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Get Ready To Tackle That Summer Beach List
Ralph Rosynek -
The Reverse Review Magazine
September - 2010 -
I’m a Reverse Mortgage Originator and Damn It, People Like Me
Michael Manfred -
Cost Effective Reverse Mortgage Marketing 101
John Sorgenfrei -
Winning Battles While Losing Wars
Jonathan J. Neal -
Reverse Mortgages: An Originator’s Tale
Sue Haviland -
Get Ready To Tackle That Summer Beach List
Ralph Rosynek -
The Reverse Review Magazine
September - 2010
Remembering Our Customers’ Needs - A Treatise on Reverse Mortgage Marketing Segmentation
Monday, 01 February 2010 17:47
Traditional performance marketing and lead generation is all about the numbers. No surprise there. Ask any direct marketer about how to close sales, especially in the reverse mortgage space, and they’ll tell you just that: it’s a numbers game. Direct mail, telemarketing, TV marketing and internet leads all boil down to source cost, conversion rates and eventually, cost per acquisition. Want profits to go up? Lower cost per acquisition, which means increase conversion rates or decrease lead source costs. Want volumes to go up? Buy more leads or try a new type of direct marketing, but keep conversion rates the same or lose profit! This is nothing new—it’s how virtually all performance marketing works.
It makes sense too! Performance marketing and lead generation are very elegant ways of allocating and spending a budget. They are clean, simple, straightforward and go back to the dollars and cents. You can track performance, compare vendors easily, test results, drive better performance, measure it and then rinse and repeat. It’s easy to understand what’s happening to your investment. Let’s face it: branding campaigns are a challenge. Spending on advertising which isn’t measurable is difficult at best and can be wasteful at worst. Our industry wasn’t built that way and while we desperately need some large branding campaigns, it’s tough for any one to pioneer those efforts. But somewhere, between the CTRs -Click through rates, and the ROAS -Return on Ad Spend, and the CPA -Cost per acquisition, we’ve forgotten something.
We’ve forgotten the human; the human who could be our grandmother or father, the human who may be dealing with a challenging medical situation or living with a sub-optimal retirement. Every human has become a row in an excel spreadsheet, a lead we need to buy from Vendor X or a “non-converter”. And while our industry was built around direct marketing, ask any Reverse Mortgage loan officer and they’ll tell you: this is the most human of all businesses. This business is all about the person: who they are, what their situation is, their family, their fears, doubts, needs and on and on. Most direct marketing and lead generation almost completely misses the question of “who?” The numbers game requires that you buy 100 leads of different types, call them and some portion will convert. It never goes under the surface to ask,“why did they (or didn’t they) convert?”
So how do we solve this problem? How do we maintain the elegance of quantifiable marketing spend while not forgetting that our buyers are actual people. We can’t know everything about everyone we talk to in the performance marketing business. We can’t quantify every issue and think through all the reasons. It’s nowhere near as efficient as the current system. So where do the numbers of performance marketing tie back to the who, the what and the why?
The answer is in building a marketing segmentation. Specifically, a needs-based marketing segmentation. Most people are already somewhat familiar with marketing segmentation: take a bunch of people, split them up into groups where there are similarities and market to them in the same way, or sell them similar products. Reverse mortgages, after all, are the children of a marketing segmentation activity. Someone a long time ago asked, “What financial product would people over the age of 62, with greater than 50% equity in their homes want?” The answer was reverse mortgages and the rest, as they say, is history. Grouping similar people together sounds straightforward, but in fact there are a host of different ways you can go about doing it and some are better than others. So what are the major types of marketing segmentations? What do the ”experts” use? How can they be used to improve current performance marketing efforts?
That’s what this article is all about. Marketing segmentation is the process of taking a group of consumers and dividing them up into similar groups in order to improve marketing, positioning, product design or other factors related to selling. By splitting consumers into groups, you gain a lot of insights into the customers and improve your overall strategy. Basic segmentation requires creating a number of separate groups which when added together are all encompassing. Once you segment the market, you can better understand which areas are underserved and which are overly competitive. The science of marketing is first segmentation, then targeting - choosing which segments to go after and then positioning - deciding what marketing mix and messaging to reach the segment with.
While there are many types of segmentations, the three most common are demographic, behavioral and needs-based. Using all of them is important. Understanding each and its relevant shortcomings are also important. So let’s take a look at each type of segmentation, highlight its importance and point out some shortcomings to remember. To keep this simple, fun and entertaining, let’s use the example of beer drinkers.
The first type of segmentation is the most common: demographic. This is also the easiest to perform and quickest to implement. Demographics are any of those factors that you’d hear a police officer use to describe a suspect: age, gender, race, or religion. Additionally, demographic can include income, occupation, education and a host of other factors. It’s anything objective used to describe a person. It will tell you critical factors about the person you are marketing to and give you a number of clues about this person and generally paint a real picture; and for a direct marketer, it can be very powerful. For example, simple data will show us that someone 70+ years of age is far more likely to convert than someone below 70 years of age. Where we focus our lead generation activity and which leads we focus on converting can and should be a part of bringing both science and the human into marketing efforts. Using the same example, wouldn’t we want to call a 70+-year-old prospect more times than a prospect below the age of 70? So what does a simple demographic segmentation look like for beer drinkers? Let’s keep it simple: age, gender and income level. Let’s make five segments: Young Males; Young Females (income not important for younger people); Older, Rich Males; Older, Poor Males and Older Females (again, income not as important. As you can imagine, a campaign which just touts beer will not resonate with all of these groups. Young males like the excitement of football and cheerleaders and a simple, cheap product like Bud Light. Older Females, on the other hand, might like the sophistication of Stella Artois. Using a few simple demographics and creating simple categories has already improved our marketing efforts.
So what’s the challenge with demographic segmentation? First off, it’s implicit. It requires us to use averages and assumptions to determine what a consumer actually wants. Using our beer example, there are probably a number of older females who enjoy Bud Light but we’ve assumed this to be untrue. Like lead generation, demographic targeting ends up being a numbers game. Let’s look to a more poignant example: using demographic analysis, I find my perfect customer. He was born in 1948, is a male and of British nationality. He’s affluent, on his second marriage and comes from a well known family. Clearly, there can only be one of this customer, right? Wrong! These factors perfectly describe TWO people: Prince Charles and Ozzy Osbourne! Clearly, demographically speaking, these two are twins, but it’s also obvious that they are worlds apart. Their consumption, needs, desires and behaviors are vastly different.
So what about behavioral segmentation? This, too, is a tool with significant value to a marketer. Behavioral segmentation aims to split consumers up by observed decisions they have made or their attitudes and usage towards specific products. By understanding a consumer’s behavior, we can better understand how to reach them and we can add another layer of intelligence to our direct marketing efforts. For reverse mortgages, a straightforward behavioral segmentation would be the payment type a senior would be most likely to select. Those looking for an annuity stream versus those looking for a credit line are very different. The lead is different, the script used to call and the pivot point of the call would all be very different depending on how they answer the question around payment type. Perhaps a better behavioral indicator would be “readiness to buy”. Is the consumer just getting information, are they comparing price quotes or are they looking to close a deal? Behavioral segmentation and understanding the potential segments and their issues, presumably, would bring back human elements to our consumer base and thus allow us to better reach these people. What’s a behavioral example for beer? The most obvious might be usage. At its simplest, there are heavy drinkers (>10 cans per week), medium drinkers (2-10 cans per week) and light drinkers (<2 cans per week.) Without a doubt, we’d want to market and reach to people differently depending on what we believe their usage patterns to be.
So what’s the challenge with behavioral segmentation? Again, it’s implicit. It tells us what the customer is doing but it is the “what” and not the “why”. We can attempt to segment by these factors and it will allow us a better understanding of our client, but it doesn’t “hit the nail on the head”. Similarly, it can lead to confusion. We understand what a customer has done (e.g., filled out a lead form) and perhaps that sends us a signal. But we don’t know why they have filled out that form (e.g., their child made them). This last part is the critical shortcoming. For example, two customers may both want a lump sum loan payment. However, the first one may need it for critical medical expenses while the second wants to re-model their second home. Focusing solely on behaviors, we could miss the mark in our marketing efforts.
The last type of segmentation is a needs-based segmentation. A needs-based segmentation, while often times the hardest to gauge, is the holy grail of market segmentation. It answers the real question: why is the consumer doing what he or she is doing? What’s the motivation behind the activity at hand? This is an absolutely explicit understanding of the consumer. There are examples aplenty. In our world, why does our consumer need a reverse mortgage? Is it to re-model their home or to pay for healthcare? Is this a situation where they need cash or just some extra spending money? Again, why did they inquire? Did their son or daughter make them inquire or do they genuinely need the money? Understanding the difference will improve lead generation, conversion and customer service. In marketing speak; it gives us the deepest insight for designing and selling our value proposition. At a company level, it allows us to be forward looking (i.e. what is the potential as opposed to what we already know). To go back to our beer example, let’s try to understand why people may drink beer? Some like to binge, some enjoy the taste, some are social drinkers, others are connoisseurs. Regardless of how much they drink or their age, social drinkers are social drinkers. They do it “once in a while” typically at a party or some kind of gathering. Taking that fact about a consumer gives us real insight into them and allows us to explicitly target them.
So which segmentation type do we choose and how do we use it? First, a few more pieces of advice: Marketing segmentation is an art and a science. Most likely, the successful segmentation exercises will be a combination of the above types mentioned (statistically speaking, a needs based + demographic segmentation is usually the most precise and successful). In addition, it is easy to go crazy with segmentation and to find oneself frustrated with data and with too many meaningless segments. So remember, segments should be: identifiable, accessible, substantial (large), have unique needs and be durable (not like fashion trends). Remembering these tips will improve your overall strategy, bring humanness back into marketing and eventually, reduce your cost per acquisition.
So now what? We understand market segmentation but what is next? Of course, there is no silver bullet, but starting to think and understand how to divide consumers in a way that gives us better insights into them is the first step to bringing “marketing intelligence” to our performance marketing efforts. As we have surveyed the lead generation space, we find it difficult to understand how someone can call themselves a marketer and not take segmentation (and later targeting and positioning) into account as they run lead generation campaigns. Whether TV, phone or Internet based, marketing segmentation is one of the building blocks of any campaign. For us, segmentation and then research, is the starting point to anything we do. It forces us to think beyond the numbers and remember that these are people and the more we remember the who, the what and the why, the better our chances are of reaching them.
