Consumer Market Segmentation

ABA Banking Journal, November 1997 | Go to article overview
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Consumer Market Segmentation

In order to gain additional insight into the retail consumer banking market, an analysis of the survey data was performed to obtain a set of market segments, defined in terms of distinct values and attitudes towards the banking industry.

The segmentation framework was derived through the statistical technique of cluster analysis. This technique examines correlations between responses to a set of attitude-measuring questions. It identifies groups of consumers who respond in ways that most clearly distinguish them from other groups.

Several cluster solutions were tested, and four were selected. Two groups are defined in terms of banking behavior ("pragmatists" and "technology adopters"), and two in terms of their attitudes about banks and their investment behavior ("favorables" and "critics").

Survey Methodology

During February 1997,1,200 telephone interviews were completed with consumers at least 20 years of age--1,000 of the interviews were with consumers who indicated they use a bank; 200 were with consumers who do not have any interaction with a bank. The national sample for the survey was provided by Survey Sampling, Inc., and the telephone interviewing was conducted by National Research, Inc.

The margin of error (at the 95% confidence level) for this study is plus or minus 3.2 percentage points for the bank users and plus or minus 7.2 percentage points among the nonbank users. (That would mean, for example. that a change in response from 87% in 1994 to 80% in 1997 for nonbank users would not be statistically significant because it falls within the margin of error.) When comparing the two samples, the margin of error is approximately plus or minus 6 percentage points.

Mathew Greenwald & Associates, overall manager of the survey, is a full-service market research and consulting firm that specializes in financial services. The firm's president, Mathew Greenwald, has more than 20 years' research experience. Prior to forming MGA, he served for eight years as the director of social research at the American Council of Life Insurance. MGA is based in Washington, D.C.

Cluster 1: Pragmatists

32% of the market

This group is distinct from the others by being defined more by basic issues of bank functionality and limited financial sophistication. Its constituents are:

* Least likely to say they research an investment before making a decision;

* Least likely to consider themselves a knowledgeable investor

* Least comfortable using an alternative method to obtain a consumer loan.

On most attitudinal statements, they are "somewhat favorable," with few strong opinions. Other attributes of Pragmatists include the following:

* They have a somewhat lower educational profile, and are marginally less likely to be single than consumers overall;

* Females make up 60% of this group;

* The age distribution is weighted towards those over age 50, although this difference is at the margin of statistical significance.

* The income distribution of the Pragmatists is similar to the overall consumer base, with a slightly higher share in the $15,000 to $24,999 range (most likely reflecting the older portion of this cluster, relying on Social Security income);

Primary financial institution
                                        This cluster   Overall

Bank                                         67%         66%
Savings bank/S&L                             11%         11%
Credit union                                 18%         18%
Other                                         3%          4%

Favorability towards banking industry
Very favorable                                9%         15%
Somewhat favorable                           64%         58%
Not too favorable                            21%         20%
Not at all favorable                          6%          7%

Cluster 2: Technology Adopters

22% of the market

These consumers are defined by their attitudes towards technology.

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