To Segment Small-Business Market, Psychoanalyze

Though banks are just now becoming interested in micro-marketing, their competitors and companies that focus on a single product line are already deeply involved in psychographic and behavioral segmentation.

But what about your corporate market? Is simplistic segmentation by size and industry all that can be done?

Absolutely not.

When I was still a consultant, I was involved in the segmentation of a very large institution's small-business client base.

We found that the profit potential of a small-business client can be determined using certain objective and subjective indicators.

In retail banking we try to segment customers by their needs and propensities - to identify profit potential and determine the most appropriate and efficient product and delivery channels.

We recommend the same strategy in the corporate market.

The result, as in retail, is a tiered product line and tiered service levels.

One secret to making retail customers profitable is to improve efficiency and cost effectiveness in serving those who offer less profit potential. With recent innovations in delivery systems and technology, this is an achievable objective.

In a recent study we found some key aspects of a small business that make a great difference in its potential as a banking customer. Here are some examples:

The age of the chief executive. Younger CEOs tend to be more aggressive, forward-thinking managers and therefore are likely to have bigger corporate (and personal) banking needs. Their companies are much more likely to grow and prosper.

Involvement in exports. Small businesses that have an export component in their customer base are much more attractive long-term than those that do not.

The presence of a chief financial officer. Many small businesses operate their financials out of a shoe box. Some, however, invent the resources to have a chief financial officer. Those that do are more attractive bank customers.

The education level of the chief executive. More than other businesses, small business are reflections of their management.

Strategic focus. Small businesses that have a clear mission and know where they are going are much more likely to prosper.

Strategic direction. Some small businesses have acquisition plans; some plan to achieve internal growth. There is a great difference in their attractiveness as banking customers.

Ownership structure. Family-owned small businesses are less attractive. The characteristics of the chief executive can help you predict whether a company is likely to go public.

These and other characteristics can be combined to segment your small- business client base, separate the wheat from the chaff, and develop product lines and service programs that serve each segment at a profitable level.

The banking industry faces many challenges in serving its retail market, but those in the small-business and middle-market segments are equal or even greater.

At this point, no company is too small for most banks, including money- center banks. All of us are going after the same customers.

How are we going to determine where we should invest? How do we customize service levels and product lines to add value for specific segments?

By using psychographic segmentation.

Ms. Bird is chief operating officer of Roosevelt Financial Group, St. Louis.

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