Country and Consumer Segmentation: Multi-Level Latent Class Analysis of Financial Product Ownership

Abstract

The financial services sector has internationalized over the last few decades. Important differences and similarities in financial behavior can be anticipated between both consumers within a particular country and those living in different countries. For companies in this market, the appropriate choice between strategic options and the resulting international performance may critically depend on the cross-national demand structure for the various financial products. Insight into country segments and international consumer segments based on domain-specific behavioral variables will, therefore, be of key strategic importance. We present a multi-level latent class framework for obtaining simultaneously such country and consumer segments. In an empirical study, we apply this methodology to data on ownership of eight financial products. Information is available for fifteen European countries, with a sample size of about 1000 consumers per country. We find that both country segments and consumer segments are highly interpretable. Furthermore, consumer segmentation is related to demographic variables, such as age and income. Our conclusions feature implications, both academic and managerial, and directions for future research.

Keywords: International market segmentation, household portfolios of financial products, latent class analysis, multi-level analysis

JEL Classification: C2, D1, F00, G1, M31