Segmentation & Strategic Business Model Implications: Private Banks & Sports Stars

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by: Alexander Osterwalder

Recently there has been a flood of articles about serving sports stars in private banking. The magazine “Schweizer Bank” writes about it here (subscription required), “Private” published an article about it, points it out in “Getting the Best Out of Dealing with Sports Stars” (subscription required). In his book “Global Private Banking and Wealth Management” author David Maude highlights that several banks focus on wealthy sports stars.

In terms of general management (& marketing) concepts this is a nice illustration of what is well known as market segmentation. Though the concept is reasonably well understood, it seems like we still lack the visual methods to outline the full consequences of market segmentation. In this post we will have a quick look at how visualization could help clarify how segmentation relates to other elements of a company’s business model. We will illustrate this with the example of private banks focusing on wealthy sports professionals (though the approach could be applied to any other industry).

Wikipedia defines market segmentation as:

the process [..] of dividing a market into distinct segments that behave in the same way or have similar needs. [..] They are likely to have similar feeling and ideas about a marketing mix comprised of a given product or service, sold at a given price, distributed in a certain way, and promoted in a certain way.

Let’s make this definition and its business consequences a little more visual and show how, for example, the focus on sports stars impacts a private bank’s business model.

Once we’ve identified wich customer segments we want to serve (e.g. based on customer profitability or market growth), there are a series of implications. Firstly, the most obvious consequence of segmentation means aligning products and services or a value proposition with the needs of the selected market segment. In other words, we have to aks ourselves with what offer we can satisfy these customers’ needs. It our example this can be sketched out like this:

Secondly, serving a particular customer segment means we have to design the right distribution channel mix and customer relationship to reach this distinct group and stay in contact. Visually a simple outline for our example looks like this:

Thirdly, serving a particular customer segment means we need to dispose of the right core capabilities to satisfy their needs. And finally, we must ask ourselves if we want to possess these core capabilities ourselves or get them from a partner. At this point a visual representation of the links and dependencies between the different business model elements becomes essential even in our simple example:

This was an simple case we sketched out with only one identified market segment. Now imagine how many customer segments a medium-sized private bank actually addresses. Try to imagine how this can be managed without having a representation of all the business model elements depending on the selection of a specific market segment…

Coming back to our example: as to the potential of wealth management in sports Scorpio Partnership estimates that there are more than 8′500 European sports players with wealth in excess of $1 million (virtually no limits to the top!)(references found in Mr.Maude’s book). Yet, to tap into this market potential banks have to get certain things right, as Guy Trezon, managing director of Passion, a private client advisory firm specializing in financial care of sportspeople mentions to

The problems I have seen from the buy side is that banks are very good at selling their own products but they are not good at dealing with their own services. The notable exceptions for these sorts of clients are HSBC, UBS, Coutts and ABN Amro. They all have people who can see what it is like to be involved with sportsmen and women because they employ them.

Good illustrations are Credit Suisse, which has built up a dedicated task force VIP for sports and entertainement stars that particularly stresses the importance of access to the right network of specialists. They offer sports professionals a package called “dream team” – AIG Private Bank, which has a dedicated lifecycle-management that focuses exclusively on professional athletes. In addition, AIG has hired former athletes because of their easier access to potential clients – UBS, which offers a special offshore fund for European and American sport professionals – Coutts, which uses existing clients, such as Premier League footballers, to market Coutt’s services to their team-mates.

All these examples have a thing in common: they illustrate a coherence between the addressed customer segment of sports professionals and the related business model building blocks.

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