The fourth and final article features the product development process used by the Grameen Foundation's AppLab.
What do financial services and laundry detergent have in common?
When Proctor and Gamble (P&G) launched a concentrated, non-foaming detergent for low income people in Mexico, they expected their product to be a big hit because it saved customers valuable money and storage space. Contrary to all expectations, the product flopped!
When P&G listened to clients in Mexico, they learned that the foam was essential to the customers’ confidence that their clothes were getting clean. Through such experiences, companies like P&G have started mastering the art of listening to their customers, understanding their needs and preferences, and customizing products for specific segments.
Fast moving consumer goods (FMCG) companies know—sometimes through hard and costly lessons—that being keenly attuned to client needs can translate into major sales. Can the financial service providers serving the bottom of the pyramid learn from P&G and other FMCG companies?
Developing client-oriented products and services
At the “Clients at the Center” event convened by CGAP in December 2011, researchers, financial service providers, and funders discussed how to reliably source customer insights and translate them into better products, processes, and delivery channels to improve the customer experience. Throughout these conversations, participants discussed three key questions:
1. How do I source insights? While quantitative research is a useful starting point, qualitative research can provide deeper insights into customer behavior. Common techniques include direct observation of customers for a few hours or days at a time, customer surveys, and focus groups.
2. Who should source insights? An institution may choose to invest in an internal market research team. Or if building internal capacity is not an option, they may contract an external market research firm.
3. What is the process to transform insights into action? Transforming an “aha” moment into a tangible “so what?" can be difficult. Systems must be in place to translate insights into tangible benefits for the clients.
In exploring these questions, three models emerge to explain how financial service providers might tackle the challenge of offering more client-oriented products: the in-house model, the outsourced model, and the hybrid model.
In-house model: an institution builds internal market research and product development capacity. Conducting the work in-house provides continuity between generating insights and the product development process, creating efficiencies and a tighter link between the two processes. However, doing this well requires a high degree of management commitment, and even a shift in organizational culture in many cases. Management must decide whether it wants to invest in building new competencies or source these from outside.
Outsourced model: an institution brings in an outside firm, like frog, MicroSave, or IDEO, to conduct market research and provide insights and ideas for products. Leveraging the expertise of specialists can bring fresh perspective and be highly effective. However, the onus of translating insights into better products still lies with the financial service provider. Strong processes that work seamlessly to take an external report and turn it into a new product are critical, but not easy to establish.
Hybrid model: specialized companies establish product innovation labs housed within a financial service provider, but essentially run as independent entities. This model seeks to solve the problem of tightly linking research and insights to action by nesting the lab within the organizational structure of the provider, while also creating autonomy for lab staff to think out of the box.
Of course, there are many variations to these three approaches. The financial inclusion community does not need to reinvent the wheel and can certainly learn from the P&Gs of the world. That said, there may be limits to how many parallels can be drawn since selling financial services is not the same as selling personal grooming products or refrigerators. Or is it?
Stay tuned...Product Development Series on the Gateway
Over the next few weeks, the Gateway will publish articles featuring insights from notable experts on market research and product development, including Jan Chipchase of frog, Graham Wright of MicroSave, Sean Krepp of Grameen Foundation's AppLab, and Puneet Gupta of IFMR Rural Finance. The articles explore the core principles of market research and product development, provide concrete examples and techniques, and share insights on the various models presented above.
We look forward to your questions, comments, and suggestions and welcome you to share your own experiences.
IN MOST OF AFRICA, HYBRID SYSTEMS WORK BEST BUT MUST BE MADE PRACTICAL
From years of work with large and small MFIs and banks, I realize that a hybrid system beats either of the other models because: 1. Unlike the purely external expert based (fully outsourced) scenario, the hybrid system has internal stakeholders who will push for implementation. 2. Unlike the purely in-house scenario, the hybrid system brings in external experts who, in addition to having broader market research/product development experience, have a high level of objectivity. They also have a healthy level of personal disinterest (and a high level of professional interest) and thus they tend to be more independent I their views.
Whichever option is taken, however, practicality is the key. Overly standardized and detailed/ complicated systems, though cleverly thought out, will more often than not suffer non or poor implelemtation.
Andrew Obara FRIENDS Cpnsult Ltd Uganda
10 Feb 2012
Transferring experiences between industries
About which model to choose, I would consider the size of the MFI since significant technical and financial resources are needed to put in place research and development efforts. One option is to join forces and put the Networks to do this, as such is the case of the Financial Rural Network in Ecuador where they are working in new product development for its MFI members. Learning from other industries would bring a great deal of other experiences but I will be cautious when passing that knowledge to microfinance. FMCG companies such as P&Gs and Microfinance have important differences: P&G sell in massive markets, while microfinance (specifically microcredit) act in fragmented markets (the opposite of massive markets) which has, for example, implications in branding, where the strategy of FMCG companies heavily rely on. Customers of P&G's products such as detergent have an inertial (habitual) buying behavior (low buying risk); on the contrary, customers of micro-credit have a complex buying behavior (with high risks -social, economic, psychological - perceived when a credit is acquired) P&Gs sells tangible products - despite of how much emotionality they can add to their offer; microfinance sells services. These are intangibles products so the design in the offer changes (e.g. customer service becomes important in intangibles). In some cases, the product is only an idea, such as insurance, where what is being sold is "peace of mind". Although, the majority of savings products have a habitual buying behavior, like detergent, I would like to find examples from different industries so I'm very enthusiastic to read this upcoming series.
Jacqueline Urquizo United States
10 Feb 2012
JLG model for tenent farmers, landles laboures
Guidelines for Financing Joint Liability Groups of Tenant Farmers Innovations such as the SHG-Bank linkage programme have proved to be successful in providing financial services from the formal banking sector to assetless or very poor. This is also in line with RBI's policy of "financial inclusion". In order to develop effective credit products for mid segment clients having access to productive assets, NABARD had piloted the project during 2004-05 in 8 states of the country through 13 RRBs through the mechanism of joint liability approach. These select banks during 2004-05 have promoted 285 JLGs and extended bank finance of Rs 4.48. In the second year of the project i.e. 2005-06, banks have disbursed Rs 6.79 to 488 JLGs. Besides the above pilot project, another pilot programme was launched in Andhra Pradesh during 2004-05 through group based lending programme aimed exclusively at small and marginal farmers. The Government of Andhra Pradesh through its Agriculture Department primarily designed this initiative by promoting Rythu Mithra Groups (RMGs) on the SHG model. During 2005-06, banks have extended finance of Rs.131.78 crore to 12,468 RMGs. RMGs are also expected to serve as a conduit for technology transfer, facilitate access to market information and market, assist in carrying out activities like soil testing, training, health camps, assess input requirements, etc., to its members. NABARD has played a primary role in preparing the guidelines for credit linking these groups, drafting and sharing the documents to be used by financing institutions. Further, it has undertaken sample studies to identify gaps in the functioning of the RMGs and also designed, funded and also conducted training and capacity building initiatives for different stakeholders in pilot project districts. The results of the above programmes have demonstrated that the JLG approach can be successfully adopted by banks to reach clients like tenant farmers, sharecroppers, oral lessees, farmers with small land holdings without proper land records etc. The formal banking system has rarely been able to provide credit to tenant farmers on account of their inability to offer collaterals. However, the mechanism of JLG would enable banks to extend credit on the basis of mutual guarantee provided by the members of JLG. It would also reduce transaction costs of both banks and borrowers and help in loan recovery. Based on the experience gained in implementation of the pilot project, a Scheme for financing JLGs of tenant farmers and oral lessees is evolved for implementation by all the commercial banks including RRBs. The salient features of the Scheme are as under 2 Objectives. The scheme aims at the following objectives. i) To augment flow of credit to tenant farmers1 cultivating land either as oral lessees or sharecroppers and small farmers who do not have proper title of their land holding through formation and financing of JLGs. ii) To extend collateral free loans to target clients through JLG mechanism. iii) To build mutual trust and confidence between banks and tenant farmers3.General features of JLGA Joint Liability Group (JLG) is an informal group comprising preferably of 4to10 individuals coming together for the purposes of availing bank loan either singly or through the group mechanism against mutual guarantee. The JLG members would offer a joint undertaking to the bank that enables them to avail loans.
Dr. Manesh choubey Centre for microfinace Research, Bankers institute of Rural Development, India
09 Feb 2012
Re: Another Model
Hi Jagadish, I think you are right - each model has its own limitations and organizations need to show a fairly high degree of self-awareness in assessing their own strengths and weaknesses as well as the strategic direction they want to take before deciding which model to adopt.
Tanaya Kilara CGAP United States
09 Feb 2012
Resources on Microinsurance
Hi Zerihun, Here are a few suggestions if you're looking for information on microinsurance:
Lauren Braniff Editor, Microfinance Gateway United States
09 Feb 2012
Micro Insurance
Send resource of micro insurance. Thank you.
Zerihun Aga Nedi Ocssco Ethiopia
08 Feb 2012
In-house Model
In house product development model suits microfinance institutions because when internal staff conducts research and develop products, they take more interest in its implementation and success. Sales staff should be teamed up with product development experts to get the insight of the clients market. It has been observed that client's comfort level is high in sharing information and needs with MFI sales staff. Product development should be a continuous process because market needs changes over time. Staff working in a client market can explore new product ideas that may help in developing more client focused products or modifying existing products.
Jamil Ahmad Microfinance Consultant Pakistan
07 Feb 2012
Another Model
The three models in product development are interesting. But each of them certainly have limitations. The in house model has positive point that the staffs are close to the clients and thus know their needs. But their knowledge in product research may be limited and also have chance for biasness. The second model outsources the experts who may focus on the issues of their expertise/experiences despite their wider knowledges. The clients have chances not to open with the externals. The hybrid model may be effective if the conditions are desirable. So, a mixed participation of the in house staffs in guidance of the external experts will be effective model as it covers limitations of ground experience and academic knowledges. I hope the forthcoming articles will address these issues.
Jagadish Tiwari Centre for Microfinance Nepal Nepal
