items Master thesis in Business and Informatics Market segmentation is becoming very familiar and essential to every marketer in the process of designing.
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- Segmentation in Financial Services Marketing
In the area of financial services alone, Harrison pointed out that ; not all services are intangible and man financial services contain tangible elements. In addition to intangibility, Zeithaml, Parasuraman, and Berry put forward inseparability concept as the second distinctive characteristics between goods and services. They pointed out that in most of the services production and consumption process took place simultaneously in an inseparable manner.
To support their ideas about inseparability concept they cited several authors like Regan , Carmen and Langeard and Upah They asserted that as Regan told goods are first produced, then sold and then consumed but services are first sold, then produced and consumed simultaneously. According to Harrison , for financial services, characteristics of inseparability may only apply to a few financial products.
As a third distinctive concept between goods and services, Zeithaml, Parasuraman, and Berry analyzed heterogeneity concept and related studies to this concept. They defined heterogeneity as variability and claimed that heterogeneity can be a problem for labor intensive services since the quality of a service can vary from producer to producer, from customer to customer, and from day to day.
They added that; as Langeard et al. Mckechnie added 2 more distinctive characteristics for services sector which are specific to financial services; fiduciary responsibility and two-way information flows. This section will both review the literature for market segmentation on general basis and also deal with the studies presented under the segmentation in financial services subject.
Goal of the segmentation was defined as solving the conflict between the intentions to satisfy customer needs as individually as possible but also to allocate marketing resources as economically as possible Wind, Within the literature, authors proposed variety of different criteria that should be met in order to talk about market segmentation.
These different approaches bunched in 6 criteria by Alfansi and Sargeant after reviewing several studies that had been presented about market segmentation Frank et al. These 6 criteria are identifiability, substantiality, accessibility, stability, responsiveness; and actionability. Another popular topic that has been discussed by the scholars is the basis of segmentation.
Alot of reseach has been made on this topic and alot of variables have put forward by academicians. Alfansi and Sargeant followed Frank et al. Frank et al. In observable general bases; variables such as gender Dickens and Chappell, ; Frank, , position in the family life cycle Wells and Gubar, ; Lansing and Kish, ; Reading, ; Jonak, , culture Joy et al.
In the financial service context, number of studies had found differences in purchase behavior between different demographics Stafford, ; Bobinski and Assar, Alfansi and Sargeant told that despite the criticisms about demographics, this concept is a popular basis for segmentation because of 2 reasons; first of all, there is an easy conjunction possibility with demographic variables with the other variables and secondly, demographic variables can easily be obtained.
Among financial services sector, when banking sector is the issue; according to Machauer and Sebastian , customer segmentation is largely limited to categories of corporate and retail customers. Within these categories; corporate customers are distinguished by their geographic range of activities regional versus international or by their sector that they are involved and being affected. In personal retail banking, demographic criteria such as profession, age, income or wealth are often being preferred for basis of segmentation Meidan, ; Harrison, In observable — product-specific bases, variables such as user status Khermouch, ; Spotts and Mahoney, , usage rate Twedt, ; Goldsmith et al.
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Most of the studies confirmed the utility of this segmentation variable when marketing the financial services. Jain et al. In unobservable — general bases, variables such as personality Evans ; Koponen ; Massy et al. In Unobservable product-specific bases, variables such as as product-specific psychographics Dhalla and Mahatoo, , product benefits Haley, ; Miller and Granzin, ; Brown, , brand attitudes Yankelovich, ; Frank et al. Of these, the importance of benefit segmentation is perhaps most well established in the literature Tynan and Drayton, ; Loker and Perdue, ; McDougall and Levesque, ; Minhas and Jacobs, and benefit segmentation has proved its usefulness in services markets Calantone and Sawyer, ; Soutar and McNeil, Benefit segmentation has also been studied in financial services context, for instance, McDougall and Levesque applied benefit segmentation in their study to retail banking and performed a cluster analysis.
They identified two customer segments: a performance segment and a convenience segment. In this part main characteristics of financial services will be presented and then segmentation in financial services will be taken into account. Financial services deals with money management. Most important sector which is providing financial service is the banking sector.
- 1. Introduction!
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In addition to banking sector activities related to insurance, investment, leasing, factoring and etc… are also located in financial services concept. As it was mentioned in literature review section of the study; according to Harrison financial services can be considered as a part of services sector and conveys similar characteristics with services sector. In addition to the 4 basic differences between goods and services which are intangibility, inseparability, heterogeneity, and perishability, Mckechnie mentioned about 2 more characteristics which are specific to financial services; fiduciary responsibility and two-way information flows.
About inseparability concept, it can be told that; since the basic premise of this concept is service is produced and consumed simultaneously in services sector, when financial transaction like saving account basically putting money on a bank and taking the money with an interest paid after a certain maturity is considered, the premise of inseparability concept vanishes Mcgoldric and Greenland, Since most of the customers chose to interact with the tellers in the branches, it can be told that financial services are people-based and this characteristic increases the variation of the service standard in a financial institution.
But also when the technology that is being used in financial services sector is taken into account, it can be told that financial services are also equipment-based and this characteristic decreases the variation of the service standard and provides more standardized service quality through different channels like ATM, online branch and etc… Another concept that should be analyzed is perishability. Although there are several transactions occurred in financial system which must be considered as perishable, there are also examples which show that not all of the financial services are perishable.
In addition to these 4 common characteristics with services, financial services have 2 more characteristics according to McKechnie and Harrison ; fiduciary responsibility and two-way information flows. Also when such processes like visiting branch, using ATMs and etc… are taken into account, it can be asserted that financial services transactions take place in a two-way form.
Institutions can use this factor on their advantage by collection information, data and feedbacks through these two-way interactions. As Harrison implied; to sustain systemic stability, to maintain the safety and soundness of financial institutions and to protect the consumer regulation is applied to financial services. Secondly, when the prices of products and services are compared, it can be told that pricing in financial services is more complex than regular services sector.
Ehrlich and Fanelli considered financial services as both goods and services. When separability many financial products can be separated from their consumption , lack of perishability Unlike a dinner reservation, a credit card will be there when the customer wants one and mass production some financial services like college savings accounts can be mass-produced and mass-marketed are taken into account, financial services can be considered as goods. At the same time, when low cost of entry There is little or no cost to manufacture to create a new financial product , speed to market after structuring the financial services, they can be distributed as soon as the ink is dry on the offering plan and lack of exclusivity financial services can be duplicated easily production are taken into account, financial services can be considered as services.
Since there are several unique characteristics that financial services involve, marketing of financial services is a unique and highly specialized branch of marketing and involves unique characteristics. For instance, constructing the marketing mix is much harder in financial services marketing compared other forms of goods and services marketing.
In consumer goods marketing, a marketer can easily target consumers and position the brand with the confidence that all samples of their products are manufactured to be the same. However in financial services marketing, a marketer cannot assume the same and since the experience that customers have differ from employee to employee and from day to day Ehrlich and Fanelli, Marketers may face several unique problems in positioning and promoting financial services offerings because these offerings are intangible Kanuk and Schiffman, Furthermore, because of the specialization and customization in the sector, in order to meet the needs of customers, financial services marketing started to be more complex and challenging, comparing to other forms of goods and services marketing.
In addition to these unique characteristics Ehrlich and Fanelli put forward some more key aspects that financial services marketing involves as the followings:.