Geographical Segmentation Apart from the major growth region of China and the Number of wealth individuals (APAC ex China Japan) existing wealthy clients in Japan, we will see most markets 140.0 growing by 100% in 4 years’ time. India 120.0 Major growth centres are India, China, Hong Kong, Taiwan, 100.0 Taiwan Australia, Singapore, Thailand as well as Indonesia. Growth Hong Kong in mature economy like Japan will be moderate. In thousands Australia 80.0 It is therefore advisable to segment the market based on 60.0 the geographical location of these clients and beef up 40.0 Singapore Thailand operations in largely young markets like India, China as well as Taiwan, Hong Kong and South East Asia. Indonesia 20.0 New Zealand Malaysia Philippines As most HNWI are internationally mobile, local teams 0.0 Pakistan 2009 2010 2011 2012 2013 2014 comprise of local language speaking wealth managers should be stationed at international banking and commercial hubs like Singapore and Hong Kong to better Number of wealth individuals (China, Japan and Total APAC) serve these HNWI. For example a Non-resident Indians 3,000.0 Total team can be stationed in Singapore to address NRI needs 2,500.0 out of India (in South East Asia).In thousands 2,000.0 China 1,500.0 1,000.0 Japan 500.0 0.0 2009 2010 2011 2012 2013 2014 Source: Datamonitor Donald Yeo - Re-evaluation of Bank’s Segmentation Approach 1
Gender, Source of Wealth, Sophistication & Life Stage Segmentation Entrepreneurship (First and second generation business owner) Sophistication Lifetime Value Income & Investments & Life stage (Build CLV models based on projected revenue contributed by (different kind of HNWI would display customers according to the type of (inclusive of property, stocks, and other instruments) different level of sophistication and instruments they will purchase, dependent on their life stage, they frequency, amount and personal would prefer different sets of asset class network, for e.g. friend referrals) for investment) Inheritance (marriage, family inheritance) Source of wealthAfter segmenting the market by geographical location, we Entrepreneurs who lack experience in investments havewould ideally want to be able to ascertain the customer different level of sophistication and also lesslifetime value with the bank. knowledgeable in financial products, they will value simple products that offers capital protection.To achieve this, we can first segment by gender, thendetermine their source of wealth to construct a profile of the Bear in mind that at different life stages, both males andHNWI. We can group them into different levels of females might have varying needs and interests insophistication and orientation. For e.g. HNWI who different types of instruments. This kind of segmentationaccumulated their wealth thru income and investments could look subtle, but as wealth management is awould have better understanding of products and hence relationship business, it is good to segment by gender asvalue information like macroeconomic insights, world equity well to offer men or women specific products. For e.g.markets outlook and other research materials to help them education trust for female HNWI might go well with themdecide on the products that they will eventually purchase. because women are historically more nurturing and always plan ahead for their children’s education. Donald Yeo - Re-evaluation of Bank’s Segmentation Approach 2
Why segment like this ? Why do we segment like this? The need for personal relationships Based on a recent survey by Datamonitor, HNWI want better Investment portfolio performance personal relationships with their wealth managers. On top of their needs also include good investment portfolio performance as Where are the investments opportunities ? well as advisory information on the various investment Expressed needs of HNWI opportunities available in the market. (source: Datamonitor) By segmenting in such a way (geography, gender, source of wealth, life stage, sophistication & orientation), we are able to 1 > 50% of clients have face to face contact with address the needs more accurately as depicted in the survey. relationship managers less than once every Different country have different profile in terms of needs, one clear quarter example, Singaporean HNWI have lower need for tax advice than their region peers because of Singapore’s transparent and efficient taxation system. 2 What clients want to discuss 1. Performance of their overall portfolio (56%) In the segmentation process, the bank can also identify the most 2. Where the investments opportunities are profitable group of customers (based on the CLV) and create the now (53%) necessary positioning for the target group(s). This will help in the 3. Portfolio allocations (44%) overall process in the process of acquisition of new customers and even client retention. 3 Typical needs of a HNWI (vary by country) We can utilize the set of information of our segmentation to 1. Asset management services develop intimate customer relationship and understanding, and 2. Tax advice using these to build models for the CRM. 3. Inheritance advice 4. Simple transparent investments Insights “Sophisticated” clients buy products & services (1) “Unsophisticated” clients are sold products & services (1) source: Oliver Wyman Donald Yeo - Re-evaluation of Bank’s Segmentation Approach 3
Implementation Consideration Develop suitable Drives superior Achieve better client offerings proposition performance Deep understanding of clientsSteps BottleneckTo implement this, investment in a proper technology Without strong participation from the WM, it is difficult toarchitecture is needed. Private banking systems deal with a get enough insights to make the segmentation a success.lot of highly sensitive and confidential data which every Another main obstacle is the ability to collect useful data.bank should protect for its own interest. In view of this, high Hence, a reliable market research agency is needed tosecurity standards need to be in place. provide valuable insights in this area to facilitate the segmentation exercise.Once the technology problem is solved and data has beeninput to the Business Intelligence system (with masked As the motive of segmentation is to help the bank indata), the segmentation can then be carried out. A identifying potential customers, a strong team of wealthsophisticated Customer Relationship Management (CRM) managers need to be built to help manage the potentialsystem is needed to help improve the bank’s intimacy as influx of customers. (Competition for talent is gettingwell as calculating CLV of the customer. more intense in this region in recent times).Apart from this, to ensure the segmentation exercise works, A key point not to be forgotten is that the bank shouldwealth managers (WM) need to be educated that the improve communications with customers by creatingsegmentation process is to help the bank to build deep multiple touch points and ensuring customers have easyunderstanding of the clients, thus able to develop suitable access to contact the WM. Strong understanding ofclient offerings that will in turn increase their personal clients will enable the bank to improve the quality of itsincome. segmentation.Donald Yeo - Re-evaluation of Bank’s Segmentation Approach 4
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