Strategic options for customisation

There is a need for banks to develop strategic options to satisfy the needs of customers spread across different segments

In the previous article, we talked about the need for banks to customise their products and services according to different types of customer segments. In this article, we discuss the various strategic options that banks should consider while targeting a particular segment.

Banks need to examine the economies of serving a particular customer segment and the specific needs of that segment keeping in mind their current skills and strengths and the competencies to be developed. Banks can choose to offer their services to more than one segment based on the match between their capabilities and growth objectives.

Strategic Options

McKinsey identified 3 models to help banks to select target segments. These models are:

Focused strategy

This strategy concentrates on a single segment, which is feasible with the available resources. The frontline staff and back office are trained to meet the needs of the select segment. For example, South Africa's Standard Bank decided to target low-income groups. It provided information about personal loans, savings accounts and debit cards in a clear and simple manner to customers. Customers were also given assistance to use ATMs. The result was that the bank was able to attract 2.5 million customers within five years.

Single system, multiple brands

A single back office along with different channels helps the banks to serve different segments. For example, Singapore-based DBS Bank has different branches and ATMs for low risk and sophisticated products. The high-risk products are offered under the DBS brand name and the low risk products are offered under the POSB (Post Office Savings Bank) brand name, which is a subsidiary of DBS having huge customer base.

Alternatively, a bank may create separate units with distinct brands. Banco Comercial Portugues adopted a similar strategy by setting up separate units, rather than by acquiring another firm. It has ten different products to cater to different segments.

Blanket strategy

Sometimes, a bank uses a single back office and front-end to offer different products under a similar brand name. This is the most difficult approach for the bank, as through the same office, it has to serve several customer segments. This requires world-class skills and few banks can succeed with this strategy.
For example Citibank offers different products using a common brand name Citi. The CitiGold product is open to individual customers having assets worth more than $100,000.

Conclusion

Banks can effectively target a specific group of customers, and provide tailor made products, through segmentation, and adoption of a strategy that is in line with its strengths.

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