David Fox and Karen Payne: An alternative segmentation strategy

Client segmentation is now common practice in many financial planning businesses.

However, according to ThreeSixty Business Development and Consulting specialist consultant David Fox, the basic segmentation model most advisers use has, in most cases, failed to deliver expected increases in operational efficiency.

Fox, along with MLC Business Development and Consulting business development consultant Karen Payne, will present a session at the Financial Planning Association conference in which they will propose an alternative segmentation strategy that they claim can demonstrably increase business productivity.

Fox says there are a number of reasons why businesses go through the segmentation process.

“I think the most important are to eliminate that common practice of delivering the same level of service to all their clients, to deliver greater value to their higher clients, and to more effectively allocate business resources to those higher value clients,” he says.

But simply segmenting clients according to the income or revenue they generate for the business very often results in the business still continuing to try to deliver all things to all people and failing to improve efficiency.

Fox says higher operating costs, skills shortages, and the rising expectations of employed planning professionals to take equity in the businesses for which they work, have started to put pressure on the original owners of financial planning practices to operate efficiently in order to maintain and improve profit.

His work in consulting to financial planning businesses has led to the refinement and expansion of the segmentation model to not only group clients by the value they deliver to the business, but also according to specific groups or “target markets” the practice aims to service.

“We start with those narrow groups of clients that the business really wants to work with. That becomes our first stage of the segmentation model,” Fox says.

Examples of this level grouping could include members of a specific profession, such as doctors, small business owners or executives from the corporate world.

“The second stage is to look at the life stage and mindset of those target markets,” he says.

These “life stage and mindset” groups are essentially split according to the age of the target clients and this level of segmentation overlaid across the main target market.

Grouping the clients according to their value to the business forms the third and final stage of the segmentation model.

“We’ve got a more sophisticated, more detailed segmentation model,” Fox says.

“By taking those extra steps, it is our experience that the business does benefit from focusing on the clients it wishes to service. It provides them with a service that is relevant to them and the most important or high value clients in each of those groups are still allocated the appropriate resources by the business and are delivered the greater value by the business.”