Segmentation of current and potential investors in retirement plans to retain and capture customers

Deccax, Ronaldo Andrade; Campani, Carlos Heitor

doi:10.15728/bbr.2022.19.1.2

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ARTICLE • BBR, Braz. Bus. Rev. 19 (1) • Jan-Feb 2022 • https://doi.org/10.15728/bbr.2022.19.1.2 copy

Segmentation of current and potential investors in retirement plans to retain and capture customers

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

The goal of this research was to fill the gap represented by the lack of studies that apply Behavioral Finance concepts in the segmentation of investors in retirement savings plans. Based on a bibliographic review, and the study of multiple cases, there was revealed relevant aspects of the supplemental retirement market in Brazil, this article proposes a new set of demographic and psychographic variables that were more effective in previous research in the segmentation of financial services clients. It innovates by incorporating variables from Psychology and Behavioral Finance, especially the “rationality” variable which has a remarkable ability to synthesize vulnerabilities to a wide universe of heuristics and biases when applied to investors. In addition, significant behavioral barriers were identified for the expansion of the retirement market, such as a low level of maturity of current market practices in Brazil and the need to use Behavioral Finance instruments in this confrontation.

KEYWORDS
Supplemental Retirement Savings Plans; Behavioral Sciences; Financial Markets; Market Segmentation; Consumer Behavior

Financial Service Markets	Studies
Investments	Keller and Siegrist (2006Keller, C., & Siegrist, M. (2006). Money attitude typology and stock investment.The Journal of Behavioral Finance, 7(2), 88-96.) and Deccax and Campani (2019Deccax, R. A., & Campani, C. H. (2019). Investor segmentation: how to improve current techniques by incorporating behavioural finance concepts?. International Journal of Economics and Business Research, 18(1), 31-48.)
Pension plans	Gough and Sozou (2005Gough, O., & Sozou, P. D. (2005). Pensions and retirement savings: cluster analysis of consumer behaviour and attitudes.International Journal of Bank Marketing.)
Savings	Makgosa et al. (2016Makgosa, R., Matenge, T., & Mburu, P. (2016). Hybrid segmentation in the financial services market: targeting saving consumers.Family and Consumer Sciences Research Journal, 44(4), 447-468.)
Financial and banking products	Harrison (1994Harrison, T. S. (1994). Mapping customer segments for personal financial services.International Journal of Bank Marketing.), Alfansi and Sargeant (2000Alfansi, L., & Sargeant, A. (2000). Market segmentation in the Indonesian banking sector: the relationship between demographics and desired customer benefits.International Journal of Bank Marketing.), Machauer and Morgner (2001Machauer, A., & Morgner, S. (2001). Segmentation of bank customers by expected benefits and attitudes.International Journal of Bank Marketing.) and Fünfgeld and Wang (2009Fünfgeld, B., & Wang, M. (2009). Attitudes and behaviour in everyday finance: evidence from Switzerland.International Journal of Bank Marketing.)
Insurance	Ansell et al. (2007Ansell, J., Harrison, T., & Archibald, T. (2007). Identifying cross‐selling opportunities, using lifestyle segmentation and survival analysis.Marketing Intelligence & Planning.)

Demografic Variables	Paper
Demografic Variables	Stanley et al. (1985Stanley, T. O., Ford, J. K., & Richards, S. K. (1985). Segmentation of bank customers by age.International Journal of Bank Marketing. )	Harrison (1994Harrison, T. S. (1994). Mapping customer segments for personal financial services.International Journal of Bank Marketing. )	Minhas and Jacobs (1996Minhas, R. S., & Jacobs, E. M. (1996). Benefit segmentation by factor analysis: an improved method of targeting customers for financial services.International Journal of Bank Marketing. )	Alfansi and Sargeant (2000Alfansi, L., & Sargeant, A. (2000). Market segmentation in the Indonesian banking sector: the relationship between demographics and desired customer benefits.International Journal of Bank Marketing. )	Machauer and Morgner (2001Machauer, A., & Morgner, S. (2001). Segmentation of bank customers by expected benefits and attitudes.International Journal of Bank Marketing. )	Andronikidis and Dimitriadis (2003Andronikidis, A. I., & Dimitriadis, N. I. (2003). Segmentation of bank customers by utilising ethnic/cultural profile dimensions: A qualitative approach.Journal of Marketing Management, 19(5-6), 629-655. )	Keller and Siegrist (2006Keller, C., & Siegrist, M. (2006). Money attitude typology and stock investment.The Journal of Behavioral Finance, 7(2), 88-96. )	Ansell et al. (2007Ansell, J., Harrison, T., & Archibald, T. (2007). Identifying cross‐selling opportunities, using lifestyle segmentation and survival analysis.Marketing Intelligence & Planning. )	Fünfgeld and Wang (2009Fünfgeld, B., & Wang, M. (2009). Attitudes and behaviour in everyday finance: evidence from Switzerland.International Journal of Bank Marketing. )	Foscht et al. (2010Foscht, T., Maloles, C., Schloffer, J., & Chia, S. L. (2010). Banking on the youth: the case for finer segmentation of the youth market.Young Consumers. )	Muhamad et al. (2012Muhamad, R., Melewar, T. C., & Alwi, S. F. S. (2012). Segmentation and brand positioning for Islamic financial services.European Journal of Marketing, 46(7-8), 900-921. )
Marital Status								Used
Ethnicity or Culture						Udes
Gender								Used	Used	Used
Consumption History		Used					Used	Used
Age	Used							Used	Used	Used
Income Level
Educational Level									Used
Occupation				Used						Used

Psychographic Variables	Paper
Psychographic Variables	Stanley et al. (1985Stanley, T. O., Ford, J. K., & Richards, S. K. (1985). Segmentation of bank customers by age.International Journal of Bank Marketing. )	Harrison (1994Harrison, T. S. (1994). Mapping customer segments for personal financial services.International Journal of Bank Marketing. )	Minhas and Jacobs (1996Minhas, R. S., & Jacobs, E. M. (1996). Benefit segmentation by factor analysis: an improved method of targeting customers for financial services.International Journal of Bank Marketing. )	Alfansi and Sargeant (2000Alfansi, L., & Sargeant, A. (2000). Market segmentation in the Indonesian banking sector: the relationship between demographics and desired customer benefits.International Journal of Bank Marketing. )	Machauer and Morgner (2001Machauer, A., & Morgner, S. (2001). Segmentation of bank customers by expected benefits and attitudes.International Journal of Bank Marketing. )	Andronikidis and Dimitriadis (2003Andronikidis, A. I., & Dimitriadis, N. I. (2003). Segmentation of bank customers by utilising ethnic/cultural profile dimensions: A qualitative approach.Journal of Marketing Management, 19(5-6), 629-655. )	Keller and Siegrist (2006Keller, C., & Siegrist, M. (2006). Money attitude typology and stock investment.The Journal of Behavioral Finance, 7(2), 88-96. )	Ansell et al. (2007Ansell, J., Harrison, T., & Archibald, T. (2007). Identifying cross‐selling opportunities, using lifestyle segmentation and survival analysis.Marketing Intelligence & Planning. )	Fünfgeld and Wang (2009Fünfgeld, B., & Wang, M. (2009). Attitudes and behaviour in everyday finance: evidence from Switzerland.International Journal of Bank Marketing. )	Foscht et al. (2010Foscht, T., Maloles, C., Schloffer, J., & Chia, S. L. (2010). Banking on the youth: the case for finer segmentation of the youth market.Young Consumers. )	Muhamad et al. (2012Muhamad, R., Melewar, T. C., & Alwi, S. F. S. (2012). Segmentation and brand positioning for Islamic financial services.European Journal of Marketing, 46(7-8), 900-921. )
Financial Attitudes and Perceptions							Used		Used
Benefits			Used	Used	Used						Used
Behaviours, Intentions and Interests							Used			Used
Financial Knowledge		Used
Personal Values							Used				Used

Company	Location	Duration (minutes)
Bradesco	São Paulo/SP	47,27
Brasilprev	São Paulo/SP	56,58
Guide	São Paulo/SP	48,47
Sulamérica	São Paulo/SP	45,73
Zurich Santander	São Paulo/SP	57,28
Total		255,33

Topic	Key Aspects
Behavioral barriers to the expansion of the pension market	“(1) Limited knowledge of Finance, aggravated by the complexity of pension products. (2) Prejudice due to lack of knowledge about Social Security. (3) Immediate (present bias), aggravated by the lack of self-discipline and “savings culture” in Brazil. (4) Undue comparison of social security with other financial products, mistakenly considering it only as an investment. (5) Negative perception of the banking sector. (6) Poor visibility of the benefits of the “social security product”.
Potential and opportunities for expanding the pension market	“(1) Social security is a product with enormous market potential due to its low penetration in Brazil and its breadth and versatility, in addition to its improvement over the years. (2) The following actions could contribute to the expansion of the market: (a) Educational campaigns, complementing free advertising with the Pension Reform; (b) Correction of misinformation disseminated in the market; and (c) Improvement of business practices to reduce “”sloppy pensions””. (3) There is an opportunity for growth via more intensive use of technology, including for monitoring the type of information the customer seeks. (4) There is potential for expansion of the market via the “”2nd wave of social security””, focusing on the small customer who is starting to save and who aims at the long term to complement public retirement. (5) There is potential for growth in new generations, who are more “”aware””. New social security products could induce behaviors, such as making parents allocate part of the “allowances” paid to their children to social security. (6) An additional action to expand the market would be the use of Advertising and Marketing mechanisms to also induce behaviors, thus complementing and reinforcing “educational actions”. (7) Products that combine savings with consumption could be launched, such as the allocation of a percentage of all purchases made with a card to a pension plan product. (8) It would be promising to explore the “ecosystem” directly and indirectly related to social security.”
Importance of targeting potential and current customers to competitors and their practices	“(1) In brokers and platforms, segmentation is poorly performed. In these, only commercial campaigns are targeted. (2) The part of the market that is concerned with segmenting customers to serve them better is treating segmented communication as a priority over obtaining information.”
Maturity of the Brazilian market in both segments	“(1) The Brazilian market has, in general, an “incipient” or “between incipient and median” maturity level in terms of demographic and psychographic segmentation of clients and non-clients. (2) The market lacks customers’ behavioral analysis and an adequate understanding of their pension needs.”

Topic	Key Aspects
Procedures for attracting and targeting potential customers	“(1) The following funding procedures and instruments are employed: (a) Agencies supported by remote structures. (b) Other channels (market brokers, autonomous agents, digital channel, etc.). (c) Relationship with customers. (d) Financial education. (e) Models of propensity to invest. (2) The segmentation performed considers the following variables: (a) Income, equity and capital to invest. (b) Relationship history. (c) Expected and objective benefits when investing. (d) Age. (e) API (Investor Profile Analysis) of the bank. (f) Investment horizon. (g) Risk aversion. “
Results with attracting and targeting potential customers	“(1) Significant growth in assets. (2) Stable or growing customer base. (3) Future trend of less significant growth in assets. (4) Future trend of greater growth in the customer base. “
Current customer segmentation procedures	“(1) There is no structured and recurring process of assessing which customers are not covered by the bank’s “”generic”” API (Investor Profile Analysis). (2) The segmentation performed considers the following variables: (a) Income, equity and capital to invest. (b) Relationship history. (c) Expected and objective benefits when investing. (d) Age. (e) API (Investor Profile Analysis) of the bank. (f) Propensity to redeem the capital already invested. (3) There is a lack of monitoring of the customer’s “life cycle” to ensure that the product continues to meet their needs.”
Results with the segmentation of current customers	“(1) There is a lot of opportunity to evolve in the relationship and in customer loyalty, advising them throughout the product’s life cycle. (2) Private pension plans have several attributes that, if well understood, can add enormous value to customers throughout their journey. It is a product that, in theory, can accompany the customer for his whole life (from junior plan, accumulation, “de-accumulation” and succession).”
Importance of both segments for the company’s business	“(1) The importance is fundamental because it allows treating current and potential customers differently, providing “”solutions”” and not just “”making a sale””. (2) In addition to the competition being more fierce, investments have also become more sophisticated and complex. On the other hand, investors have more information and are more demanding.”
Challenges and difficulties in targeting potential and current customers	“(1) Obtain and keep the client’s information (financial, behavioral, etc.) up to date. (2) Ensure the veracity of the information (behavioral, above all) provided by the client. (3) The currently performed suitability check is not specific for pension plans. (4) Effectively segment and differentiate customers, as the “”standard treatment”” predominates in the market (with the exception of high-income customers). (5) For a specific audience, technical and rational issues will not be effective. The path is through perception. For this it is important to know him and be close. (6) The market “”simplified”” private pension as a simple variant of a traditional investment fund. Deconstructing this perception of “half truth”, where the true side of the argument gives verisimilitude and the support for the fallacious part, is laborious. This partly explains the treatment for social security identical to that of other investment products. (7) Segmentation today takes place more in terms of cost than the final product offered, whether in the product itself or in the service provided. (8) The pension suitability check could be complementary to the current suitability check carried out by the banks, to avoid “”yet another bureaucracy”” (in the customer’s view) when making their investments.”
Improvement opportunities in the segmentation of potential and current customers	“(1) Having more access to the client’s real financial information, obtaining more reliable behavioral information from the client and increasing digitization. (2) Create an API (Investor Profile Analysis) specific for social security. (3) Increase the number of variables used in the segmentation, such as “family profile” (number of dependents and sources of income, etc.). (4) Replace the classification APIs (Investor Profile Analysis) that are self-declarations, generating distortions as the same customer is classified differently. (5) Use data from sources other than customers, both from external sources (CAGED, LinkedIn etc.) as well as internal sources (profile of expenses and investments, etc.). (6) Increase touch points with customers to reassess their profiles, provide content, present other investment options, etc.”
Comparison of your company versus your competitors in both segments	“(1) Platform professionals serve better because they have more knowledge. Insurance and retail brokers in general sell poor pension products due to lack of knowledge and because they have a very wide range of products. (2) The curatorship of brokers and platforms with the sales force is better done. (3) The bank managers’ above-market stability increases bond, trust and level of knowledge about customers. (4) “”We are in the market average””. (5) We may be going through a moment of changing the market structure (2nd social security wave): from oligopoly to monopolistic competition. The way of seeking to differentiate can be via: (i) low cost or (ii) through the different perception of value. (6) In a world in constant transformation and in the digital age, where the customer is more and more informed, it is up to us to give him the highest level of diversification through sophistication. Sophistication that must be delivered with specific knowledge of market products, investment funds and credible arguments to continue as a customer. (7) Differentiating is the way to attract or maintain revenues, without having to change the TAF (Financial Administration Fee). This differentiation can be due to the change in perception. If this is done and the customer does not perceive a distinction, it becomes a cost. For this, one must work to meet the real needs of the client and how to make him perceive them. (8) Many of the companies’ statements about customer service are not verified in practice because, despite the level of knowledge of the “”seller””, there are other interests in the process that end up overlapping the interests of customers. Norms of suitability and conduct are essential for a significant change in this scenario.”
Positive aspects of your company in targeting potential and current customers	“(1) Performance with a focus on “”specialized advice””, seeking to understand the financial life of the client and meet their real needs. (2) Ethical conduct and respecting the customer’s profile, not offering products contrary to their interests. (3) One of the main differentials of the competition is the exclusive service. In order to protect and attack, have first-line consultants (advisors) trained to serve customers in a sophisticated way, generating added value in services and extolling the EAPC (Open Private Pension Entity) brand, emphasizing service and approaching the customer through of periodic contact points (checkpoints). (4) The best way to make the social security product tangible is through the provision of transparent, adequate, intelligible and periodic information to customers, in addition to constant advice so that they feel supported in this journey and can have time for an eventual correction. route.”
Demographic variables used by your company in both targets	“(1) Marital status. (2) Gender. (3) History of consumption of financial products. (4) Age. (5) Income level. (6) Educational level. (7) Professional occupation (very important variable). (8) Volume of investment.”
Psychographic variables used by your company in both segments	“(1) Financial attitudes and perceptions. (2) Behaviors, intentions and interests. (3) Knowledge of finance. (4) Risk aversion.”
Other psychographic and demographic variables used by your company in both segments	“(1) We use the API (Investor Profile Analysis) to check non-specific suitability for pension plans. We also used a psychological profile questionnaire. (2) If you are an investor, borrower or hybrid within the bank. (3) If you are a customer with some restriction (“negative”, politically exposed, with a judicial problem, etc.). (4) The “investment objective” could assist, for example, in advising throughout the product’s life cycle and delivering solutions to the customer.”
Your company’s maturity in both segments	Unanimously expressed by the executives interviewed: perception that your company is currently at an intermediate level of maturity in terms of segmentation practices.

Literature Theme	Empirical Findings of this Study	Comparison and Analysis
Behavioral aspects in social security	Behavioral barriers to the expansion of the pension market	“The behavioral barriers perceived by the interviewees partially or totally corroborate the results of the studies by Bongini and Cucinelli (2019Bongini, P., & Cucinelli, D. (2019). University students and retirement planning: never too early.International Journal of Bank Marketing.), Van Rooij et al. (2011Van Rooij, M. C., Lusardi, A., & Alessie, R. J. (2011). Financial literacy and retirement planning in the Netherlands.Journal of Economic Psychology, 32(4), 593-608.), Harrison et al. (2006Harrison, T., Waite, K., & White, P. (2006). Analysis by paralysis: the pension purchase decision process.International Journal of Bank Marketing.), Sourdin (2008Sourdin, P. (2008). Pension contributions as a commitment device: Evidence of sophistication among time-inconsistent households.Journal of Economic Psychology, 29(4), 577-596.) and Ongena and Zalewska (2018Ongena, S., & Zalewska, A. A. (2018). Institutional and individual investors: Saving for old age.Journal of Banking & Finance, 92, 257-268. ), but not those of Cobb-Clark et al. (2016Cobb-Clark, D. A., Kassenboehmer, S. C., & Sinning, M. G. (2016). Locus of control and savings.Journal of Banking & Finance, 73, 113-130.), Gourinchas and Parker (2002Gourinchas, P. O., & Parker, J. A. (2002). Consumption over the life cycle.Econometrica, 70(1), 47-89.), Finke and Huston (2013Finke, M. S., & Huston, S. J. (2013). Time preference and the importance of saving for retirement.Journal of Economic Behavior & Organization, 89, 23-34.), Dahlquist and Martinez (2015Dahlquist, M., & Martinez, J. V. (2015). Investor inattention: a hidden cost of choice in pension plans?.European Financial Management, 21(1), 1-19.), Benartzi and Thaler (2002Benartzi, S., & Thaler, R. H. (2002). How much is investor autonomy worth?.The Journal of Finance, 57(4), 1593-1616.), Gürdal et al. (2017Gürdal, M. Y., Kuzubaş, T. U., & Saltoğlu, B. (2017). Measures of individual risk attitudes and portfolio choice: Evidence from pension participants.Journal of Economic Psychology, 62, 186-203. ) and Hauff (2014Hauff, J. C. (2014). Trust and risk-taking in a pension investment setting.The International Journal of Bank Marketing, 32(5), 408-428.). Therefore, it was evidenced that the executives interviewed are unaware of a wide range of behavioral barriers, already identified in the literature, that limit the expansion of the pension market.“
Behavioral aspects in social security	Potential and opportunities for expanding the pension market	“The interviewees envisioned a set of possible actions for the expansion of the pension market that includes those recommended by Reyers et al. (2015Reyers, M., Van Schalkwyk, C. H., & Gouws, D. G. (2015). Rational and behavioural predictors of pre-retirement cash-outs.Journal of Economic Psychology, 47, 23-33.) and Mitchell and Utkus (2006Mitchell, O. S., & Utkus, S. P. (2006). How Behavioral Finance Can Inform Retirement Plan Design 1.Journal of Applied Corporate Finance, 18(1), 82-94.) but also includes many others not identified by the literatute. In this respect, there are indications of possible gaps to be filled by scientific studies. “
Investor segmentation	Demographic and psychographic variables used by your company in both segments	“According to the interviewees, the following variables already used successfully by different studies in segmentation of financial services clients are not yet used by the companies in which they work in the segmentation of current and potential investors in social security: Ethnicity or Culture, Benefits and Personal Values. On the other hand, most of the variables already used in the literature are already used in practice by the companies studied, but with varying levels of effectiveness. Given this situation, it is possible to see a high level of alignment between scientific studies and market practices. “
Behavioral Finance	Psychographic variables used by your company in both segments	According to the interviewees, only the psychographic variable “Risk Aversion”from the Behavioral Finance literature is used by the companies in which they work in the segmentation of current and potential pension fund investors. The variables “Excess of Trust”, “Optimism” and “Rationality” are not used. Therefore, it is clear that there is a significant opportunity for companies operating in this market to improve their customer segmentation practices.

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[1] deccax@gmail.com