Customer segmentation refers to the strategy of dividing customers into groups based on characteristics to better tailor messaging and communicate to each audience. These characteristics might include the type of debt, amount of debt or location.
It’s important for collections departments to segment customers because they have complex differences. Each customer is in a different collections stage and a unique financial situation. Segmenting resolves obligations in a way that resonates with customers while improving collections rates.
Continue reading to learn the four steps to implementing customer segmentation at your organization.
Step 1: Centralize Data
Before you begin segmenting your customers, you need to have your data in one place. Centralized data provides a comprehensive view of each individual customer and their behaviours. It also increases collector efficiency.
If you don’t centralize your data, it is easy to overlook customers and important information. Not to mention, the time it takes to sift through data has a negative impact on productivity.
Step 2: Determine Segmentation Criteria
Once all data is centralized, you can determine how to segment your customers. All institutions segment for different reasons, and will have different segmentation criteria. Depending on your business, there are plenty of different factors to consider, including:
- Amount of Debt
- Behaviour (willingness to pay off debt, ability to pay off debt, attitude toward collectors, etc.)
- Income Level
- Number of Debt Obligations
- Type of Debt (car loans, credit card, utility bills, student loans, etc.)
All these factors help paint a picture of the individual who owes. They will help you gain a better understanding of the individual’s current position and how you can advance the debtor in the process. These factors also help collectors make the right offer at the right time, improving results and preventing cases from worsening.
Step 3: Segment Customers
When determining the criteria in which you want to segment your customers, it is most effective to use collections software. The software makes it easy to log, track and implement all the behavioural and risk criteria you need for effective segmentation. Manually, this process would take significant amounts of time and money. The software automates it so you can better understand customer needs and act upon them.
The best solutions on the market offer:
- Ability to contact customers via SMS, email and mobile app messages.
- Powerful analytics.
- Risk assessment models.
- Easy implementation.
- Features that cover the full debt lifecycle.
- Workflow and document management.
- Thanks to these features, a software solution makes segmentation clear, easy and actionable.
Step 4: Take the Right Approach
Each segmented group has specific wants, needs and methods of accessing solutions. Develop a plan to take the right approach to your target markets.
For example, the modern debtor expects solutions available 24/7. They use different online channels (like mobile, social media and self-service options) and carry multiple debt obligations. Collectors need to approach these debtors differently than individuals who went delinquent on a debt they took out 20 years ago.
When devising plans for how to approach your target markets, ask yourself:
- What type of debt does this customer owe?
- How much are they willing/able to pay off?
- How do they typically manage their finances?
- What social media outlets do they prefer to use?
Conversations with each type of customer require you to use a different tone and have specific goals in mind. Draft communications scripts to ensure your organization is making the most of its segmentation efforts. You’ll tailor messaging better, collect more and reduce the number of cases that move to delinquency.
Organizations can begin segmenting customers and improving collections results with a self-service solution. For more information on how your organization could benefit from a self-service solution, download our free guide.