer.This fact has been the impetus pushing banks around the world to focus theirefforts on satisfying and retaining their existing customer bases, visible in theproliferation of loyalty and retention programs aimed at reducing customerattrition.Retention of and / or up-sell to existing customers doesn’t cut it for most banks,however. Such efforts must be accompanied by a solid acquisition strategy, onethat helps the bank achieve its growth-related objectives through the on-boardingof new clientele. With the cost of acquiring customers so high, however, banksneed to be as efficient and effective as possible in their efforts to win over newclients. One way banks can achieve this is by honing in on certain consumersegments they deem valuable (rather than appealing to the masses), developingdetailed acquisition strategies around such segments.In a series of articles, different consumer segments (SME, Ladies, Young Families,and the Youth) that are relatively under-addressed but hold significant value forbanks will be profiled, with best practices highlighted in addition to recommendedactions for addressing the segment. The first segment to be discussed is the youthsegment (for the purpose of this article, defined as a segment comprised of allindividuals under the age of 22).A segment that is actually not very attractive in the short to mid-term in terms ofpositive impact on the bottom line, what makes the youth critical is the fact theywill be the key assets of the bank in the long-term – both on the retail andcorporate banking sides of the business: The child with the piggy bank today will be a company owner down the road, needing all types of banking products and services to meet his or her needs The teenager with the small checking account today will one day be a high- net worth customer, serving as a cash cow for the bank for many years The college student with an overdrawn credit card today will be buying stocks and bonds with his bonus check in a few yearsSuccessfully winning over the youth today can help make growth in the long-termmuch less reliant on the acquisition of new customers; rather, with such an open-
for-growth portfolio of clients on hand, banks can focus more on their cross andup-sell efforts to grow their assets under management.A strategy for attracting, winning over, and keeping the youth segment requirescustomization in sales, marketing, and customer care efforts across the bank, alldesigned around the customer’s lifecycle (such that a child needs to be addressedsignificantly differently in all manners vs. a college student). Some banks haveexcelled at catering to this segment, doing all kinds of interesting things to winthem over. Some examples include:Commerce Bank, USA: The bank has a free of charge change-counting machinethat can be used by customers or non-customers, allowing them to convertchange into dollar bills. Each branch has a machine designed exclusively forchildren as well, called the “Kids Counter.” The machines are a big hit with thekids, as are the lollipops they receive when they enter the branch.Barclays Bank, UK: Barclays has designed its savings and checking accountsdirectly around the needs of various youth micro-segments in their effort to winover such consumers. The products and services are customized in their packagefeatures, benefits, and fees for the 11 – 15 year old segment, the 16 – 19 year oldsegment, the college student segment, and the recent graduate segment. Thecustomization goes one step further, varying based on who will control theaccount – parent or child.Sovereign Bank, USA: Sovereign has designed and operates kidsbank.com, awebsite that aims to teach children about the basics of the banking system. Withinteractive features and through numerous characters such as “Mr. EFT” and“Interest Ray”, the website aims to make banking fun for children. The site alsofeatures numerous links and different games and quizzes around banking. Thebank in no way tries to pitch its own products on kidsbank.com, giving an image ofbeing an educator rather than a commercial entity.OCBC Bank, Singapore: OCBC has a similar program, this one in the form ofsuperhero mascots Simon and Sally, two characters that visit schools in andaround the city to give live performances to children around banking and savings -the Bank’s “Mighty Savers Programme” is featured in particular. All kinds ofbenefits, games, and prizes are built into the program, aiming to engage childrenheavily through the Simon and Sally characters.Dexia Bank, Belgium: The Belgian bank has taken the concept of targeting theyouth segment to another level, through launching a bank called Axion - designedspecifically for the 12 – 24 year old segment of consumers. This new bank iscompletely aligned around the youth, in its name, strategy, branding / positioning,offerings, etc. For example, rather than use a standard Consumer Index whencalculating inflation, the bank has the “Youth Dexia Index,” with categories likefood and drink, fashion, communications, and recreation serving as the base forthe calculation – last summer when the basket revealed music festival entrance
fees had increased 11 percent, the Bank offered account holders discountedtickets. Other benefits also serve the needs of this segment as well – defensivedriving lessons being an example, with discounts on car insurance for those whopass the test.PNC Bank, USA: PNC has placed extensive focus on its efforts to win over collegestudents, with branches and ATMs in over 25 universities across the east coast ofthe United States. The bank customizes its credit and debit cards for theuniversities it works with, such that not only are the cards visually branded foreach university, but they also serve as access cards across the campus – thus theonly card the student carries (serving as ID, allowing access to cafeterias, libraries,and dorms, etc.). A particular strong offering for this segment is the Bank’s“Virtual Wallet,” a feature added onto the accounts providing spending overviewsby category, a notice of upcoming danger days when cash on hand may be low,and alerts to parents if spending patterns are out of the norm, among otherunique benefits.Essentially, we believe any bank that is lacking a set of products and servicesdesigned and promoted exclusively to the under-22 year old youth segment ismissing out – lack of young customers today translates directly into a lack ofclients that can be grown tomorrow.In developing a comprehensive program aimed at addressing the youth segment,we recommend banks take the following three points into consideration:1. Truly Understand the Market’s NeedsTo develop a comprehensive strategy for winning over the youth segment, a bankneeds to particularly focus on two things – its competitors and the youth. In termsof competitors, banks need to understand what strategies their competitors arefollowing, what products and services they are offering, and what micro-segmentsthey are excelling with. Such an effort will help the bank identify possible gaps andshortcomings of their competitors, and will also set a bare minimum benchmarklevel for matching.Understanding the youth is the second critical element here, this being aroundunderstanding their needs, norms, practices, trends, etc. Everything (be it fromthe proposition offered, to the channel sold through, to the channelcommunicated through) must be designed with a strong understanding of theyouth segments’ viewpoint in mind. Surveys and focus groups must be utilizedhere, with various youth micro-segments as well as competitor clients probedaround what exactly would make them engage with the bank.That said, in many cases, parents are the ultimate decision makers. Accordingly,their insights will be valuable as well into developing the overall strategy, and thusshould be collected.2. Customize, customize, customize
The next step is to develop the set of offerings to win over the youth. The term“proposition” here means all the little elements that make up the entireexperience for the customer- ranging from the name of the product to theconditions around points redemption, if a loyalty program component were to beused. It covers the selection of channels to be used, to the variety of checkingproducts to be offered, to the partners to work with.In developing the overall proposition, we strongly recommend banks customizethe offerings around the multitude of youth micro-segments. The under-22 yearolds aren’t just split along age groups, but among gender, nationality, financialstatus, education level, spending behavior, etc.These differences need to be reflected in the products and services, even ifthrough minor customizations. It could be reflected in the color of the debit card(different for boys and girls), in the branding (using different characters indifferent neighborhoods to appeal to different nationalities), in the product usagerules (spending caps that can be put on different categories, monitored by parentsif so desired, or none), or even in the communication method (heavily relying onthe internet to interact with more affluent, better educated youth vs. relying onmore traditional channels like SMS’ and call centers for others).It is also recommended here that the overall proposition be concept testedthrough another round of interactions with various youth micro-segments andparents. Their feedback on the offerings will help ensure the most optimumoverall proposition is in place before going to market.3. Enhance, enhance, enhanceThe youth segment is a constantly changing, evolving, adapting one - what theylike today is out of fashion tomorrow, what they find “not cool” now becomes theopposite a short amount of time later. Banks need to realize that this segment isconstantly shifting, and accordingly, much closer manage the propositions offeredto them.As such, a constant check should be kept on the needs and preferences of thevarious youth micro-segments, and if shifts are identified, changes should bemade. This can be reflected in a change in the channels relied on for building buzz(i.e. shifting from MySpace to Facebook), a change in the slang used in allmarketing communications materials, a change in the program partners(especially around loyalty program partners, whereby some brands seem trendytoday can reflect negatively on the program down the road), or a change in theway the bank is positioned (reflecting possibly a shift in the culture and norms ofthe youth in the country).One bank recently found that 26 of its youth segment customers do not generateas much revenues for them as does one average adult customer. As unattractiveas this may sound and seem in the short-term, banks cannot afford to ignore this
segment. It is these children and teenagers and college students that will be thecore revenue source for the bank down the road. It is the average person in thissegment that holds the highest potential lifetime value. The better they areserved today, the more hooked they’ll be for life.
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