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The Ladder

A Blog from New America's Asset Building Program

Putting Clients at the Center of the Product Development Process

Published:  February 15, 2012

By Tanaya Kilara, CGAP

Reproduced from Microfinance Gateway and cross-posted on youthsave.org

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 invested time to listen to clients, they learned that having the foam created by the detergent mixing with water was essential to the customers’ confidence that their clothes were getting clean. 

Through such experiences, companies like P&G have started to master the art of proactively listening to their customers to understand their needs and preferences and then customize products for very 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.  In the context of youth savings, can financial service providers that are recently starting to serve youth learn from P&G and other FMCG companies?

The issue of how to reliably generate, or source, customer insights and translate them into better products, processes, and delivery channels for customers was a major theme of the “Clients at the Center” event convened by CGAP on December 1, 2011. In lively discussions including researchers, financial service providers, and funders working on financial inclusion, three questions emerged as a priority for providers interested in systematic, client-centric product development.

  • How to source insights? There are a number of method(s) an institution can employ to discover useful insights about potential clients’ needs, preferences, and behavior.  While quantitative research is a useful starting point, qualitative research will help institutions develop 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.

  • Who does the sourcing of insights? An institution may choose to invest in an internal, dedicated team focused on sourcing insights. Or if building internal capacity is not an option, they may contract an external market research firm.

  • What is the process used to transform insights into action? Once an institution has generated customer insights, the difficult work of transforming an “aha” moment into a tangible “so what?” starts. Processes must be in place to translate insights into tangible benefits for the clients.

These questions are as relevant when it comes to serving youth, who are less understood than many other bottom-of-the-pyramid segments traditionally served. Understanding the lifestyle and behavior of low-income youth can help design products that are relevant and cost-effective.

As we explore these questions, three different models begin to emerge: the in-house model, the outsourced model and the hybrid model.

In the in-house model, an institution builds internal capability to conduct market research and turn insights into products.  The advantage of this model is that it aligns incentives extremely well, since the same staff is responsible for generating the insights and turning them into products. However, doing this well requires a high level 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 whether it is satisfied sourcing these from outside. The IFMR Trust is one organization that embraces this model.

In the outsourced model, the institution brings in an outside firm, like frog, MicroSave, or IDEO, to conduct market research. After conducting research, the firm delivers a report with actionable insights and ideas for products. This model allows staff of the financial service provider to focus on their core business, while leveraging the expertise of specialists. Specialized firms can be highly effective and bring fresh perspectives. However, the onus of translating insights into better products still lies with the financial service provider which may be less vested in the outcome since its staff did not lead the discovery process. Strong processes that work seamlessly to take an external report and turn it into a new product for the provider are critical, but not easy to establish. To design youth products, most of the YouthSave financial institution partners have followed this approach.

The hybrid modelhas been gaining traction over the last few years. The model consists of specialized companies establishing 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. Organizations like Grameen Foundation AppLab are pioneers in this model.

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 and Googles of the world. That said there might 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?

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