It’s easy to fall into the trap of thinking about your customers as one solid group. In a macro sense, they are—after all, they all purchase goods or services from you. However, that’s essentially where the similarities end.
When it comes to collections, past-due customers can be divided along a number of criteria: demographic details, their contact preferences, their purchasing habits, and their repayment history (among other things). And while no two past-due customers are exactly the same, you’ll find that many share similar characteristics—and so they warrant being treated similarly.
So how can you group similar customers together before creating targeted collections strategies that are most likely to succeed? With the help of segmentation.
We’re going to explore what segmentation is, the benefits that it brings to businesses, how segmentation can help you differentiate yourselves, what segmentation looks like for collections agencies, and the potential return on investment that you can expect.
What exactly is Segmentation?
According to Shopify, “Customer segmentation is the process of dividing customers into groups based on common characteristics so companies can market to each group effectively and appropriately.” When done effectively, segmentation allows you to:
- Devise tailored communications strategies targeted at different groups of customers.
- Build closer customer relationships through more accurate (and therefore more welcome) communications.
- Improve the customer experience.
- Be more profitable, focusing on strategies that are proven to work rather than focusing on one-size-fits-all approaches.
Why it’s so powerful
First, segmentation dramatically improves the customer experience (CX). Efforts to improve the CX always pay dividends—in fact, it’s been shown that a 1% increase in customer satisfaction leads to a 2.37% increase in return-on-investment. However, segmentation alone is just the first step. It’s all well and good dividing up your consumer base according to shared characteristics, but if this doesn’t inform how you treat each segment, then it’s all for nothing.
Therefore, segmentation needs to be followed by appropriate action. The characteristics of each segment should guide how you ask for repayment—in other words, your digital outreach strategies.
Let’s take a simplistic example. 69% of millennials enjoy being able to resolve issues themselves and think highly of companies that make this possible. Conversely, 70% of boomers would rather resolve an issue by speaking to an employee. This means that you might send out a nudge to your millennial past-due customers that includes a link to a self-service repayment portal. For boomers, however, you might think about redirecting them to your customer service team/payments department.
Not only does segmentation improve the customer experience, but it also helps your brand stand out in an increasingly noisy world. We all have companies whose incessant, unwelcome emails litter our inboxes. For instance, you might be bombarded with emails about applying for a mortgage when you’ve just taken out a student loan. Not only do these messages miss the mark, but they also demonstrate that you’re just one of many customers—your individual context doesn’t matter to the company.
What might Segmentation look like in Collections?
There are multiple ways that you can think about segmenting your past-due customers. These include (among other potential factors):
- Overall amount of debt.
- Previous payment history.
- Days past due.
- Contact channels.
However, the best results generally occur by combining both quantitative data (age, gender, etc.) with qualitative data (values, interests, past behaviour, etc.). This will help you ensure that you reach the right customer, at the right time, on the right channel, with the right message.
By drawing upon all available data and segmenting customers accordingly, you’ll have a clear picture of who your customers are. You’ll know which customers owe what, when their repayments are due, which have a history of avoiding payment (and will require more effort as a result), and which channels work best for each segment.
This will help you avoid ineffective, time-consuming, and expensive efforts. Instead, you’ll be able to craft strategies that are proven to be most successful for each segment. Artificial intelligence and machine-learning algorithms have a crucial role to play. They’ll help you segment, craft, send, and test your outreach strategies with minimal effort (or cost) required on your part—yet will bring maximum impact.
The expected return on Investment
Of course, the precise return on investment depends on a variety of factors, including your consumers themselves (and their willingness to repay) as well as your outreach strategies. That being said, the very process of segmenting consumers and tailoring your outreach accordingly will in itself be incredibly beneficial—even if your strategy is slightly lacking.
Indeed, according to McKinsey, machine-learning based segmentation saw one European bank reduce its 90-day-or-more portfolio by a staggering €100 million. What’s more, they experienced €50 million in fewer past-due entries and reduced past-due volumes by 10% across the board.
Segment your way to Success
The era of mass communication is over. Successful organisations realise that their consumer base is far from one single entity—instead, it consists of multiple groups all with different contexts, preferences, values, and behaviours.
This is a cause for hope, not despair. After all, companies can now use all their customer data to create multiple segments. Manual outreach strategies can be devised according to each segment’s characteristics, thereby drastically increasing their chance of success.
Interested in learning more about how segmentation can transform your collections processes? Join us for our digital workshops on best practices in modern debt collections. Feel free to subscribe below to our blog to get the latest updates.
Jan is one of the first members of the receeve team, and has become an expert on the fintech industry, particularly digitising collections and accounts receivable processes. He is a talented multi-disciplinary professional with immense drive to bring modern technologies and processes into financial services.