Segmentation Hakan Sezik-26/5/2011

Contents 1.Today’s challenges / solutions ► Environmental conditions are getting complex and harsh ► What should we do to live in the environment ? 2.Goal of segmentation ► Definition ► Why we segment? 3.Steps in segmentation ► How to do it ► Outcome 4.Benefits of customer segmentation ► Company / Customer Benefit 5.How will segmentation affect the marketing strategy? 6.Example of a marketing strategy based on segmentation 7.The process segmenting the customer database 8.Summary 9.Nutshell of insurance business in segmentation perspective; ► Positioning ► Outcome 1

2 Environmental conditions are getting complex and harsh Today’s Challenges / Solutions Easy accessibility ( for each party, manufacturer, retailer, customer) Fierce competition Me too strategy High communicative population Y-Generation What should we do to live in the new environment? Develop attractive product? Enhance proposition? Be competitive? Invest on brand? ALL, But there are/will be more provisions to live in today’s/tomorrow’s world

3 To maintain the existence in the market and keep profitability above the market practice; “Segment customer and differentiate services / attitudes further to defined clusters”

Goal of segmentation 4 Definition Segment is defined as “Part cut off, separable or marked off, as though separable from other parts of something” in Oxford Dictionary Why we segment ? To identify groups of similar customers and potential customers To prioritise the groups to address To discover the life journey of customer groups to understand the need of customer for today and future

Steps in Segmentation 5 DEEPEN – relationships with the most valuable MAINTAIN – profitable relationships NURTURE – customers with future potential value EXIT – those which bring little or no value Outcome ANALYSE – the value that customers currently bring IDENTIFY – those which ‘love us’ by looking at their tenure and product holdings RESEARCH – speak to some customers in real detail to understand what concerns and issues they have (not just about their bank) GENERATE – ‘fresh actionable insights’ – pieces of information which no one else knows and that allow us to speak to customers about things which are important to them How to do it

Benefits of customer segmentation ► Maximise profitability – operations/marketing/sales, focused on valuable customers and prospects ► Maximise existing customer profitability – mine value from base and upgrade customers ► Effective proposition and product development – fill gaps with tailored solutions ► Campaign efficiency – relevant customer contact ► Define future value potential – nurture future value clusters ► Maximising customer engagement/satisfaction – customers are seen as individuals as the bank speaks to them about what they want ► Personalisation – tone of voice/nature of customer contact, ‘Know me as an individual’ ► Proposition relevancy – solutions that address real customer needs CUSTOMER BENEFITCOMPANY BENEFIT 6

How will segmentation affect the marketing strategy? Every aspect of the marketing, proposition and service delivery will be affected: ► CHANNELS – which do customers best respond to and trust? ► PROPOSITION – which aspects do customers value most – price, rate, value add- ons, flexibility etc? ► SERVICE – how do customers like to be serviced – on the phone, face to face, through the internet? ► RELATIONSHIP – what level of service do customers like – avoid over-servicing or ignoring valuable customers? Segmentation will drive marketing strategy and also segment specific SMART marketing objectives. For example: Love us customers – Acquire 1,500 new accounts by end of 2010 Future focus – drive down servicing costs by 20% by end of 2010, maintain 2009 customer satisfaction levels Leavers – look to exit 15% of non-profitable book by end of

StrategyServicingRelationshipCluster Lovers Immediate Value Value Generators Future Focus Leavers Recognise their value Look after Cross sell heavily Look after Cross sell heavily Nurture Retain Exit Deepen relationship Proactive Look after Treat well Do not over service Maintain Supportive Understanding Reactive only Relationship Manage FPM Virtual RM Tactical contact Virtual RM Call centre Direct 8 Example of a marketing strategy based on segmentation

The process segmenting the customer database 1.Define Internal data audit – understand current and future value 2. Cluster Use cluster analysis to create homogenous groups 3. Research Define the research requirements, speak to customers 4. Insight Use Insight 2 Grow methodology to generate insights 5. Verify Consolidate findings, check they are representative PROGRESS MONITOR/VALIDATE 9

Summary 10 Learn loop Progress Segmentation success Measure success Appropriate measurement in place: ►Test and learn ►Control groups ►Research ►Segment specific MI Define status and recognition What do they mean to prospects? How do you find this in internal data? Validate findings and insights Ensure findings are robust and continue to verify them over time Audit internal data Determine current and future value If no internal data, size prospect pool Mix quantitative and qualitative research to meet objectives Research customer/ prospects Generate insights Take time to generate fresh, actionable insights which come from the customer

Nutshell of insurance business in segmentation perspective; 11 Outcome Low insurance penetration level wrt emerging markets 1.3% in Turkey and 2.8% in emerging markets,  2 compulsory insurance products (Earthquake and Traffic Liability) have low penetration ratios, 25% and 75% respectively  Life products has significantly minor share compared to other emerging markets,  Market is dominated by high loss frequency products ( Motor own Damage, Traffic Liability, Health), circa 55%  Fierce competition had an huge impact on technical profits of manufacturers  Agency network has still the majority share in market 60% but Bancassurance has increased share by 5% to 22% during last 4 years  Positioning Huge potential for insurance industry in the next 5-10 years Lack of customer awareness, low reputation of industry Low lending ratio, high inflation,concrete effect of culture Insurance has been initiated as relation driven business, which had worked on commodity products Varying the distribution channels increased the dosage of competition Distribution channels, Financial institutions identified insurance product as a tool that ; empowers risk free income improves customer loyalty

It is sure that ; Entities own customer data base absolutely would concentrate to analyze, identify, research customer behavior to generate additional income and/or cross sale opportunity by using insurance product. 12