Using Research to Take Product Development to the Next Level

There are multiple reasons for financial institutions to respond to the needs of their clients, including meeting the mission of the institution, expanding market share, and achieving long term profitability. However, whilst these imperatives are widely acknowledged, relatively few institutions systematically go about understanding the needs of their customers.

One reason institutions may not prioritize listening to their customers may be linked to the level of development of the market. Institutions in under-developed markets tend to promote the supply of basic services. In competitive markets, institutions tend to start focusing more on responding to the needs of their clients. However, if responding to the needs of clients is a competitive necessity which ensures institutional survival in competitive markets then, in theory at least, early adoption of these principles in an under-developed financial market should provide a financial institution with a huge competitive advantage. So what can be done?

Market research: Much technical support to institutions in product development, channel development, product refinement, customer service, branding, and product marketing, is based around the targeted application of qualitative market research, which helps in discovering the needs or aspirations of clients, and in translating that knowledge into practical action at an institutional level.

Many successful MicroSave clients have developed teams of staff who are trained in qualitative research methods and can perform rapid research with customers. ACSI in Ethiopia, one of Africa’s largest microfinance institutions, used their trained research team to understand and develop a savings product for youth which is currently being pilot tested. Equity Bank’s rapid growth over the last decade is attributed (in large part) by its CEO, James Mwangi, to its market-led approach. Market research was used to re-engineer and simplify Equity’s system of pricing its products; to develop new credit and savings products; to enhance the feedback loop of communication within the organization; to assess its brand and market position; and to test product marketing campaigns prior to launch. Three of the largest MFIs in the Philippines are re-engineering their product mix and delivery processes in response to a multitude of issues revealed by market research. Clients asked for quicker turn-around of loans, shorter weekly meetings and release from group liability which was resulting in the older, more reliable client regularly paying for defaults of newer clients they often scarcely knew. Three large banks in Colombia, Kenya and South Africa are building their m-banking product suite on the basis of market research conducted by teams trained and supervised by MicroSave. The results have allowed the banks to design a series of transaction, savings and recurring deposit products specifically designed for delivery on m-banking platforms through a network of agents.

Segmentation: Often target segments are established in a business plan, and are never actually questioned. But we have found that the segments that an institution aims to serve, and the segments that it actually serves are often different. We perform system based segmentation analysis on multiple overlapping savings data sets to establish trends and patterns, by geography, in account opening, account usage, dormancy, and size. This analysis was used to suggest why customers in one institution were not using electronic channels, and in another institution to demonstrate that radical changes in the deposit product offering were required. Following detailed analysis of its savings products Family Bank in Kenya introduced the Mwananchi Account, a revised savings account, leading to a doubling in customer numbers over a two year period. Often MicroSave combines system based segmentation with qualitative market research to obtain the best possible views on the suitability of an institution’s products and services.

Image Analysis: A common technique used by MicroSave to explore customer perspectives is image analysis of an institution, an analysis of how its users perceive the institution. Financial services are different from many other products, inasmuch as they are invisible, they are intangible. People tend, therefore, to act on perceptions of an institution—does it appear trustworthy, safe, professional? How customers perceive the institution and its services is therefore a vital aspect of becoming a more market responsive institution.

Quality of Delivery: Quality of service delivery matters in any industry. Delivering quality financial services promotes sales through word-of-mouth marketing. Furthermore, monitoring quality of services can provide early warning of situations where institutional delivery channels are unable to cope with growing customer numbers. However, many institutions struggle with communication problems, between clients and front line staff, and critically within different levels of the institution.

One way to solve such problems is to facilitate discussions within the institution on the constraints to service excellence, and then examine the solutions to these constraints. MicroSave frequently facilitates this type of discussion, bringing together staff who have experienced problems with those who can offer solutions. The process of consolidating opinions is rapid, and within two weeks an institution can have clear, actionable plans on how to move forward to improve service levels.

Product Development: Understanding customer needs is essential, but what about practical action? Financial institutions respond to the needs of their customers, through product development, and product refinement. Even after careful research, new products and services should go through a pilot testing process, so that the institution knows not only the product design and price, but how to deliver the product to its customers through its people, through its procedures, through its marketing and promotion, and through its infrastructure. It is often a mistake to rush this learning process.

Practical action depends on both the ability of an institution to take action and its willingness to invest in that action. This is where we come on to two different philosophies on how to do business. The first philosophy is essentially risk averse and is driven by the idea of ensuring profitability by controlling costs. The second philosophy is that of investment, maximizing opportunity, and it is driven by the idea of ensuring profitability by investing in ideas. In the second philosophy, market research and pilot testing are used to prove concepts, and then the level of investment is determined by opportunity as much if not more than cost.

So to summarize, how do we drive real results at an institutional level? It comes down to institutions first understanding clients and then having the capability and willingness to respond to those needs. We need to help institutions to provide market led solutions for financial services – thus yielding more loyal clients, more profitable organizations and greater developmental impact.

A recent Financial Times article entitled, “Innovators don’t ignore customers” argued that the rapidly dropping share price of Netflix, a DVD rental and online film service couldbe explained by the fact that the company lost touch with what its customers wanted. Keeping a sharp eye on client demand is thus not only the responsible or developmental thing to do–it simply makes good business sense.

This special Clients at the Center blog series has lined up a broad range of voices to delve into what we mean by understanding client demand and how developing a much more profound understanding can further responsible financial inclusion. We encourage you to read and jump into the conversation.