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Segmentation: Build for Future Growth Before Someone Else Does

by Anu

There's a solid stack of data that says the single most important endogenous variable in determining a firm's profit is that firm's investment in marketing and sales. So it was a surprise to me that more than three-quarters of the marketing executives we interviewed for "Service by Segmentation: Matching Service to Advisors" said that while they recognized the value of segmentation, they didn't actually do it.

When asked why, they usually cited lack of data -- either they can't get it, they can't get data they can use; or when they can get it, they can't execute on it. We know, anecdotally, that there's some basic segmentation going on in the intermediary channel, because occasionally, we talk to each other about it, but we also know that segmentation, which is an absolute given in every other branch of financial services (to say nothing of other, even more advanced segmented industries like consumer packaged goods), is still an optional and not a mandatory first step.

Like a lot of other aspects of asset management, we suspect that this is nothing less than inertia from an old way of doing business, in this case, specifically, treating advisors as a monolithic group. Everybody knows that advisors vary wildly in their business needs, attitudes, preferences, and behaviors, but for decades now, the US asset management industry has been able to make money without differentiating much from the 54-year-old advisor in Sheboygan with the mostly suburban, white collar household clientele, versus the 34 year old in mid-town Manhattan with a portfolio full of single career professionals on the brink of 7- and 8-figure salaries. We think the fluid competitive landscape is going to push a change here: very complex firms deeply acculturated in data-driven segmentation are going to change the playing field for the incumbents, and we want to get in front of those conversations.

"Service by Segmentation" is kasina's point of departure for these discussions: How does the modern asset management firm organize a segmentation scheme to optimize its research, marketing, and sales dollars? How long does it take, how much does it cost, how do I procure the budget and the mandate? What's the return for us? How much data do I really need to protect or grow my margins? If your organization hasn't asked these questions lately, the time is now. The winners in the next decade will lay the groundwork in the next few years.