Presentation given by George Muruka from MicroSave in Dar Es Salaam. It highlight the needs to conduct proper marketing activities before lauching sanitation-focused microfinance products. Sanitation can be a business case when customer needs and preferences are identified. The oresentation also includes Microsave's experience in supporting microfinance insitutions in Kenya in developing sanitation-related products.
1. MicroSav
e
Sanitation Microfinance
Market-led solutions for financial services
Product Development
Presentation by George Muruka
(Senior Consultant at MicroSave)
Sanitation financing Working Group Workshop at WaterAid Tanzania
3rd December 2013
MicroSave
Market-led solutions for financial services
2. MicroSave believes in……
Inspiration
A world in which all people
have access to high-quality,
affordable, market-led
financial services
Mission
Strengthening the capacity of
financial service providers to
deliver market-led financial
solutions
MicroSave 2
Market-led solutions for financial services
3. Tewkesbury
Delhi
Kampala
Nairobi
Lucknow
Hyderabad
Manila
Port Moresby
Jakarta
Buenos Aries
MicroSave Offices
MicroSave (India)
Head Office: Lucknow
Tel: +91-522-2335734
Fax: +91-522-4063773
New Delhi Office:
Tel: +91-011-45108373
Hyderabad Office:
Tel: +91- 40-23386140
info@MicroSave.net
MicroSave (Kenya Office)
Shelter Afrique House,
Mamlaka Road,
P.O. Box 76436, Yaya
00508,
Nairobi, Kenya.
Tel: +254-202724801/2724806
Fax: +254-20-2720133
Mobile: +254-0733-713380
info@MicroSave.net
MicroSave (Uganda
Office)
Regency Apartments
30 Lugogo By-Pass
P.O. Box 25803
Kampala, Uganda.
Phone +256-312 202342
Mobile:
+256-706 842368
info@MicroSave.net
MicroSave (UK Office)
The Folly, Watledge Close,
Tewkesbury,
Gloucestershire
GL20 5RJ
UK
Tel. +44 1684 273729
Mobile +44 796 307 7479
info@MicroSave.ne
MicroSave (Manila
Office)
Unit 402, Manila Luxury
Condominiums,
Pearl Drive corner Gold
Loop,
Ortigas Center, Pasig City,
Metro Manila,
Philippines.
Tel: +(632) 477-5740
Mobile: +63-917-5977789
info@MicroSave.net
MicroSave (Indonesia
Office)
Jl. Penjernihan I No. 10,
Komplek Keuangan Pejompongan,
Jakarta Pusat 10210,
Indonesia.
Tel: +62 82122 565594
info@MicroSave.net
MicroSave (PNG Office)
Corner of Musgrave
Street and Champion
Parade,
Port Moresby, Papua
New Guinea.
TeleFax No.: +675 321
8823/321 8854
info@MicroSave.net
MicroSave
Market-led solutions for financial services
4. What informs MicroSave’ product development Process?
• Assumption of homogeneity by many FIs:
• Implicit assumption that microfinance clients
are essentially homogenous.
• Essentially, a “one product fits all” approach
continues to dominate the financial sector.
• In reality, poor people’s financial needs as as
diverse and complex
• However, here is lies the opportunities that
can be met on a profitable basis.
MicroSave
Market-led solutions for financial services
5. Evolution of Strategic Marketing
Marketing
concept
CUSTOMER
DRIVEN
Selling concept
Product concept
PRODUCT
DRIVEN
Production concept
MicroSave
Market-led solutions for financial services
time
6. Why Systematic Product Development?
Product driven approach leads to:
► High level of clients drop outs
► Multiple membership - due to inappropriately designed
products
► Exclusion of the poorest and the “missing middle”
Informal sector (usually unrecognised) is typically a major
competition
Many FIs replicate existing models developed for other
markets/clients
MicroSave’s calls this a Market Led Approach
MicroSave
Market-led solutions for financial services
7. MicroSav
e
Market-led solutions for financial services
Product Development
&
Differentiation
Some more details
MicroSave
Market-led solutions for financial services
8. Differentiated Markets/Segments
Systematically assess market/segment needs
This allows you to:
► View a market from the customer’s point of view
► Exploit market/segment strengths
► Develop focused strategies and
► Identify gaps that offer new product opportunities.
A market/ market segment should be:
1. Measurable, 2. Accessible, 3. Substantial,
4. Unique in its response, and 5. Stable in behavior
MicroSave
Market-led solutions for financial services
9. Modifying or Developing New Products …
Refining your existing products or developing new ones is a
complex and risky under-taking
We should use a systematic process to:
► Minimise risk
► Maximise likelihood of success
Use a market research and product prototype process and
then pilot-test carefully before final roll out.
MicroSave
Market-led solutions for financial services
10. Product/Market Expansion Grid
(Ansoff Matrix)
EXSTING PRODUCTS
MARKETS
1. Market
Penetration
2. Product
Development
LOW RISK
HIGHER RISK
3. Market
Development
EXISTING
NEW PRODUCTS
4. Diversification
MEDIUM RISK
HIGHEST RISK
NEW
MARKETS
MicroSave
Market-led solutions for financial services
11. What does successful product development Involve?
• The team. Multidisciplinary skills and a product
champion.
• Buy-in. Support within the institution for the process.
• Market research. Identification of unmet or poorly met
financial service needs among the target market segment.
• Market segmentation. Definition of the
customer/client group to be targeted.
• Appropriate product design
• Effective product prototype pilot test.
• Careful product rollout
MicroSave
Market-led solutions for financial services
13. 1.
Case for Sanitation Finance
Majority of people in developing country use pit
latrines
• For example, in Tanzania, up to 93%
• Sources: Tanzania: Household Budget Survey (2009)
1.
2.
3.
Public utilities are limited
CBOs are important providers to communities
Need to leverage on private sector finance to improve
access to sanitation facilities and services.
MicroSave
Market-led solutions for financial services
14. Experiences in Africa-KWFT
• Developed financial products to improve access to water
and sanitation services
• Product range
• Household sanitation-structure, seat, hand wash and a
slab
• Institution toilet loans
MicroSave
Market-led solutions for financial services
15. Experiences in Kenya –ECLOF-K
• Conducted situational analysis to generate information that
would help with development of suitable WASH products
Product Developed
Loans for
►
►
►
►
Acquisition of fully fitted Water tanks
Construction of latrines/toilets, bathrooms
Construct their own fully fitted shallow wells
Start up or working capital for WASH enterprises
MicroSave
Market-led solutions for financial services
16. Experiences in Kenya-Family bank
• The bank in partnership with practical Action ( a local NGO
is involved in providing credit to landlords in Nakuru town
of Kenya
• The loan cover hardware investment related to sanitation
like septic tanks, latrines or garbage collection
• Family bank did not develop a new product but adjusted
existing microcredit
• Action conducted need assessment since they were involved
in other sanitation projects in the area
• They recommend client to family
• Family bank does the loan appraisal
MicroSave
Market-led solutions for financial services
17. Maji na Ufanisi NGO:
Supporting CBOs to develop Sanitation facilities
MicroSave
Market-led solutions for financial services
18. Resource Implication
Core Activities
Estimated
Time
Specific Activities
Staff
Partner Selection
1 month
• Application form
• MoU
• Planning next activities
CEO
Senior Managers
Market Research
Course
11 days
•
•
•
•
Marketing manager
Field Officers
Product concept
development
10 days
• Iterative process involving in house
meeting and deliberations
Field Officers
Managers
Concept Testing
5 days
• Field based test with clients
• Reporting to institution
Field Office
Clients/Customers
Prototype
finalization
2 days
• In house debrief and finalization of
the product prototype
• Management commitment
Senior manager
CEO/Managing
Director
Pilot Testing
6 – 10
months
• Pilot test launch
• Pilot performance monitoring
• Impact evaluation & product rollout
Field Offices
Managers
Clients
In class training on skills
Field based market research
Reporting
Planning for other institutions
MicroSave
Market-led solutions for financial services
19. What are the Lessons and Impact?
Impact on clients
► Improved health and high level of participation
► Inclusion of the poorest into sanitation finance
► Improved human dignity
Other impacts
► FI brand building and posititoning
► Product development capacity.
MicroSave
Market-led solutions for financial services
20. MicroSav
e
Market-led solutions for financial services
Part II
Product Development Process
Version
MicroSave 0401
Market-led solutions for financial services
21. An Important Distinction …
Product Refinement v. New Product Development
Product Refinement “tweaks”/adjusts existing products
often with limited effect on the existing systems.
Example: Changing interest rate or marketing strategies of an
existing product
New Product Development is the process of developing a
brand new product.
Example: A housing loan or a contractual savings product
MicroSave
Market-led solutions for financial services
22. Product Development Process Overview
Research
Issue
Qualitative
Research
Plan
Costing &
Pricing
Qualitative
Research:
FGD/PRA
Understanding clients’ needs
Product
Ready for
Pilot-test
Quantitative
Research:
Prototype
Testing
Concept
Development
Refine the
Concept into
a Prototype
Refining/Testing the product prototype
Risk
Analysis &
Process
Mapping
MicroSave
Market-led solutions for financial services
23. Why Develop New Products?
Respond to client needs and preferences
Operational & financial sustainability
Deepen and broaden outreach/growth
Help clients manage risk and vulnerability
Raise new sources of capital
Reduce delinquency rates
Retain good clients/reduce drop-out rates
MicroSave
Market-led solutions for financial services
24. Steps for Product Development
• Form the Product Development Team under the
Product Champion
• Identify the research issue & research plan. Driven
by analysis of secondary data and focuses the
market research effort on the specific issue(s).
• Involves a variety of qualitative research
techniques including focus group discussions and
Participatory Rapid Appraisal (PRA) sessions.
• Iterative concept development and concept testing
• Prototype pilot testing with clients or target market
segment
• Product rollout to a wider market/market segment
Handout 6.3 BN#14 Systematic Product Development
MicroSave
Market-led solutions for financial services
26. Tools to Understand Customer Needs
Focus group discussion sessions: Sessions with target
customers to discuss needs
PRA: Detailed practical activity sessions e.g
Seasonality of income, expenditure, savings, and credit
Seasonality of migration, casual employment and goods/service
provided by the poor
Life cycle analysis to trace lump sum cash needs over time
Times series of sickness, death, loss of employment, theft,
natural disaster
Cash mobility mapping
MicroSave
Market-led solutions for financial services
27. Data collectoin can be fun too!!!
MicroSave
Market-led solutions for financial services
28. Developing the Concept
Concept is considered using the 8Ps or marketing
framework:
•Product (design) - specific features, terms etc.
•Price - interest rates, transaction cost etc.
•Place - distribution, accessibility etc
•Promotion - advertising, PR, etc.
•Positioning - in target customer’s mind
•Physical Evidence - the physical appearance of the
product/service
•People - the human interactions as the product/service
is delivered
•Process - how the product /service is delivered: the
steps/systems to “sale”
MicroSave
Market-led solutions for financial services
29. Concept Refinement: The Process
Concept
introduced
to clients
Reaction /
understanding
assessed
Reaction /
understanding
assessed
Incorporated into
refinement of
concept
Refined concept
introduced to
clients
MicroSave
Market-led solutions for financial services
30. Product Risk Management (1)
Motivation risk: What is the strategy behind the new
product introduction?
Management/Board commitment risk: Does it have
high-level commitment?
Staff availability risk: Are sufficiently skilled staff
available to lead its development?
Orphan-product risk: Will the new product be mainstreamed or left orphaned?
Demand risk: Will there be insufficient demand for
the product in the market place?
MicroSave
Market-led solutions for financial services
31. Costing of Products Allows MFIs to (1)
1.
Determine the full-costs of delivering products
2.
Determine the profitability/contribution of the products
(including analysis of changes over time)
3.
Refine cost/profit centres and the MFI’s management
information systems
4.
Identify hidden-costs
MicroSave
Market-led solutions for financial services
32. What is Pilot Testing?
• Prior to full launch, the product can be pilot tested by
launching it in a limited area – e.g. at one branch.
• Various aspects of the product’s performance are then
monitored/measured over time.
• In addition, the FI can examine the implications of
offering the product e.g. financial/human resources,
performance, community etc
• Multiple product introductions must be conducted in
separate branches for each product
• See MicroSave’s “Toolkit for Planning, Conducting
and Monitoring pilot tests for MFIs”
MicroSave
Market-led solutions for financial services
33. Essential Elements of the Pilot Test
1.
2.
3.
4.
5.
6.
Composing the Pilot Test Team
Developing the Testing Protocol
Defining the Objectives
Preparing All Systems
Modelling the Financial Projections
Documenting the Product Definitions and
Procedures
7. Training the Relevant Staff
8. Developing Marketing Materials
9. Commencing the Pilot Test
10.Evaluating the Test
MicroSave
Market-led solutions for financial services
34. What is Rollout?
Roll-out is a process that includes:
► Transfer to permanent department
► Preparation of:
Site
Staff
Systems
Marketing
► Launch
► Assessment
Roll-out is NOT just the launch (launch is only a small part)
► Starts with recommendation letter approval
► “Ends” after roll out to all target locations, but analysis
continues (actually the roll-out process simply opens into the regular continuous and
periodic product monitoring processes)
MicroSave
Market-led solutions for financial services
35. What is Needed Before Rollout?
• Capacity re-assessment after the pilot
test e.g. institutional strategy, financial
viability, organizational culture, HR,
delivery networks, and systems etc
• Other requirements:
•
► Management commitment
► Project Management skills
► Flexibility
► Infrastructure e.g. marketing capacity
► Compliance with regulatory matters
Formal approval of management/Board
MicroSave
Market-led solutions for financial services
36. Organising the Rollout
• Deciding on full/phased/partial rollout (provides a questionnaire to
help assess this)
• Determining order of rollout to branches (based on review of
infrastructure, market demand, projected profitability, geography, and staff demand to offer
it.)
• Project management aids (in many ways roll-out can more complicated than
pilot testing. Structured processes –critical path analyses (Gannt or PERT) – can be helpful
as a means to manage the roll-out)
• Setting Rollout Objectives (by institution and branch helps confirm product
progress, and helps get branches more involved)
MicroSave
Market-led solutions for financial services
Strengthening the capacity
Through the dissemination of information, development of toolkits and practice-focused training
Financial service providers
Financial institutions and those that provide them with technical services to support their work
Market-led
Client centric in the context of the competitive environment
Financial solutions
That respond to customer or institutional problems through sharing lessons and facilitating innovations
The Five Concepts
There are five alternative concepts under which organisations conduct their marketing activities. The concept include
the production,
product,
selling,
marketing and
societal marketing concepts.
Type of Action Where the company is looking to increase sales by:
MARKET DEVELOPMENTIncreasing current product/service sales in current markets by better marketing
PRODUCT DEVELOPMENTDeveloping new products/services for its current markets
MARKET DEVELOPMENTTaking its current products/services to new markets
DIVERSIFICATIONDeveloping new products.services for new markets
When Clients Needs are Not Met….
When clients’ needs are not met, an MFI will typically experience
slowed growth as word-of-mouth marketing dissipates. The signal that often prompts an MFI response is desertion, as frustrated customers look to the competition to meet their needs for lower rates, better terms, more convenient service, different products, and so on.
Increased deliquency or default
desertion as frustrated customers look to the competition to meet their needs
If staff/officers are not attentive to clients’ concerns or complaints, or if they are unable to translate customers’ needs into product refinements, negative signals can spur new product development amongst the competition in the formal and informal sectors*.
Unfortunately, many MFIs do not carefully track the reasons clients leave, and lose a valuable information opportunity. Other negative signals could be increased delinquency or default, which triggers a loan officer follow-up with the borrower.
* Of course, if MFI holds a monopoly, these negative signals will take much longer to surface, if they do at all.
This slide provides an overview of the product development process.
Define the problem/research objectives
->
Understand the clients’ needs (through qualitative research techniques)
->
Develop the product concept/ prototype
->
Test the product prototype (through quantitative research techniques)
->
Get ready to pilot test the product.
“What is often missing is going to the field and asking dumb questions, and smelling and feeling and getting in bed with the problem so that you understand the other side of it.” - Joe McPherson, Director of Innovation Programs, SRI International.
Why Develop New Products?
The need to effectively respond to the demands and preferences of customers. The poor are not one homogeneous group with similar needs ! They need products that present a solution to their problems.
The need and potential for deeper outreach especially to the hard-core poor who are currently not reached by most MFIs.
The need to create mechanisms to bridge the gaps created by poverty, illiteracy, gender, and remoteness.
The need to have products that are simple enough to be understood by clients and easily administered by the MFI.
The need to have an impact on reducing income-poverty.
Need for reducing vulnerability by introducing asset protection services.
The need for sustainability by generating higher revenues to cover operational costs.
Need to raise new sources of capital for loans.
Need to reduce delinquency built upon customer service / appropriate products
Need to retain loyal clients and reduce client loss
Finalising the Prototype
To create sophisticated new products, the new product development team must consider the entire prototype in terms of all its component parts, and solicit client feedback on factors referred to as the five (5) Ps:
Product (design)—includes specific features, terms, packaging, liquidity, ancillary services such as loan review and disbursement times, collateral or guarantees, amortization schedules, repayment structures (e.g. balloon payments or interest-free grace periods etc)
Price - includes the interest rate, loan fees, prepayment penalties, prompt payment incentives, withdrawals costs, transaction costs and other discounts. For example, Fundusz Mikro has a graduated pricing schedule based on group size that offers price incentives to borrowers to form larger groups that provide additional security to the lender.
Promotion - includes advertising, public relations, direct marketing, publicity; and all aspects of sales communication
Place - this refers to distribution and making sure that the product/service is available where and when it is wanted. This includes consider such options as mobile bankers, ATM etc, working with the informal sector financial services etc.
Positioning - it the effort by the MFI to occupy a distinct competitive position in the mind of of the target customer. This could be in terms of low transaction cost,low price, high quality, quick turnaround time, professional service, etc. It is a perception.
Client Concept Evaluation - The Process
The entire process begins with the concept being introduced to consumers whose understanding is assessed. Their reaction is incorporated into refining the concept.
The new refined concept is introduced to another set of consumers and again their understanding is assessed.
The process goes on until the client feels that they have a concept that is optimal and if developed into a product will yield positive returns in the long run.
What is Pilot Testing? (1)
Prior to full launch, the product can be pilot tested by launching it in a limited area - perhaps at one branch.
Various aspects of the product’s performance are then monitored/measured over time.
In addition, the MFI can examine the implications of offering the product on financial/human resources and performance
For more information on Pilot-Testing see:
Handouts:
MicroSave-Africa’s “ Planning, Conducting and Monitoring pilot tests for MFIs” (Summary)
“Beyond Basic Credit and Savings: Developing New Financial Service Products for the Poor” by Graham A.N. Wright
Essential Elements of a Pilot Test
There is a series of activities that make up the formal process of product development, and one of the most important is pilot testing of the product. The pilot testing process can be broken down into ten steps that, if followed carefully, can minimise the chance for a loss of control of the test and provide valuable information that management can use to improve the product. If all steps are followed, management can ensure a successful decision about the roll-out of the product in its final form.
These steps complement each other in a comprehensive manner, and flow easily from one activity to the next:
Composing the Pilot Test Team
Developing the Testing Protocol/performance indicators
Preparing All Systems
Modelling the Financial Projections
Formalizing the Objectives
Documenting the Product Definitions and Procedures
Training the Relevant Staff
Developing Customer Marketing Materials
Commencing the Product Test
Reviewing the Product as per the Protocol
For details see Handout “Summary of MicroSave-Africa’s “A Toolkit for Planning, Conducting and Monitoring Pilot-Tests for MFIs”. For even more details, see the toolkit itself !