Millennial Marketing is a Mistake: Exploring better methods of customer segmentation

In the Classic of Poetry, or 诗经, compiled during the Zhou dynasty sometime between 1100 and 700 BC, an unknown scribe records Chinese candy merchants using bamboo flutes to lure in children--and, presumably, their parents. Three thousand years later, millennial-specific marketing campaigns from banks and fintech companies are somewhat less successful, if no less subtle.

This is because while millennials or young consumers may be a useful demographic segment, they aren’t always as useful as a marketing segment — And there’s much better customer segmentation options for marketers and brands around the world.

Before we get started, we should mention that — perhaps unsurprisingly — there is disagreement about what actually constitutes a ‘millennial’ customer. Generally, ‘Generation X’ is that which followed ‘Baby Boomers’ and is measured as those born from roughly 1960 to 1980, while Generation Y or, you guessed it, ‘Millennials’ is measured from 1980 to 2000. Generation Z are our ‘Centennials’, or those that are 18 or under this year. Consensus seems to be forming for a new Generation A, or ‘Alphas’, beginning in 2020 since we appear to have run out of English letters otherwise. Adjusting the age range of millennial to suit a particular dataset or argument is easy, and is one of the challenges of extracting meaningful insights from these categories, so for simplicity we will use 1980–2000, or 18–38 here.

The Rise of the Millennial Market

If you’ve been paying attention to financial press in recent months, you’ve endured the latest onslaught of articles trumpeting the growing threat millennials pose to retail banking operations worldwide.

An analyst from banking research vendor Altimeter Group warned in a widely shared piece that “Millennials and Centennials represent one of the greatest disruptive threats to the banking industry”, repeating many claims from the ominously titled “Millennial Disruption Index” produced by Viacom last year. The study suggests that 3 in 4 millennials would rather bank with Google or Amazon than their current bank, and a third claim they don’t need a bank at all. Not to be outdone, customer engagement vendor Harland Clarkes 45-page whitepaper, released this month, warns that “millennials are a crucial market for financial institutions to attract, engage, and retain” and concludes that millennials “require more work by banks and credit unions to attract, engage, and retain as loyal account holders… a mobile app with budgeting features, P2P capabilities, community-giving opportunities via a branded card, a sponsored music event — while retaining traditional values of trust and service.” Even more bewildering, a UK study by Opinium showed millennials prefer investing in cryptocurrencies over stocks and bonds, FICO insisted that over 50% are using non-bank institutions like PayPal, and Deloitte warned of the deep distrust recession-scarred millennials feel towards ‘old’ banking models, adding that the majority seem to be more loyal to all things digital than their banks and would change their banking relationship for a more tech-savvy offering.

In the US, JPMorgan Chase & Co launched the decidedly hipster “Finn by Chase” targeting 18–25 year old Apple smartphone users. Via our friends over at tearsheet, the standalone and end-to-end bank app offers millennials “the option of sharing their feelings about a purchase through emojis (happy, sad or meh), and users can swipe that emoji up or down to classify each purchase as a ‘want’ or ‘need.’” Finn joins Simple from BBVA, Ally, Greenhouse from Wells Fargo, and Fintech offerings including Chime, Acorns, Moven, and many other wallets and cryptocurrency products targeting the elusive millennial consumer. Amex took time during their ‘Investor Day’ this month to talk about millennials unique connection to the metal Amex platinum card over flimsy plastic cards.

Cause célebre of marketing strategy meetings for more than a decade now, young customers are driving the positioning of everything from mobile payment products and banking apps, to loyalty programs and fancy AI tools. They are the focus of breathy ‘Millennial Summits’, infographic-heavy whitepapers, and much hand-wringing from bank executives around the world.

Why Millennial-First Always Comes Last

Despite all this, common sense — and your nearest available millennial — suggest two things:

1. Young people are much less valuable to financial institutions than more mature customers who use financial products and services more frequently
2. Mobile payment products and digital services are more successful when they are designed and directed to all customers, rather than any one narrow demographic segment.

Examining the first premise, most executives would agree that while millennials may be highly desirable to retail banks and brands, they are much less valuable than older bank customers today. Not only are young people likely to use fewer financial products and services, they are likely to spend less in general. Using U.S. spending data as a rough example, customers that are over 35 are seven times more likely to buy a car, three times more likely to take vacations, and four times more likely to go on business trips then millennials are. A study by the World Luxury Association in 2014 found those 65 or older purchase 17 luxury items for every one purchased by any customer younger than 25.

Looking at the second point, where marketing departments often make a mistake is in not just positioning new products like mobile payment accounts based on age, but targeting those new products based on age. Often the imagery and ad campaigns that are created to be “aspirational” by featuring young people using a banking product or service can end up banished to Instagram or otherwise only targeted to a banks youngest customers. If the objective of adding mobile banking services to a portfolio is to increase transaction volumes, active accounts, or brand engagement, why do so many banks limit their marketing to only a narrow and less valuable segment of their customer base?

A great example of this segmentation mistake in action can be seen above from the marketing team at Joon, from Air France. Instead of a launch video describing the new product — a hipper, healthier, and higher-tech flying experience — Joon instead produced a video that fails to articulate… any of these things. A second video was possibly even less effective.

Instead of this almost insulting millennial-only strategy and gimmicky creative, wouldn’t Air France have been better served adding high speed wi-fi, healthier dining options, and streaming BYOD video or device-friendly purchase experiences to every aircraft in the fleet? Do ad campaigns like this look familiar your bank have mobile payments or mobile banking offerings that look like Joon?

The success of mobile payments in China is a powerful counterpoint to this misguided over-reliance on millennials. Despite market-specific factors like low card penetration, a boom in discretionary spending, and cultural aversion to debt among older generations, Tenecent has long promoted WeChat payments among older customers, rather than younger ones. Their famous 2013 campaign around the Lunar New Year encouraged aunties and grandparents to send the ubiquitous red envelopes of cash to their extended families, neighbors, and grandchildren, who could then send that loot on in digital red envelopes of their own. Over a 24 hour period, 16 million payments were sent, and in the last 5 years, WeChat has climbed from a new entrant to 40% of China’s booming payments market.

When mobile payments — or any new product in the banking portfolio — are designed for the widest segment of customers and devices, or the transaction behavior of the many and not the very few, these products just work better.

In addition to the poor profitability of millennial-focused marketing strategies, or the limitations of targeting a relatively narrow customer segment, the uniqueness of millennials as a category is easily overstated. Most studies around the world support that there is as much diversity withingenerations as there is between generations.

The Journal of Financial Services Marketing has long summarized it’s position as follows:

“demographic-based segmentation as a means of targeting customers of financial services is ill-founded.”

Financial commentator Jim Marous once summarized a demographic-based study with this:

“customers of banks analyzed importance scales on 28 service-related comments that related to nine key financial service factors such as website appeal, trust [and] customer service … The responses were analyzed against five demographic measures: age, gender, income, occupation and education. Overwhelmingly, significant differences between demographic groups were not found.”

Despite thousands of articles, conference panels on the topic, and worrying statistics about millennials general disengagement and disinterest in traditional banking, there is clear data that they are not quite the digital native, online-only tech-obsessives that some make them out to be — at least, not significantly more than the general population.

Why are so many mature and experienced marketing departments going all in on millennials, even as customers look more like bank presidents than trainee tellers? According to UN projections and global consensus among economists and population experts, organizations around the world will need to adapt to gradually older consumers, rather than younger and younger ones. Case in point: In the mid 1950’s there were 3 times as many people under 5 as over 65, but by 2050 there will be twice as many people over 65 as there will be under 5. This year marks the first time in recorded history that there are more of the former than the latter, and the design of ever more inclusive and intuitive digital products in the future will reflect the changing expectations of usability around the world.

How to Rediscover Market Segmentation

Too many marketing departments over-emphasize social media as a way of connecting with young people, oversimplifying their would-be customers into generational clichés and age-based demographic segments. A better strategy is obvious: Different products in the banking portfolio should be tailored to different stages of the customer lifecycle and needs.

Instead, using behavioral segmentation based on financial habits, rather than age, to target and position products to customers makes much more sense — A strategy focused on borrowers and loan/finance products will by necessity be much different than one focused on savers and financial tracking and management tools. As older customers are lost through attrition, having a behavioral segmentation strategy allows banks to selectively replace those customers based on simple customer insight. How do your customers want to save? How do they want to spend?

I should again note that this is where issuing mobile payment accounts or advanced card products can be an important part of a portfolio-driven marketing strategy: Adding complementary payment products helps savvy marketers create a three-dimensional dataset for better financial segmentation than trying to hit the moving target that is ‘millennials’ today. “Rediscovering Market Segmentation,” Yankelovich and Meer, Harvard Business Review, 2006 is the seminal work on this topic, and required reading for any financial marketing.

Let’s take a more detailed look at this work as it applies more than a decade later to the segmentation options for banks, and how to practically utilize these within your operation or marketing team.

Demographic

In contrast to behavioral segmentation, demographics is the simplest form of segmentation for banking customers. Marketers consider this segmentation ‘two-dimensional’ when used alone, or ‘univariate’, as customers can be demographically sorted into clusters or silos along a single axis.

A common mistake is to consider demographic segmentation to be age-based, but this is merely the most overused attribute. Many marketing departments use customer data like age, deposit volume, branch location (geography), immigration status, etc., all demographic in nature. If univariate demographic data is relatively simple (recent immigrants from Pakistan), more interesting personas can be extracted in a multivariate demographic analysis of customers (Millennial Pakistani immigrants with more than three card accounts making high volume online purchases).

As you can see, it’s relatively trivial to target univariate or multivariate demographic segments like the two above based on media consumption, and marketers can fine-tune messaging to language and imagery that resonates with each demographic… but as mentioned before, just because it is simple doesn’t mean it is particularly useful. A millennial customer making high volume purchases for a small family business is very different than one engaged in retail brushing fraud, sending money home through a roundabout payment scheme, or a young parent making purchases to prepare for a child.

Behavioral

Once demographic segments establish banking patterns, a three-dimensional, behaviorally-segmented dataset exists… even if your marketing team isn’t taking advantage of it today. By looking at pre-paid, debit, or credit activity within the immigrant segment above, marketing strategists can make determinations about how that segment completes their online purchases — or how the nature, timing, and volume of those purchases might change over time.

If demographic segmentation is who, where, and how old, behavioral segmentation delivers what: Insights like purchasing behavior (use of pre-pay instead of credit for online shopping among older, credit customers); support needed (high-touch contact with CSRs after opening a new account); customer lifecycle stage (a move to more sophisticated products after roughly 12 branch visits, 18 months, or some other metric); usage (greater transaction frequency early in the month after pension checks or payroll is deposited); occasion and timing (frequent withdrawals on holidays or just before closing); customer satisfaction (quantitative feedback solicited); customer loyalty (other known financial products); interest and engagement level (direct, email, or social engagement, response to promotional campaigns or offers, activation status for other portfolio products). This is also called ‘Psychographic Segmentation’ in many sources, and represents the best-cheapest way to group and understand your customers.

When you can behaviorally segment a market, much more accurate product marketing and forecasting is possible. This helps marketing teams design customer level tactics and actionable intelligence, identifying which customers segments are the most profitable and making detailed projections about which banking products those segments are they likely to need next. Behavioral segmentation helps us understand how customers will respond to increasing the daily limit or max account limit of a personal account, where mobile bill pay can deliver the greatest value, and how to gradually change customer purchase behaviors at the point of sale. Behavioral understanding of this kind can drive top-line impact and active use rates in a way demographic segmentation never will.

As alluded to earlier, the digitization of banking services also means mobile payment products can unlock many new behavioral approaches because they come with a greater range of transaction types and a much broader dataset than traditional offerings.

The best part? The behavioral attributes listed above can all be identified and explored using off-the-shelf analytics tools, provided a marketing team has access to anonymized customer data. Case studies abound of even basic behavioral segmentation insights that are used to drive tremendous value, such as customizing a landing page or mailer based on acquisition source, or dynamically generating a banks homepage based on IP address.

A first foray into behavioral segmentation using one of these tools may be simply isolating RFM Customers, or customers based on Recency (account activity), Frequency (account history) and Monetary level (account volume). Any high-recency, high-frequency, and high monetary value behavioral segment consists of a bank’s most valuable customers (and generally very few millennials). Marketing strategies of a particular product to a RFM segment may be very different than for a high-recency, low-frequency customer, or a high monetary level, low-recency customer.

It is also important to note that behavior-based marketing insights need not be quantitative. If consumer research shows that younger bank clientele is regularly saving for vacations, festivals, concerts or sporting events — experiences — then promotions for hard-to-get tickets, a VIP area, event sponsorship, or co-branding with ridesharing services or travel companies are all tactics that address that experimentally-motivated behavioral segment. Age need never enter into it.

Attitudinal

Knowing a behavioral segment is high-frequency, low monetary level may effect the marketing channel or messaging employed, but it does little to understand the why.

Attitudinal segmentation exists almost exclusively to answer these questions, and uses a mix of behavioral and demographic data to group customers based on their needs, goals, and ambitions. These needs and ambitions make up a customer or prospective customers lifestyle, and are the reason the terms attitudinal segmentation and lifestyle segmentation in are used interchangeably.

If it sounds like attitudinal segmentation is more art than science, that’s because it is. Attitudinal successes are relatively rare in finance because custom methodologies need to be developed to identify these customers, and a large enough attitudinal segment needs to be isolated in order to have any meaningful activation benefit. Furthermore, given that attitudinal segments include a roughly proportional share of millennials, winning with any particularly critical segment requires value-based messaging, not age based ones.

Still another thing to be aware of is that it is notoriously difficult to link attitudinal personas to behavioral or demographic ones. Customers with similar customer records (demographic data) may sign up for the same new product (behavioral data) for different reasons (attitudinal data), or can use the same product for different transaction types in different ways. Two customers with similar ages (demographic data) and transaction histories (behavioral data) can have totally different service expectations or brand attitudes (attitudinal data).

Creating working attitudinal methodologies should be done with the help of an outside agency or consultants on a project basis, or endeavored internally only with careful tracking to ROI. External experts can work with your leadership teams to prioritize specific data relationships that can deliver the greatest value, for example, account holders that might have a business account at another financial institution for a specific attitudinal reason. Using online behaviors or feedback from short surveys, these customers first self-define into a particular attitudinal group and then can be analyzed based on responsiveness to different types of messages targeting that persona, such as small business owners who want a simplified payroll and acquiring flow.

Using the high-frequency, low monetary level example at the start of this section, an attitudinal segment may be gamblers (where legal) who make many more small cash withdrawals, place new bets with any winnings, and rarely maintain large volumes in any one account. Even if this attitudinal segment can be identified with the help of behavioral and demographic data, it would have to be a large enough segment to be actionable to a bank’s marketing team (and in this example, optically be a segment that can be communicated with without damaging the brand). This is the reason why less focused and behavioral-driven persona types so often prove more useful across the financial services industry.

Summary

The future of banking is less about millennials than about ways new banking customers can use the ever-growing range of financial products to make choices about how to save, spend and manage money. Millennial is not a valid or particularly valuable customer segment, and leads to targeted products and campaigns based on assumptions and age-specific limitations. To use the language of the young: ‘Millennials aren’t really a thing.’

Instead, more sophisticated, three-dimensional customer segmentation as outlined above should be used, and every banking customer should be designated in a way that can guide marketing strategy and tactics across the portfolio. This helps banks perform better in millennial segments or with any other target demographic, and shapes the marketing of new, digital offerings as the product mix continues to evolve.

Feedback? Examples of successful segmentation you'd like to share? Interested in applying better marketing approaches to your business? Like, share or leave a comment--I'd love to chat.