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at Diners Club del Ecuador.
Introducing Behavioral Understanding to Create New Market Niches
In the banking industry, data is the primary asset for commercial development. In many cases, credit and risk models require large amounts of variables to better predict potential risks, information which is often scarce or non-existent in emerging markets. While this has allowed for better risk management, it has also kept many actors, such as people in rural areas, outside of the financial ecosystem or from generating arbitrage. As a result, banks focus their efforts on capturing a niche that is already developed, reducing margins and saturating the market with increasingly aggressive campaigns toward customers.
Agility, Simplicity, and Speed
Nowadays, hyperconnectivity demands that organizations transform into actors that provide quick and simple responses in real-time, using every single channel available (social media, web, app, WhatsApp, etc.), with structured and clear traceability processes. Considering these facts, generating internal processes aimed at meeting customer needs and assigning the solution or product they require is built on solid customer segmentation and clustering. Traditional segmentation processes only considered descriptive variables such as demographics and income, but ignored psychological factors related to their behavior, meaning that variables that explain the structure and process of decision-making were not considered. The introduction of behavioral variables has allowed for the creation of new customer profiles and segments, making the generation of communication strategies and the delivery of value propositions more efficient.
“Proper Segmentation and Clustering are the Keys to Success”
With these tools, we can simplify communication, improve the user experience of the solutions delivered, reach customers on time, and use the appropriate communicational channel. However, a latent problem remains: the inclusion of new customers or actors in the market has not been solved.
This is where there is a great need and opportunity. In emerging markets, the bankingization index for middle income (most emerging markets) for 2021 was about 62 percent (World Bank data - 2021), presenting a big opportunity. Algorithms for completeness of information or building "mirrors or clones" become basic to manage this strategy. We know that the lack of data is a major limitation, but with tools such as “Bootstrap” and Decision Trees (“Random Forest model”), we have increased business opportunities by more than 70 percent.
Traditional segmentation processes only considered descriptive variables such as demographics and income, but ignored psychological factors related to their behavior, meaning that variables that explain the structure and process of decision-making were not considered
Completeness models rely on hard descriptive variables that, through statistical inference techniques, allow us to expand the data sample. However, the value lies in understanding the behavioral variables of decision-making that complement the segmentation of new customers, enabling us to estimate their behaviors based on similar characteristics observed in captured customers. For instance, we can start with basic customer data, such as location (cities and zones), sales level, years in the market, economic activity; and then, use these variables to run completeness models that help us understand their financing needs, liquidity cycles, potential customer traffic, and operational requirements (such as payment, collection, and financing). Then, using behavioral models, we can determine the decision-makers' main channels of information, the most suitable times to contact them, the suggested tone and amount of information to share, and the products and solutions they need at that time, including a track based on their life cycle.
To promote these types of strategies, we not only need technological and technical resources to develop the infrastructure and mathematical models, but also a general strategic vision of the organization that is open to constantly developing experiments and testing ideas in the market.
