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At Accomplish, we have blogged before about how segmentation unlocks strategic value.  Why, then, do we feel it is important now to emphasise the point further with this article on the difference between segmentation and tiering?

Having seen the results of the CX Forum’s latest peer-group research into how firms manage clients’ differing needs, we believe the asset management CX community would benefit from a broader debate on the topic.

To kick things off, we are going to publish a three-part blog series, starting with this one:

1. Is there any difference between segmentation and tiering? The difference between segmentation and tiering and why asset managers should master these disciplines.
2. Segmentation and tiering for asset managers How firms can yield strategic value from these practices.
3. Latest research: current industry segmentation and tiering practices The results of the Asset Management CX Forum’s latest peer-group research into how firms segment and tier their clients.

We know you strive to stand-out through the experience you give your clients. We hope you find this series useful, and we look forward to debating it at the next CX Forum meeting.

The difference between segmentation and tiering

Are they the same thing? No, they are not and the difference matters.

We like to see them as different lenses that, together, give you a clear image of your target market. For this reason, segmentation and tiering sit within the strategy building block of CX. 

We recommend starting with segmentation. It is about selecting the part of your market(s) you are going to target. This involves dividing it into groups of clients and prospects that have distinct needs, common interests, or behaviours.

For asset managers, common institutional client segments include pension funds, insurance companies, corporates, charities and foundations, and governmental bodies, where each group has sufficiently different non-investment needs to justify developing a distinct experience for them.

Within a segment, however, some clients and prospects will be a higher priority to you than others, e.g. you will have opportunities to pursue, and retention risks to guard against. Tiering, then, involves prioritising clients and prospects relative to each other based on your commercial goals, which might be to grow AUM, to establish a particular product, or to retain revenue.

Resist the temptation to combine segmentation and tiering into a single way of viewing your market. It might feel like a short-cut at the time but, in our opinion,  it is a misstep that can cost you because it creates a less clear picture. As we will see later in the series, a less clear picture results in more ‘blunt’ experiences for clients that increase the likelihood of customisations.

In sum, segment your market(s) to identify the areas you want to target, then tier the companies in those segments to identify the target clients and prospects you want to focus on.

In the next blog, we will explore how you can go about this in more detail.

Why you should master these disciplines 

To recap, we have explored the difference between segmentation and tiering, but why should you care?

The reason you should want to master segmentation is because of the strategic value it can unlock for you. It enables you to identify your target segments – these might be the deepest segments, the most lucrative, or just the ones most likely to buy your products.

You can then align yourself with their needs and set up your organisation to serve them effectively and efficiently. Why should you do this? In general in business, we all know it’s important to focus. Specifically from a CX perspective, though, you will get what YOU want, by first wanting what THEY want, and segmentation will give you this perspective.

Tiering, on the other hand, helps you allocate more or less time and resources to different clients at various moments along your client journeys, e.g. relationship management, investment reporting, and query management.

Not every company needs to both segment and tier its clients, but Accomplish’s clients tend to be large international organisations that need to find ways of making sense of how they want to compete in multiple markets. In such an environment, the reality is that you need to focus and prioritise resources: it often does not make sense to allocate resources evenly across all clients in a particular segment.

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We hope you enjoyed this blog on the difference between segmentation and tiering. In our next article, we will explore how asset managers can yield strategic value from these practices. 

Follow us on LinkedIn to stay up-to-speed on all our other publications and the remainder of this blog series:

1. Is there any difference between segmentation and tiering 
2. Applying segmentation and tiering for asset managers 
3. Latest research: current industry segmentation and tiering practices 

As a discipline, CX is still in its infancy and this is particularly the case in the context of business-to-business (B2B) asset management.

Accomplish is an information services company  that is changing this by establishing the case for CX and helping asset managers stand out from the crowd with new tools and standards.