Segmentation in the Twenty-First Century: Financial Behavior of the VALS™ Segments MacroMonitor Marketing Report Vol. VI, No. 9 June 2004

As the retail financial-services industry continues to evolve—with changing regulations and economic conditions, ongoing merger-and-acquisition activity, shifting channels and technologies, developing products and services, and expanding institutional images and brand perceptions—consumers are becoming more multidimensional. Historically, the financial-services industry has segmented consumers on the basis of age and income, typically within a single product area.


EVOLUTION OF TRADITIONAL "MULTIDIMENSIONAL" CONSUMERS

Evolution of Traditional 'Multidimensional' Consumers


Frequently needing to target increasingly smaller consumer populations, many financial-product managers must find meaningful measures by which to identify pockets of opportunity for their company's products. Traditional measures such as age and cohort have evolved to become life-stage, lifestyle, or life-event segments. Identification of key consumer segments for individual products or services has morphed into segmentation on the basis of consumer financial needs as financial products and their providers become more interchangeable. Income alone no longer indicates a qualified customer, not only because of the growing retired segment whose lower "income" derives from assets, but also because of business owners and employees with stock options who are "invested" in their companies. Even measures such as investable assets and net worth are insufficient differentiators by themselves because having $500,000 has different meanings in terms of wealth, its management, and the potential to generate fees if someone is about to retire compared with just finishing college or entering assisted living.

A more integrated approach for financial institutions to bundle offers or heighten cross-selling efforts and develop long-term relationships with more products per household and hence greater retention remains the holy grail for financial institutions. Other dimensions have created effective segmentations for financial services. Such dimensions include:
  • Toleration for investment risk and expectations for return
  • Channel and interface preferences
  • Time spent managing finances, trust in institutions and intermediaries, and amount of control resident in the household or shared with financial professionals
  • Self-reliant consumers, validators, and delegators
  • Consolidation and aggregation versus diversification.
MacroMonitor subscribers have the advantage of being able to factor into their segmentations—in addition to all the variables above—financial attitudes such as willingness to take risk and channel preference. Also in the MacroMonitor is a proprietary marketing segmentation: VALS. Combining information from the MacroMonitor and VALS, this report provides an overview of the financial characteristics and behaviors of the VALS consumer groups. The data show that consumers in these different groups exhibit very different patterns of financial behavior. Financial institutions concerned with designing acquisition and retention strategies, increasing the effectiveness of marketing efforts, and developing a competitive advantage in today's increasingly complex, multidimensional marketplace can use these insights for a wide variety of critical-path applications, including target identification, product development, and communications initiatives.