CONFIDENTIAL

Segmenting Asian Personal

Financial Services Customers for
Profitable Growth
Emerging Markets FIG Practice
Asia-Pacific Marketing Practice

Greg Gibb – TP, Mike Sherman – HK, John Ott – HK,

Jimmy Hexter – TP, Mehmet Pasa – HK, Mun Hong Chin – SI
March, 2001

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or
reproduced for distribution outside the client organization without prior written approval from
McKinsey & Company. This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
 PFS010222HK-FIG

WE LAUNCHED A COMPREHENSIVE EMERGING MARKET PFS* SURVEY

TO HELP OUR CLIENTS UNDERSTAND THE PFS OPPORTUNITIES

• 14 countries across
Asia-Pacific, Turkey,
Turkey
Brazil
What we • 5,733 households, a
Japan** pproximately 400 sa
probed: mples per country
Korea
China • Upper and middle in
Taiwan come urban househ
• Purchase Hong Kong olds
India
behavior Thailan Philippines (e.g., active users of
d PFS products & serv
• Product Brazil ices)
holdings • 3 years (1998, 1999,
Malaysia Indonesia 2000)
• Channel usage Singapore
• Attitudes
Australia
• Demographics

New
Zealand
*PFS stands for Personal Financial Services. It includes a range of financial products such as deposits, loans, insurance, payments, investments
and planning tools that financial institutions can offer to their retail customers
**Available via Nikkei Needs Radar

2
 PFS010222HK-FIG

AGENDA

• Characteristics of good segments

• Segmentation model of Asia's PFS customers

• Using segmentation analysis to drive profitable growth

• Appendices
– Segment economics by country

– Product opportunities by segment

– Technical appendix

3
 PFS010222HK-FIG

AGENDA

• Characteristics of good segments

• Segmentation model of Asia's PFS customers

• Using segmentation analysis to drive profitable growth

• Appendices
– Segment economics by country

– Product opportunities by segment

– Technical appendix

4
 PFS010222HK-FIG

CHARACTERISTICS OF GOOD SEGMENTS

Segments are distinct

• The customers in each segment have their own set of needs,
behaviors, attitudes, etc.

Segments are potentially profitable

• Segments will be large and profitable enough over time that the
investment required to serve them will have a positive return

Segments offer potential competitive advantage

• Providing value to the target segment is a fit with our core skills
and is defensible against competitive attacks

Segments are actionable

• Customers in each segment are easy to identify, can be found
through targeted communications, and can be served
distinctively by customized product/service offerings

5
 PFS010222HK-FIG

SEGMENTS ARE MOST DISTINCT WHEN BASED ON NEEDS

Percent of all respondents GERMAN FINANCIAL
SERVICES EXAMPLE

Personal relationship
Competence • Face-to-face contact important
• Confidentially/discretion are key • Prefer one financial institution for all
• Need to trust/know banker for advice services
• Price is not an issue • Need to trust/know banker
• High income, young to middle age • Not concerned about competence
• Elderly, low education, low to mid
income, high assets

Remote users
Conservative, cost-
• Prefer direct/remote channels
conscious
• Not interested in personal
• Are price conscious, but
relationships
care about image/prestige
• Mid to high income, wealthy, higher
• Prefer branch channels
education, young to mid-age
• Elderly, low education, low
income

Want it all Performance

• Want convenience, prestige, price, • Want advice, accuracy and speed
competence • Will choose performance and price
• Value personal relationship over advice or contracts
• Interested in both branch and new channels • Not at all are concerned with
• Young, blue collar, low-mid income prestige/image
• Young to middle age, wealthy,
medium to high income
6
 PFS010222HK-FIG

CHARACTERISTICS OF GOOD SEGMENTS

Segments are distinct

• The customers in each segment have their own set of needs,
behaviors, attitudes, etc.

Segments are potentially profitable

• Segments will be large and profitable enough over time that the
investment required to serve them will have a positive return

Segments offer potential competitive advantage

• Providing value to the target segment is a fit with our core skills
and is defensible against competitive attacks

Segments are actionable

• Customers in each segment are easy to identify, can be found
through targeted communications, and can be served
distinctively by customized product/service offerings

7
 PFS010222HK-FIG

FOUR SEGMENTS ARE SIZABLE AND SIGNIFICANT

IN TAIWAN TAIWAN EXAMPLE
Percent

Asia Taiwan
73 million 5.2 million US$ 480 billion*
100% = 4 3
Traditional savers 16% 8 5
3
9
Cautious pre-retirees 13 26
14

Modern planners 19
17

Simplifiers 13
42
22
Family depositors 11

Leveraged aspirants 10
12
26
Potential switchers 18
10
Number of Number of Household
households households financial
assets
* Including deposits, securities, mutual funds, life insurance, and pension
Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 8
 PFS010222HK-FIG

PROFIT POTENTIAL PER CUSTOMER AND SEGMENT SIZE PRELIMINARY

VARY SIGNIFICANTLY BETWEEN SEGMENTS TAIWAN EXAMPLE

Revenue potential Segment size

per customer (No. of bankable
(indexed) households, mil.)

Family depositors 175 0.9

Simplifiers 105 0.7

Leveraged aspirants 96 1.1

Potential switchers 70 1.3

* Use overall revenue per customer as base

Source: McKinsey’s proprietary PFS 2000 Survey (based on high and middle income groups) 9
 PFS010222HK-FIG

WE NEED TO PRIORITIZE THE TARGET SEGMENTS BASED ON OVERALL

PROFIT POTENTIAL PRELIMINARY
TAIWAN EXAMPLE
Total PFS
200 revenue size
(indexed)
Family 158
Revenue per customer (index*)

High depositors

Leveraged
aspirants
Medium 74
106
Simplifiers
91
Potential
Low switchers

0 Low Medium High 1.5M

Size of segment (number of households)

*Use overall revenue per customer as base

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 10
 PFS010222HK-FIG

CHARACTERISTICS OF GOOD SEGMENTS

Segments are distinct

• The customers in each segment have their own set of needs,
behaviors, attitudes, etc.

Segments are potentially profitable

• Segments will be large and profitable enough over time that the
investment required to serve them will have a positive return

Segments offer potential competitive advantage

• Providing value to the target segment is a fit with our core skills
and is defensible against competitive attacks

Segments are actionable

• Customers in each segment are easy to identify, can be found
through targeted communications, and can be served
distinctively by customized product/service offerings

11
 PFS010222HK-FIG

INSTITUTIONS SHOULD DEVELOP PRODUCTS CAREFULLY TELECOM EXAMPLE

TO ENSURE THEY ATTRACT TARGET CUSTOMERS
Percent refers to importance of each attribute in purchase decision
"One man bands
(ranked by importance)
1. Brand 32% "Roaming professionals"
2. Usage fees 29% (ranked by importance)
3. Equipment subsidy 17% 1. Usage fees 26%
4. Flexibility of contract 15% 2. Equipment subsidy 24%
5. Performance 7% 3. Performance 17%
4. Brand 17%
11 5. Flexibility of contract 16%
"Freedom seekers"
(ranked by importance) 27
1. Flexibility of contract 28%
2. Equipment subsidy 26% 19
"Total billers"
3. Usage fees 19% (ranked by importance)
4. Brand 17%
5. Performance 10% 1. Usage fees 36%
2. Equipment subsidy 30%
19 24 3. Brand 14%
4. Flexibility of contract 11%
3. Performance 9%

"Hip youngsters"
(ranked by importance)
1. Brand 31%
2. Equipment subsidy 25%
3. Flexibility of contract 16%
4. Usage fees 16%
5. Performance 12%
Source:Conjoint Market Research, 1998 12
 PFS010222HK-FIG

HIP YOUNGSTERS SEGMENT KOREAN EXAMPLE

SK TELECOM

TTL (The twenties life) mobile phone

• Provides tailored benefits which fit to 20’s life

style
– Colorful and stylish handsets with multi
functions
– Life style based price options
– TTL card affiliated with fast food chains,
movie theaters, resorts, etc.
– TTL zone, a TTL community meeting place
– TTL cyber college in internet
• Launched on July 1999. By the end of 1999:
– Acquired 1 million new subscribers
– 50% of new subscribers between 18 and 23
years old in Korea registered to TTL
– Increased the portion of young generation
(under 24 years old) among new subscribers
of the company from 11% before TTL launch
to 45%

13
 PFS010222HK-FIG

A SEGMENT BASED RETAIL MARKETING STRATEGY Aggressive cross sell;

MUST COMBINE NEEDS AND ECONOMICS high value/fit with client
capabilities
Retain or moderately
cross sell

Conveni-
Price ence Advice Personal
Followers hunters Want it all driven seekers care

Develop multi-segment Develop segment

Affluent
high value offers specific offers

Upper Mass Develop multi-segment medium value offers

Mass Channel migration

14
 PFS010222HK-FIG

CHARACTERISTICS OF GOOD SEGMENTS

Segments are distinct

• The customers in each segment have their own set of needs,
behaviors, attitudes, etc.

Segments are potentially profitable

• Segments will be large and profitable enough over time that the
investment required to serve them will have a positive return

Segments offer potential competitive advantage

• Providing value to the target segment is a fit with our core skills
and is defensible against competitive attacks

Segments are actionable

• Customers in each segment are easy to identify, can be found
through targeted communications, and can be served
distinctively by customized product/service offerings

15
 PFS010222HK-FIG

MAKING SEGMENTS ACTIONABLE

1 Self selection: Expose customers to various segment

specific options and let them chose

vs.

2 Sales force qualification: Use initial customer contact to

qualify customers’ segment and steer them to the
preferred offer

vs.

3 Data mining: Leverage CRM (Continuous Relationship

Marketing) to identify a customer’s micro-segment using
transaction, demographic and behavioral data; target
customers with multiple, specific offers

16
 PFS010222HK-FIG

1 SELF-SELECTION - DESIGN PRODUCTS ACCORDING TO SEGMENTS

AND LET CONSUMERS CHOOSE
American Express

Product Characteristics Target segment(s)

Charge card: US$55 annual fee • Price sensitive

• Status seeking
• Transactor

Charge card: US$75 annual fee; • Price sensitive

additional benefits, e.g., rental car • Prestige seeking
insurance • Transactor

Revolving credit card

• Status seeking
No annual fee
• Revolver

• Incentive-oriented
1 Delta SkyMiles for each dollar
• Transactor
charged, US$85 annual fee

17
 PFS010222HK-FIG

2 SALES FORCE QUALIFICATION

What are you looking for in a mortgage?

? If
OR
? Mortgage
A

yes

? OR
?
Mortgage Mortgage
B C

If customer keeps bringing up rate and does not

show interest in the above questions, then classify
as “price sensitive”

18
 PFS010222HK-FIG

3 DATA MINING – HOW CAPITAL ONE DEALS WITH CUSTOMERS

WITH COMPLAINTS ACTUAL EXAMPLE

The instant the last digit is

Nancy, a customer with complaint punched, high speed
computers swing into action
Makes in-bound call
to cancel credit card
due to unsatisfactory
interest rate (16.9%)
Within 0.1 second, computer system CRM units

• Nancy holds on to • Accumulate

her card with 12.9% customer insights
Every interaction
is a selling interest rate through rigorously
opportunity • Buys additional testing and learning
products more than 36,000
• Identifies who the customer is pilots a year
• Predicts the reason for calling • Exhaustive
Gorman, retention specialist
• Prepares a front-end personnel with information on 1 of
selective customer information 7 US households
• Predicts what Nancy might want to buy
• Negotiates with Nancy
with options ranging from
12.9% to 9.9% interest
rate provided by the
computer “We can answer
• Leverage in-bound call your question even
as an opportunity for up- before you ask it”
sell after addressing
Nancy’s complaint

Source: Fast company, May 1999 issue; Capital One financial report, 2Q 2000, analyst report by William Blair &
Company
19
 PFS010222HK-FIG

AGENDA

• Characteristics of good segments

• Segmentation model of Asia's PFS customers

• Using segmentation analysis to drive profitable growth

• Appendices
– Segment economics by country

– Product opportunities by segment

– Technical appendix

20
 PFS010222HK-FIG

THERE ARE SEVEN DISTINCTIVE SEGMENTS OF CUSTOMERS IN ASIA

Percent

Leveraged aspirants
Modern planners
• Usually highly geared • Most sophisticated
• Willing to take more risk banking customers
• Make independent financial decisions • Desire e-banking
• Seek financial advice
Family depositors
10
• Tend to make family-centric 19
financial decisions
• Demand low risks products 11
• Usually least geared
Potential switchers
Simplifiers
• Wish to simplify financial life • Dissatisfied with current
13 18 financial institutions
by consolidating accounts
• Essentially conservative and • Most likely to switch banks
unsophisticated

13
16
Cautious pre-retirees Traditional savers
• Concerned about their • Have basic banking needs
retirement • Seek convenience
• Retirement needs under served • Prefer low risk products like
by their existing asset deposits and insurance
allocation
• Price-sensitive

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups)
21
 PFS010222HK-FIG

HOW WE APPROACH EACH SEGMENT

How they think? How they behave? How to serve them?

Focus • Psychographic variables • Financial behavior • Suggested value

details – Risk profile – Wealth proposition
– Preferences – Asset allocation – Products
– Attitudes – Banking transactions – Service
– Product usage – Asian-centric
– Need for advice and examples (these
planning examples are not
definitive, but are
intended to provide a
flavor of how some
banks choose to serve
them)

22
 PFS010222HK-FIG

SIMPLIFIERS ARE UNSOPHISTICATED AND CONSERVATIVE, All Asians

AND DESIRE ACCOUNT CONSOLIDATION TO SIMPLIFY THEIR Simplifiers
FINANCIAL LIVES Number of financial
Percent “Prefer to deal institutions used “And they would prefer
with one financial for all products and to buy through banks”
institution” services Kind of financial planner
preferred
21 One/ 46
Strong agree
27 two 61
Bank
personnel
Some-what 33 Three 54
agree 44 or more 39

“Which best describes

attitude towards risk Insurance
agent
Safety is 45
dominant
60

Safety is primary, 29 Stock-

capital growth broker
secondary 26

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups)
23
 PFS010222HK-FIG

THEY ARE LOWLY GEARED AND LIGHTER USERS OF All Asians

PRODUCTS AND TRANSACTIONS Simplifiers

Simplifers wealth indexed to Demographic profile

Asian average (average = 100) Gearing Percent

Average Ratio of 133 50 years+

household liabilities to
financial 95
liquid assets 73 Education
assets
Primary

Secondary

Any long-range
Number of products used Banking transaction financial plan?

3.4 6.5 Yes

Number of Average
products per month
2.9 5.6 No

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups)
24
 PFS010222HK-FIG

SIMPLIFIERS: HOW TO SERVE THEM?

Directional
Asian example -
Opportunity • Expenses payment
• One-stop shopping for basic products • Consolidated statement
and services
• CashRewards
• Multi-products offering linking
deposits, investments, insurance, bill • Insurance protection
payments and credit cards • Interest-free repayment up to 58 days
• Provide account aggregation • 24-hr services (Worldwide Emergency
encouraging customers to move funds Assistance, Credit Line Extension,
from other financial institutions Personal Customer Service)
• Accessibility to funds any time, any
where Example -
• Provide simple advisory on use of • All-in-one account
products and services
• Access to an overdraft
• Consolidated statement
• Cheque book, OUB Global AutoCash
Card, PhoneBanking and Internet
Banking services
Source: OUB Group Internet Homepage
25
 PFS010222HK-FIG

FAMILY DEPOSITORS MAKE FAMILY-CENTRIC DECISIONS AND

ARE PRICE-SENSITIVE All Asians
Percent Family depositors

“I involve “Willing to “Highly “Dealing

family mem- “Unwise to switch for satisfied with local
bers in my borrow small with existing institutions
investment except for differences financial is important
decisions” a home” in rates” institutions” to me”

Strong
agree 27 15 7 28

57 32 32 47

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups)
26
 PFS010222HK-FIG

. . . AND TEND TO BE CASH-RICH All Asians

Family depositors
Family depositors wealth
indexed to Asian average Demographic profile
(average = 100) Gearing Percent

Average Ratio of 133 Female

household 140 liabilities to
financial liquid assets 33
assets Housewives

Businessmen

Any long-range Willing to pay for

Asset allocation financial plan? financial advice

58
Cash 9% Very willing
86
Yes
20 18%
Securities Willing
11

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups)
27
 PFS010222HK-FIG

FAMILY DEPOSITORS: HOW TO SERVE THEM

Directional Asian example

Opportunities

• “One-stop” convenience – for family-centric CHILDREN'S SAVINGS ACCOUNT

financial products • Children below 12 years old
– Education • Minimum of RM50.00
– Real estate SENIORS’ SAVINGS ACCOUNT
– Retirement • Seniors of 50 years and above
– General and life insurance • Minimum of RM250.00
– Wealth protection/transmission mechanism • Higher interest rates
• Access to extensive ATM network
TEENAGE SAVINGS ACCOUNT
• Financial planning support • Teenagers between 12 - 18 years
– Deliver financial advice through personal • Minimum of RM100.00
advisors at branches • Access to extensive ATM network
– Charge for “advice” implicitly in completing
transactions FINANCIAL SERVICES
• Integrated solutions
– Use asset allocation approach based on
• Unit Trusts (range of in-house and
low-risk deposits/bonds/unit trusts 3rd-party funds)
– Promote “value for money” • Insurance (customized to meet
individual or family needs)
• Stockbroking (One-stop centers)

28
 PFS010222HK-FIG

TRADITIONAL SAVERS ARE RISK ADVERSE AND PRICE SENSITIVE BUT

NOT AVID SHOPPERS All Asians
Percent Traditional savers

“Prefer to put most “The role of life

“Willing to switch for small
of savings in bank insurance is
differences in costs/
deposits, not stocks primarily
interest rates”
or mutual funds” savings”

61 57 42
Strongly/
somewhat
agree
71 75 56

“Convenient and easy access is

more important than competitive “Shopping around is worth
prices/interest” the effort”

Strongly/ 64 Strongly/ 61
somewhat somewhat
agree 41 agree 56

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 29
 PFS010222HK-FIG

TRADITIONAL SAVERS ARE INTERESTED IN FINANCIAL All Asians

PLANNING Traditional
savers
Traditional savers wealth Demographic profile
indexed to Asian average Occupation
(average = 100) Percent
15
Average PME 17
household
93 23
financial Businessmen
assets 26

Interest methods of financial Willing to pay for Currently using a

planning financial advice financial planner
Percent Percent Percent

Myself with 20
software 38 Very willing/
willing Yes
Myself 17
without 33
software

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups)
30
 PFS010222HK-FIG

TRADITIONAL SAVERS: HOW TO SERVE THEM

Opportunities Directional Asia

example – DBS Eight
• Flexible/customizable product, especially for
investment products
– Variety of mutual funds (with
concentration on low-risk funds)
– Return/principal guaranteed deposits
– Retail bonds
– Prepackaged for convenience
Consists of eight portfolios A to E with risk
• Deliver financial advice through ranging from low to high.
– Self-directed financial planning tools
– Basic concepts of investing and asset Example – DBS Horizon
allocation
• Provide investment selection advice by
mandate/multi-manager funds

Custom-made portfolios according to

investors’ risk tolerance and investment
objectives

31
 PFS010222HK-FIG

MODERN PLANNERS ARE LIKELY TO BE FIRST USERS OF All Asians

E-BANKING AND THEY WANT ACCOUNT CONSOLIDATION Modern planners
AS WELL AS FINANCIAL ADVICE
Percent

Although
current usage . . . they intend to use “I believe account
of internet internet banking in consolidation is to "Willing to pay for
banks is low . . . the future my benefit” financial advice"

Asian 12
2% Strongly Strongly Very
consu-
agree 22 agree willing
mers

Modern Some- 26 Some-

4%
planners what what Willing
agree 46 agree

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups)
32
 PFS010222HK-FIG

. . . AND THEY HAVE MORE ASSETS, MORE SECURITIES All Asians

AND LIKE FINANCIAL PLANNING Modern planners

Modern planners wealth

indexed to Asian average Asset allocation Demographic profile
(average = 100) Percent Percent
58
Average Cash 60
household University-
150 20 educated
financial Securities
assets 27

Preference for approach

to financial planning Securities penetration
Percent Percent

Independent 14 3
financial advisor 22 27
Bank 13
representative 19
15
Myself without
software
22

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups)
33
 PFS010222HK-FIG

MODERN PLANNERS: HOW TO SERVE THEM

*
Directional examples –

• German company that provides financial

Opportunities planning through its affiliated companies
such as bank, insurance, and brokerage
• Provide consolidated services, – Financial management
potentially on the Internet
– Pension
• Deliver financial advise through – Wealth management
personal advisors as well as – Loans
software tools – Insurance

• Charge for “advice” implicitly in

completing transactions

• Information and content over • Singapore-based company that provides

one-stop financial services with business
service
partners such as AXA, Citibank, and
• Multi-channel incorporating Aberdeen
internet, mobile, and phone – Investment (banks, direct investment,
banking stocks, unit trusts)
– Personal risk management
– Mortgage loans referral
– Tax and estate planning

*While not strictly an Asian company, MLP is provided to indicate a possible future direction 34
 PFS010222HK-FIG

LEVERAGED ASPIRANTS DO NOT INVOLVE THE FAMILY IN All Asians

THEIR INVESTMENT DECISIONS AND ARE OPEN Leveraged
TO BORROWING . . . aspirants
Percent
“I involve family “Concerned
members in my “Unwise to “My earnings about having
investment borrow except will grow enough money
decisions” for house” substantially” for retirement”

Strong 27 15 23
agree 9 3 32

Somewhat 39 31 40
agree 30 8 47

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 35
 PFS010222HK-FIG

. . . AND TEND TO USE MORE BANKS AND PRODUCTS, All Asians

AND ARE MORE HIGHLY GEARED Leveraged aspirants

Leveraged aspirants wealth

indexed to Asian average Demographic profile
(average = 100) Gearing Percent

Average Ratio of 133 Men

household liabilities to
127
financial liquid assets Professionals/
176
assets managers/
executives
Security account penetration Businessmen
Percent
15

22

Asset allocation Banking usage Banking transactions

58 Number of 3.1
Cash
65 banks used 3.4 Average
20 3.4 per month
Securities Number of
26 products 3.7

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups)
36
 PFS010222HK-FIG

LEVERAGED ASPIRANTS: ISSUES AND OPPORTUNITIES

Directional
Opportunities Asia example–

• Provide range of loan re-financing • Housing loans

– Allows interest rate comparisons
products to help them manage their
– Customers post requirements for
interest expense
banks to bid
– Re-financing and group loan auctions
• Provide secondary markets for
customers to raise cash through the
sale of customer assets (like
• Insurance
– Direct sales
insurance policies)
– Provides secondary market for
insurance policies
• Provide credit lines backed by
customer assets (like insurance • Unit trusts
policies and unit trusts) – Direct sales from asset management
to end-users, helping customers save
on the sales charge

37
 PFS010222HK-FIG

CAUTIOUS PRE-RETIREES ARE PRIMARILY CONCERNED All Asians

ABOUT RETIREMENT AND ARE WORRIED THAT THEIR Cautious
CURRENT INCOME AND SAVINGS ARE INSUFFICIENT pre-retirees
Percent

“My own savings

“I believe my and investments
“I am concerned earnings will are going to
about having continue to grow provide the bulk
enough money substantially over of my retirement
for retirement” the next few years” income”

60 63 68
Strong
agree
71 47 44

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 38
 PFS010222HK-FIG

. . . AND SOME HAVE STARTED TO PREPARE FOR RETIREMENT All Asians

Cautious
pre-retirees
Cautious pre-retirees wealth
indexed to Asian average Asset allocation Demographic profile
(average = 100) Percent Percent

66 Age above 53
Average Cash 62 40 years 59
household 9
104
financial Retirement fund 11 University- 40
assets 15 educated 32
Securities 18
2
Mutual funds 1

Main vehicles for retirement Any long-range Currently using a

planning financial plan? financial planner?
Percent Percent Percent

Bank 37 9
deposits 35 Yes
Yes
Government 22 13
retirement
26
plans
Company 10
plan 14

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 39
 PFS010222HK-FIG

CAUTIOUS PRE-RETIREES: HOW TO SERVE THEM

Directional Asian example – Keppel TatLee

Opportunities Private Banking
“The heart of our business”
• Provide suite of long-term wealth • Quality and value-added service
management products
– Retirement products that are linked
• Building long-term relationships via tailor-made
products and services
to insurance and investment
products
– Incorporate annuities “Professionalism, integrity and confidentiality”
– Retirement solutions with dynamic • Highly personal, discreet and prompt service at
portfolio asset allocation (hence competitive rates
reducing risk profile as the customer
comes nearer to retirement) Products and services
– Provide periodic investment reviews • Banking services (e.g., Overdrafts, Guarantee
through advisors or through an facilities, Investments, Margin trading)
automatic process by mandate • Treasury services (e.g., Forex and money
market services, Fixed and demand deposits)
• Asset Management/ Financial Planning (e.g.,
share trading, Retirement planning, Tax
planning and trusts, Portfolio management)

40
 PFS010222HK-FIG

POTENTIAL SWITCHERS ARE DISSATISFIED WITH All Asians

LOCAL BANKS Potential switchers
Percent

“I am very loyal to “I get good service “Dealing with a

my existing financial form financial local institution is
institutions” institutions” important to me”

72 70 67
Strong
agree
30 22 33

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 41
 PFS010222HK-FIG

. . . BUT THEY ARE HEAVY TRANSACTORS AND CREDIT All Asians

CARDS USERS Potential switchers

Potential switchers wealth

indexed to Asian average Demographic profile
(average = 100) Gearing Percent

Average Ratio of 133

household Aged below
85 liabilities to
financial 40 years
liquid assets 249
assets

24 39
Internet user
Desktop PC
(past 3
31 45
months)

Banking transactions Number of banks used Credit card usage

Number of 3.1 Penetration 19

6.5
Number banks used 3.4 31
per month Number of 3.4 Revolving 48
8.8
products 3.7 57

Source: McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 42
 PFS010222HK-FIG

POTENTIAL SWITCHERS: HOW TO SERVE THEM

Directional
example – CitiGold

Opportunities • Citibank Platinum VISA

• Designated CitiGold Executive – provide
• Entice them with superior service, investment advice
including extensive remote access • CitiGold Service Executives at CitiGold
• Sweeten the transition to your bank by Centers worldwide (business facilities
rewards or gifts and meeting rooms)
• Provide some form of personal invitation • 24-Hour CitiPhone Banking CitiGold
• Attract them initially with credit card offers Priority Line, Citibank Fax Banking
(as they are attractive credit card • CitiGold Time Deposit, Foreign
customers) and Currency Account, Premium Checking
• Brokerage offerings with volume – • CitiGold Clean Overdraft Facility of up to
weighted pricing (due to their frequent RM50,000, Housing Loan
stock transactions) • Citibank Investment Services –
complimentary financial planning with
Citibank proprietary Financial Needs
Analysis (FNA)
• Bank Guarantee
• Safe deposit box

43
 PFS010222HK-FIG

THE SEGMENTS EXIST IN ALL 10 COUNTRIES, BUT SIZES VARY

CONSIDERABLY
100%= 4.9 35.9 4.0 0.8 1.4 9.4 1.8 5.2 8.3 1.6

Modern
planners
Leveraged
aspirants
Cautious 12 9 15
pre-retirees 13
12 4 10 9 3
3 10 20
29 7
13
9 21
Family 44 22 2 17
depositors 18 8
7
38 5 4 2
4 25
13
23 19
25 16
Traditional 7 36 36
12
savers 9
7 23
Simplifiers 5 14 14 15
Potential 6 6 9 10
switchers
Indo- India Thailand Singa- Malaysia China Phili- Taiwan Korea Hong
nesia pore ppines Kong

Source:McKinsey’s proprietary PFS Survey (based on high & middle income groups)
44
 PFS010222HK-FIG

AGENDA

• Characteristics of good segments

• Segmentation model of Asia's PFS customers

• Using segmentation analysis to drive profitable growth

• Appendices
– Segment economics by country

– Product opportunities by segment

– Technical appendix

45
 PFS010222HK-FIG

USE SEGMENTATION ANALYSIS TO DRIVE PROFITABLE GROWTH

Identify distinct
segments

Design a segment-
specific offer to create Develop Test Learn
competitive advantage

Assess profit potential

of each segment

46
 PFS010222HK-FIG

IDENTIFY DISTINCT SEGMENTS

Design and
Decide on market
conduct market Analyze results
research needs
research

• Decide key questions to • Work with market • Analyze data to

Key be answered research firm to determine key
activities • Discuss types of market design research market segments
research(es) needed to methodology and • Identify and decide
answer these key finalize research target segment for
questions logistics company
• Contact market research • Supervise market
firms for quotes research process

End • Market research • Detailed research • Detailed market

products objectives questionnaire and segment definition
• Market research methodology and characteristics
formats selected • Synthesized market • Company target
• Market research research results segment identified
firm selected

47
 PFS010222HK-FIG

ASSESS PROFIT POTENTIAL

Optional

Assemble Segment
Develop complete Calculate gross Calculate net customers and
complete profile of
customer product contribution by income by products by
each customer’s
usage history customer customer profitability and
account base draw insights

Activities • Pull data on • Calculate daily • Calculate • Determine • Separate

sample of balance for all revenue by approach to customers into
customers accounts for all customer allocating fixed profitability
• Ensure all customers in • Calculate direct costs segments
accounts for sample cost for each • Allocate fixed • Assess customer
each customer • Calculate all customer costs to profitability to
have been product usage – Funding cost customers determine what
identified for all accounts – Risk cost differentiates
• Assemble for all – Transaction segments
account data customers in costs • Calculate
into customer sample profitability by
specific profiles product

End products • Profiles for • Full history for • Gross margin for • Net income for • Profitability by
sample of chosen period each customer each customer customer segment
customers of time for in sample in sample and product
covering 100% sample • Key factors which
of their accounts customers differentiate
and activity profitable from
unprofitable
market segments

48
 PFS010222HK-FIG

DESIGN A SEGMENT-SPECIFIC OFFER TO CREATE A

COMPETITIVE ADVANTAGE

Incorporate all
Construct Design and
research results
preliminary conduct market Analyze results
in product
product specs research
development

Key • Brainstorm • Design focus • Synthesize • Work with product

activities and construct group input and development team
preliminary methodology translate key to incorporate
product spec targeting findings into market research
based on customer product specs findings
target segment • Work with
segment identified marketing/brand
characteristic • Supervise focus management
s and existing group sessions departments to
competitive • Test against develop marketing
offers competitive strategy
offers
End • Preliminary • Detailed focus • Refined • Market research
products product specs group product specs results widely
questionnaire to create an understood and used
and offer with a throughout the
methodology competitive company
• Synthesized advantage
focus group
findings
49
 PFS010222HK-FIG

DEVELOP… TEST… LEARN...

Develop Test Learn

Key • Develop products and • Set clear performance • Synthesize quantitative

activities services using the targets for each product and qualitative findings
segment-specific specs and service offering to improve
– Product features – Net profit product/service
– Service level – Number of customers offerings, marketing
– Pricing (new vs. existing) approach, and
– Distribution – Number of transactions message
• Develop a marketing – Other
message (“value • Track performance of
proposition” product/service offerings
• Develop sales • Conduct market research to
approach obtain qualitative feedback
(customers and employees)

End • Segment-specific • Clear performance • Improved

products offerings measures product/ service
• Improvement areas offerings

50
 PFS010222HK-FIG

IMPACT OF NEW OFFER INTRODUCTION

New adds per month

Difference?
As subtle as one
focus group to discover: 16,000
•“Stored value” not
“pre-paid” 13,000
• Value thresholds US$20
and US$50, not US$10
and US$15

n
Lear
p Test
lo
3,000 Deve

First month First month Average 6 month

of initial launch of relaunch of post-relaunch

51
 PFS010222HK-FIG

AGENDA

• Characteristics of good segments

• Segmentation model of Asia's PFS customers

• Using segmentation analysis to drive profitable growth

• Appendices
– Segment economics by country

– Product opportunities by segment

– Technical appendix

52
 PFS010222HK-FIG

TOP FOUR SEGMENTS HAVE 80% OF ASSETS IN SINGAPORE SINGAPORE

Percent; N = 412
Asia Singapore
73 million 0.8 million S$ 137 billion
100% =
Simplifiers 13 15
27
Traditional savers 16
21

Modern planners 19 19
16

Cautious pre-retirees 13 17 4

Potential switchers 18 12 31

Leveraged aspirants 11 12

Family depositors 11 11 10 2
1

Number of Number of Household

households households financial assets

Source:McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 53
 PFS010222HK-FIG

THERE ARE FIVE SIZEABLE SEGMENTS IN INDONESIA INDONESIA

Percent
Asia Indonesia
73 million 5 million RP 649 trillion

Family depositors 11

Modern planners 19 44
60

Traditional savers 16

Cautious pre-retirees 13 18

18 10
Potential switchers 12
7
12 8
Simplifiers 13
6 11
Leveraged aspirants 11 2 2
5 1
Number of Number of Household
households households financial assets
Source:McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 54
 PFS010222HK-FIG

SEVEN SEGMENTS ARE EVENLY DISTRIBUTED, BUT MAJORITY MALAYSIA

ASSETS FALL IN MODERN PLANNERS, TRADITIONAL SAVERS
AND POTENTIAL SWITCHERS
Percent; N = 4,088; 417
Asia Malaysia
73 million 1.4 million RM 189 billion
100% =
Leveraged aspirants 11 7
23 8
Simplifiers 13

26
Traditional savers 16 19

Potential switchers 18
18 24

Modern planners 19 14

26
Family depositors 11 11

10
Cautious pre-retirees 13 6
4 3
Number of Number of Household
households households financial assets
Source:McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 55
 PFS010222HK-FIG

THERE ARE FIVE MAJOR SEGMENTS IN PHILIPPINES PHILIPPINES

Percent; N = 4,088; 400
Asia Philippines
100% = 73 million 1.8 million Peso 1.03 trillion

Traditional savers 16
25 28

Modern planners 19

26 17
Potential switchers 18

15
Cautious pre-retirees 13 13
14
13 10
Simplifiers
7 14
Family depositors 11
13
10
Leveraged aspirants 11
5 3
Number of Number of Household
households households financial assets

Source:McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 56
 PFS010222HK-FIG

TRADITIONAL SAVERS FORM THE LARGEST SEGMENT THAILAND

AND HOLD THE MOST ASSETS IN THAILAND
Percent; N = 4,088; 400
Asia Thailand
73 million 4.0 million Baht 1.77 trillion
100% =

Traditional savers 16

38
Family depositors 11

58
Modern planners 19
12
Cautious pre-retirees 13
13

Potential switchers 18 9 17
9
Leveraged aspirants 11 8
11 5
Simplifiers 13 5
9 4 2
Number of Number of Household
households households financial assets
Source:McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 57
 PFS010222HK-FIG

THREE SEGMENTS HOLD 79% OF ASSETS IN HONG KONG HONG KONG

Percent; N = 406
Asia Hong Kong
73 million 2.1 million HKS$ 799 billion
100% =
Potential switchers 18 20
36
Simplifiers 4
13

Cautious pre-retirees 13 29
17
11
Leveraged aspirants
14
15
19
Modern planners
12
30
16
Traditional savers 10
Family depositors 11 7 3
3 5
Number of Number of Household
households households financial assets

Source:McKinsey’s proprietary PFS 2000 Survey (based on high & middle income groups) 58
 PFS010222HK-FIG

AGENDA

• Characteristics of good segments

• Segmentation model of Asia's PFS customers

• Using segmentation analysis to drive profitable growth

• Appendices
– Segment economics by country

– Product opportunities by segment

– Technical appendix

59
 PFS010222HK-FIG

THE MOST ATTRACTIVE SEGMENTS FOR CREDIT CARDS ARE

POTENTIAL SWITCHERS AND MODERN PLANNERS

Traditional Family Cautious Potential Leveraged Modern

Simplifiers savers depositors pre-retirees switchers aspirants planners
Credit card 11 15 11 22 31 19 20
penetration
Average number 5.5 5.6 5.7 5.3 6.0 5.3 4.9
of transaction
per month

Revolving
(each month)
• Always pay off 70% 57% 66% 51% 43% 53% 47%

• Attractiveness
to credit card
industry

Most attractive Second most

on every dimension likely to revolve

60
 PFS010222HK-FIG

SEGMENTS DIFFER IN THEIR RISK APPETITE . . .

Percent

Question:
“Which statement best describes your overall attitude towards risk?”

Safety of principal 40
60
is dominant 43
49 42 34
concern 50

Safety of principal 37
31 30 32
is primary, capital 26 25 23
growth secondary

Simplifiers Cautious Potential Traditional Family Leveraged Modern

pre-retirees switcher savers depositors aspirants planners
s

61
 PFS010222HK-FIG

. . . WHICH AFFECTS THEIR ASSET ALLOCATION – THE MODEL

ILLUSTRATES THE CONSERVATISM OF FAMILY DEPOSITORS AND THE
AGGRESSIVENESS OF LEVERAGED ASPIRANTS AND MODERN PLANNERS
HONG KONG MARKET
. . . percent of total assets
Foreign Retire- Deposit to
Local currency Mutual ment securities
deposits deposits funds Insurance fund Securities ratio

Family depositors 86 2 - 2 2 11

Potential switchers 54 3 3 14 12 14

Cautious pre-retirees 69 2 - 11 3 15

Simplifiers 49 9 1 8 12 21

Traditional savers 49 7 3 19 0 22

Leveraged aspirants 65 2 3 3 2 26

Modern planners 60 2 - 3 9 27

62
 PFS010222HK-FIG

…BUT THE RANKING OF KEY BUYING FACTORS FOR MUTUAL FUNDS IS

NOT DIFFERENTIATED - INDICATING NEEDS-BASED MARKETING IS STILL
AT AN INFANCY STAGE
Key buying
factors for Traditional Family Cautious Potential Leveraged Modern
mutual funds* Simplifiers savers depositors pre-retirees switchers aspirants planners

Company 4.3 4.3 4.4 4.3 4.1 4.4 4.3

reputation

Investment 3.8 4.1 3.9 4.0 3.9 4.2 4.1

performance
of fund

Low annual 4.0 3.9 3.9 4.0 3.8 4.2 4.0

management fee

Access to 3.9 3.9 4.1 4.0 3.8 4.1 4.1

representative

Ability to switch 3.6 3.6 3.6 3.7 3.6 3.9 3.8

between funds

*Average score of 1 - 5 scale, 1 = not at all important, 5 = very important 63

 PFS010222HK-FIG

POTENTIAL SWITCHERS AND LEVERAGED ASPIRANTS ARE

THE VALUED SEGMENTS FOR SECURITIES

Penetration of
securities account Average number of
Percent trades per month

Leveraged aspirants 22

Cautious pre-retirees 20

Potential switchers 16

Simplifiers 15

Family depositors 13

Modern planners 13

Traditional savers 11

64
 PFS010222HK-FIG

POTENTIAL SWITCHERS ARE MOST LIKELY TO HAVE INSURANCE AND

ARE MOST LIKELY TO BUY FROM FINANCIAL PLANNERS . . .
Percent

Potential Traditional Modern Leveraged Family Cautious

switchers savers planners aspirants depositors pre-retirees Simplifiers

Has life insurance

How they buy

Direct from insurance
company

Independent agent

Financial planner

65
 PFS010222HK-FIG

. . . BUT TRADITIONAL SAVERS HAVE HIGHER AWARENESS OF

INSURANCE POLICIES
Percent

“Have you heard of

these types of Traditional Leveraged Family Modern Potential Cautious
insurance policies?” savers aspirants depositors planners switchers pre-retirees Simplifiers

Endowment life
insurance

Unit-linked insurance

66
 PFS010222HK-FIG

GENERALLY, LEVERAGED ASPIRANTS, SIMPLIFIERS, AND POTENTIAL

SWITCHERS ARE THE MOST RATE-SENSITIVE FOR MORTGAGES
Percent

Most factors for

choosing mortgage
provider Leveraged Potential Cautious Traditional Family Modern
Percent aspirants Simplifiers switchers pre-retirees savers depositors planners

Competitive interest
rates

Quick turnaround

Flexibility of terms
on repayment

67
 PFS010222HK-FIG

MODERN PLANNERS, LEVERAGED ASPIRANTS, AND POTENTIAL

SWITCHERS ALSO TRANSACT MORE FREQUENTLY . . .
Average number of transactions per month

Traditional Family Cautious Potential Leveraged Modern

Simplifiers savers depositors pre-retirees switchers aspirants planners

ATM 3.2 3.6 2.4 3.6 4.8 4.0 3.2

Remote channels

Telephone 0.4 0.4 0.8 0.8 1.2 0.8 0.8

banking

Internet – 0.4 0.4 – 0.4 – 0.4

banking

Teller/officer 2.0 2.0 2.4 2.0 2.4 2.4 2.4

Total 5.6 6.4 6.0 6.4 8.8 7.2 6.8

Remote channel 64 69 60 69 73 67 65
transaction ratio
Percent

Source:McKinsey PFS III Survey 68

 PFS010222HK-FIG

. . . AND ARE MOST INTERNET-READY

Percent

Personal Traditional Family Cautious Potential Leveraged Modern

ownership Simplifiers savers depositors pre-retirees switchers aspirants planners
Note book 4 6 8 5 7 7 6
Desktop PC 27 37 41 40 45 45 40
Mobile phone 36 40 52 43 48 40 38
(no WAP)
WAP enabled 3 4 5 5 7 7 5
mobile phone
Palm pilot 1 2 8 4 2 2 4
Used Internet in 11 24 17 23 31 31 26
past 3 months
Time spent on the 6.3 6.2 6.0 5.4 7.2 7.3 6.6
Internet (per month)
Used WAP phone 1 2 2 2 2 1 3
for financial
transactions
Most ready for
internet/mobile
banking

69
 PFS010222HK-FIG

AGENDA

• Characteristics of good segments

• Segmentation model of Asia's PFS customers

• Using segmentation analysis to drive profitable growth

• Appendices
– Segment economics by country

– Product opportunities by segment

– Technical appendix

70
 PFS010222HK-FIG

PFS 2000 – SEGMENTATION PROCESS

Data collection Factor analysis Cluster analysis Customer profiling

• Banking behavior • Group questions • Using statistics to • Profile 7 segments

• Attitudes towards that are answered create groups which against behavioral
banking consistently in a are similar internally data
• Key buying factors systematic way but differ between 1) Product usage
• Demographics groups 2) Asset allocation
3) Personal balance
sheet

Provide a compre- Reduce 42 attitu- Created 7 customer Validate the predictive

hensive view of the dinal statements segments power of the 7-group
PFS Asian universe into 11 factors segmentation model

Attitudes
and behavior 11 behavioral
(41 questions) factors

71
 PFS010222HK-FIG

A COMBINATION OF FACTOR ANALYSIS AND CLUSTER ANALYSIS TO

CREATE THE 7 SEGMENTS

Reduce to 11 factors Create 7 segments

• Internet banking • Potential switchers
• Satisfaction under • Traditional savers
current banks • Financial jugglers
• Convenience • Family nesters
• Consolidation • Retirement planners
42 attitudinal Factor • Financial planning Cluster • E-bankers
questions analysis • Long-term financial analysis • Aggregators
security
• Family needs
• Internet security
• Price sensitivity
• Risk
• Retirement planning

72