Tuesday, December 30, 2008

What can Baby New Year teach us about strategic marketing?

Two common New Years traditions in America include creating resolutions and checking the annual horoscope (Tarot cards, tea leaves, etc.) to see what the New Year will bring. It’s a light hearted sort of personal strategic planning – we project into the future and make plans to improve our lives.

Lately, I’ve been spending a lot of time in volatile environments, such as the West Bank and Afghanistan. Many MFI managers there complain to me – quite rightly – that strategic planning is difficult because things change so quickly and unexpectedly.

“What’s the value of planning,” they ask, “when the future is out of our control and impossible to predict?”

The real value of strategic planning (and strategic marketing) isn’t the plan itself. It’s the process.

We may not know what the future will bring, but the strategic planning process makes us aware of possible futures, and better prepared to cope with what may come. It helps us keep sight of our goals, so when circumstances shift, we can shift with them and keep on track, rather than lose our way altogether.

Still not convinced that forecasting is feasible in your crazed environment? Then you might want to try something called “backcasting.” With backcasting, one first visualizes a desired outcome, and then works backwards from that outcome to your MFI’s present state. NASA successfully used this technique to develop a plan to get the first man to the Moon. They began by imagining the astronaut’s successful return to Earth, and then worked backwards, step-by-step, to figure out how to get there.

Action item:

Sit down with your managers and decide where you’d like your MFI to be three years from now. Like NASA’s moon shot, create a “stretch goal:” an ambitious, perhaps even fantastic, long-term goal that will inspire your team’s innovation and creativity. What market share will your MFI have? Will it have successfully attracted donor or investor funding? Work backwards to figure out how to get there from here.

That pesky PEST

Or should I say, “that pesky uncontrollable, chaotic, external environment we work in, that makes it impossible to plan?”

In market research, one has to look beyond customers and competitors and also examine the overall environment. One common model for analysis is called the “PEST” matrix, which asks you to look at the political, economic, social and technological aspects of the environment which impact your clients and the microfinance industry in general.

P: Political. What laws are being considered which may affect microfinance? Are politicians debating interest rate caps? Consumer protection laws, which require advertising APR rather than flat monthly rates? Is there a movement to crack down on the informal economy? These are just a few examples of factors in the political landscape that impact your market.

E: Economic. How will projected inflation rates impact your MFI’s interest rates and profitability? What about currency devaluations? What other trends are on the economic horizon that may impact your operations?

S: Social. Is a religious movement against charging interest gathering steam? Are people migrating to urban areas? Sometimes when you’re living inside a social movement it’s hard to see what’s happening, but social issues such as those mentioned above can have a tremendous impact on the marketing of your products.

T: Technological. If branchless banking is heading your way, your MFI doesn’t want to be the last one to catch that wave. Ditto for mobile ATMs, or any other technological advance that can reduce the costs to your MFI and your client. MFIs which ignore these advances often find themselves at the mercy of their more forward-thinking competitors.

Action item:

Hold a “futuring” exercise with your managers. Draw up a PEST grid on a white board or sheet of poster paper and brainstorm developing trends within each category. Choose the three issues in each category which will have the greatest impact on your MFI’s performance. Then discuss the most likely directions each will take – what does conventional wisdom say? Next discuss the “worst case” scenarios – what’s the worst that can happen in each category?

Finally, discuss what your team would like to happen – what would be best for your MFI? Are there ways your MFI can help create your preferred future? Ways to take advantage of the “most likely” scenario? To avoid disaster in a worst case scenario?

Sunday, December 28, 2008

Competitive Analysis for MFIs

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
- Sun-Tzu, The Art of War.

Recently I got into a heated argument with a fellow microfinance practitioner about the government’s role in promoting competition. (I argued that in a free market the role of the government isn’t to create competition, and more frequently well-meaning governments hinder it.)

But what my colleague was really debating me on wasn’t about promoting competition, it was about the government ensuring that MFIs don’t compete – e.g. by “motivating” MFIs not to provide overlapping services in the same areas.

To this I say, “stuff and nonsense!” Competition is good for clients, driving prices down and forcing MFIs to provide better products and services.

Still, it’s easy to spout theory. When you’re an MFI manager battling it out with a competitor in a hotly contested market… Well, one can be forgiven for wanting the government to banish the other MFI to a far off region of the country.

Short of that delightful if misguided fantasy, how can MFI managers deal with competition? It’s a bit of a touchy subject, because as institutions with “social” missions it’s not politically correct to talk about “beating” anyone, much less one’s competitor. But take heart – competition really is for the good of the client, and aiding the client is your end-goal. Right?

So, step 1: Know your competitor. Whenever I hired a new loan officer, one of their first jobs was to show up at a competitor’s office and masquerade as a potential client, then report back to the credit manager on the experience. This had two benefits: it taught the loan officer how competing loan officers worked, and it also gave us some valuable intelligence.

I also diligently gathered marketing materials and press clippings from our competitors, and reviewed the financial statements they publicized. There’s a lot of public information on-line, and in industry newsletters and donor reports. All you need to do is collect it.

To really know your competitor, you should not only have on hand information on their products and terms, but also know their market strengths and weaknesses. Is your competitor undercapitalized? Then now might be the time for you to push harder to expand your market share. Is your competitor slow in disbursing loans? Can you beat their time?

Step 2: Know yourself. Next, assess how your MFI stacks up against the competitors. The idea here is to play to your strengths and minimize your weaknesses vis a vis your competition, while maintaining your mission and strategy.

The sample spreadsheet embedded below can give you an example of what key elements to look at. (Sorry – I couldn't figure out how to include this as an Excel download, but if you’d like a copy, I’ll be happy to send you one).

Is a good woman (small business owner) really so hard to find?


In America, there’s a saying that a good man is hard to find. It’s not true, of course. The problem is that many women haven’t properly identified what a good man is. What woman hasn’t at some point entertained an impossibly romantic notion of a fictional hero or movie star or someone equally unattainable (and nonexistent) as the ideal mate? Admit it, ladies! And if women don’t really know what they’re looking for, they can’t find Mr. Right. In short, they haven’t properly identified the market segment of “good men.”

The same seems to hold true when it comes to MFIs seeking female small business owners. More and more MFIs are expanding their loan ranges upwards, reaching beyond microenterprises to certain small enterprise segments. But if you look at data from the 2007 Microfinance Mix, as loan sizes go up, the number of female clients seems to go down. Are women small business owners really so hard to find? Or are we looking in the wrong places?

First, let me clarify – women are not a market segment. Women are half of the world’s population and as a single group they make a very clumsy segment indeed. But women small business owners are a different and unique breed. They’re typically not the same as their counterparts in the microenterprise segment – after all, they’ve succeeded in taking that leap from “micro” to “small.” Few microentrepreneurs can do that.

This may not appear such a big deal – the gap in dollar terms between a micro and small enterprise loan generally isn’t that large – but it represents a chasm in mental attitudes between the female micro and small business owner.

Therefore, when an MFI looks for female small business owners using the same marketing techniques used for female microenterprise owners, odds of success are low. And dependent on the country and culture, MFIs who use the same outreach methods for women as they do for their male small business clients can similarly fail.

In Africa, the IFC’s gender unit has taken a hard look at this issue, and works with its partner banks to improve the marketing of loans to female SME owners. Sometimes, through the use of mystery shoppers, their team has found that male loan officers are dismissive of potential female clients. If your loan officers don’t believe women are serious about developing their businesses, or don’t believe that female small enterprise owners exist, how successful will they be at attracting women business owners? (Answer: not much). Other times they’ve found that promotional materials and sales pitches don’t speak to issues women business owners care about.

Other barriers fall on the product design side (also a marketing issue – remember the 5 Ps!). For example, collateral requirements may present a barrier to women who don’t hold land title. But there are ways around this – using jewelry as collateral, leasing, or cash flow based lending, for example.

Though women aren’t a “segment” per se, when trying to attract female small business owners, MFIs need to take a hard look through the market research lens at how their product design, sales, and promotional materials speak to the female small business market. Because MFIs have done such a great job of attracting female microbusiness owners, we can fall into denial when we fail to attract female small business owners, blaming the market, the women… anything but our own processes.

Most MFI managers (and banks) really do want to reach women small business borrowers, if for no other reason than they represent a profitable and low-risk market. And admittedly, in some countries (like Afghanistan), there really are fewer female small business owners. But too often, the failure isn't lack of female business owners or lack of will. More often it boils down to poor implementation of the good old “5 Ps” of marketing.

For more information on lending to women in developing countries, check out my recent article on Women Entrepreneurs in UpSides magazine, Issue #8!

Saturday, December 27, 2008

Rural marketing

I just came across an interesting presentation on rural marketing. Though it isn't specific to microfinance, the lessons are certainly applicable.

Check it out by clicking on the headline, above.

Segmenting your market

“Know your client,” we hear over and over again. And an MFI’s loan officers generally do know their individual clients very well. But how does that translate to good decision making on the part of MFI management?

Not everyone wants a loan from your MFI, so it’s important to understand just what types of people do want your financial products and services. Then you can tailor your pricing, products, distribution channels (place) and promotion to these client types, or segments.

Effective segmentation starts with identifying a group of potential clients who have similar attributes and who will help your MFI achieve its outreach and development goals. The challenge is to group this segment into a useful single category – too narrow and the group may be too small, too broad and the category may be unhelpful. A segment is most useful when it groups potential clients in such a way as to enable the organization to service them through a single approach (those 4 Ps again!).

Next, the manager must ask if the segment is large enough to justify serving it with tailored products or services. For microfinance institutions, this means estimating the number of potential clients within the segment and their total demand for credit.

Are you feeling overwhelmed yet? If so, then let’s take a step back and break this segmentation business down.

We’re providing microcredit, so let’s start at the micro level: profiles of “typical” clients. Write out a biography – a story of sorts – of a typical client in each segment you discover. Each biography should attempt to answer the following questions:

· What are the problems of this type of client?
· Where do they turn to for information to solve their problems? Cable TV? Their local wise woman?
· What are this client’s hopes and dreams?
· What benefits can this client get from your product?
· What product attributes do they care about?

Your loan officers can and should help you build customer segment profiles. However, when conducting market research you shouldn’t rely on one source alone. You should triangulate – using multiple sources to help get a more accurate picture. And there’s no better source in this case than the client.

The best way, therefore, to answer these questions, is to sit down with some typical clients and ask them. How did they learn about your MFI? What are they really using your services for? What benefits do they get from your services? What do and don’t they like about your products? You get the idea.

Once you’ve gotten a clear picture of different segment profiles, write down a biography of a typical client from each segment. For example: Nana used to work as a history professor. But after the fall of the USSR and the collapse of the economy, both she and her husband lost their jobs. To make ends meet, Nana began trading in a bazaar – a high turnover business. To match the cash flow, Nana needs small loans which also “turn over” regularly, e.g. with four month terms.

Nana’s high level of education makes her quite capable of managing her loan and keeping good accounts, but accounting isn’t something she’s been trained in, and a good set of books just makes it easier for corrupt officials to extort fines and “fees” from her. It’s not that Nana is dishonest, but the tax and business registration systems are so confusing that it’s easier for her to stay in the informal sector.

Nana’s husband remains unemployed, and she is the primary source of income for her family. She’s determined to send her children to the best schools, and they cost money. She doesn’t want to be a trader and has no ambitions to increase the size of her business. She would give up her job in a minute if she could get her old job back at the university. But for now, she works hard in the bazaar to maintain her family. During slow times in the bazaar, Nana chats with friends – community is important to her and she is respected and in turn respects her friends’ opinions. When there are no clients, she also reads the newspaper. She has little free time at home, but enjoys watching cable TV when she can.


The client biography is also a good exercise for your other stakeholders, e.g. donors and investors. But more on that later.

Discussion questions:

· What benefits from the loan does Nana care about?
· What advertising mediums can the MFI use to reach Nana?
· What message(s) should the MFI use to appeal to Nana?
· What product and delivery issues should be considered given Nana’s educational profile?

Friday, December 26, 2008

Combined arms and your marketing department

This is going to be a short (because it's the holidays) and slightly off-topic post (I was trying to be so orderly in presenting my thoughts). Today I ran across a military concept called the "combined arms approach" and it reminded me of, well, a well-designed marketing department.

The combined arms approach integrates different military arms which compliment each other on the battlefield in order to maximize results. For example, while the lower-echelon units may be homogenous, a mixture of lower-echelon units are combined into a single higher-echelon unit. E.g. an armored division might include tanks, artillery, infantry, recon, etc., all coordinated by a unified command.

The concept struck a chord with me because recently I met up with some bank managers who wanted to develop a separate product development department, a marketing department, and a research department. However, those functions should be combined and directed by a single, marketing department -- much like the combined arms approach. That way, for example, the market research would inform the product development, the marketing team could ensure the 5 Ps were in place, budgets could be coordinated, etc. It's a bit like integrated marketing, though at the level of the marketing department itself.

Combined arms... hm...

Thursday, December 25, 2008

Case study: A focus group goes bad

An MFI had implemented a poster and billboard ad campaign for their new loan product… without having done any market research in advance. After the signs and posters had been printed and distributed, a focus group was conducted to get their clients’ reactions to the campaign.

Groups of target clients were shown the ads and the focus group moderator began reading through the questions in his discussion guide. Things went off track very quickly, however, when the clients admitted that they couldn’t actually read the ads. Most of the borrowers were illiterate.

The moderator, who had also designed the ad campaign, became upset and began explaining to the clients what the ads meant (not what they said). The focus group participants were able to give him some feedback on the message, which didn’t address their key concerns about speed of delivery and loan size. The angered moderator argued with the clients, telling them that the ads weren’t “supposed to be” about the loan size.

Discussion questions:

1. When would have been a good time to hold the focus group?
2. What could the moderator have done differently?
3. What market intelligence was gained from the group?
4. Was this a successful ad campaign?

Tuesday, December 23, 2008

Moderating focus groups

Focus group moderators should understand the objectives of the focus group, ask open questions and probe for answers, guide the discussion, facilitate positive group dynamics and try not to bias respondent answers.

“Oh, is that all I need to do?” you say, your lip curling in annoyance. “Who do you think I am? Oprah?”

With some planning, moderating a focus group is actually not that difficult. In fact, focus groups can be… yes, fun! And that leads to one of the biggest challenges of focus groups: moderator bias.

We’ve all got our own opinions, and in the informal atmosphere of a focus group it can be tempting to express them. We’re all friends here, right? But as the moderator, it’s your job to listen, and to take care that the questions you ask aren’t biased or leading, e.g. they don’t push the respondents towards answers you want to hear or participants think you want to hear.

When you’re reading off a survey script, it’s a bit easier to avoid bias. The question is right there on paper, has hopefully been carefully designed, and all you have to do is read it and try not to make funny faces. But in focus groups, even though you’ve got a discussion guide to follow, you may find yourself asking unscripted follow-up questions. After all, the point of a focus group is frequently exploratory – you may not be able to predict the direction the participants’ answers take you in.

Below are some tips that reduce the risk of moderator bias and can help you draw out useful information from focus group participants.

1. Be aware. It’s easy to express bias, especially if the respondents are criticizing your MFI! Put yourself in the role of an objective facilitator, and not a defender of your MFI.

2. Don’t express your own views. Don’t react positively or negatively to participant responses.

3. Explore disagreements between respondents. You can learn a lot from them – they may represent the points of view of different market segments inadvertently put into the same focus group. But be sure to maintain your role as the calm, interested facilitator. You’re there to get answers, not promote arguments.

4. Probe agreements between respondents. Echo or repeat back answers using different wording to ensure understanding and draw out responses.

5. Keep your questions short and simple, so as not to confuse participants or give you the opportunity to accidentally insert bias.

6. Maintain positive group dynamics, drawing out quiet participants and keeping more aggressive participants from dominating the conversation. To draw out quiet participants, you can ask them questions directly, make eye contact and smile, or ask him or her to comment on what someone else has just said. Domineering participants can be a bit more challenging. Techniques for handling them include avoiding eye contact, interrupting politely by telling them they’ve made an interesting point, and asking someone else what they think, and as a last resort, invite the assistant moderator to take the domineering person outside for an individual interview (because their opinions are so interesting!).

7. Directly test your hypotheses at the end of the focus group. For example, if you think the loan size should be included in your MFI’s advertising, the end of the focus group is a good time to ask this question outright. (The beginning of the focus group is the time to ask more general questions – where do they see your advertising, what’s the main message of your advertisements, etc.). Sometimes if participants know your hypothesis at the beginning of the focus group, it can bias their answers.

8. Thank the participants for their time! Time is money, and you've just spent theirs so you can increase your MFI's profits -- er, sustainability. At the very least, your participants deserve a round of applause for their help! (Though I like to give thank you gifts as well).

Friday, December 19, 2008

Focus group preparation

Focus groups are informal group discussions, usually including six to eight people who fall within your sample group. This market research tool allows MFIs to collect a relatively large amount of data in a relatively short period of time. Focus groups also allow for an in-depth examination of issues through the dynamics of a peer-group discussion.

One question that frequently arises is: how big should the sample size be? Generally, when focus groups start yielding repetitive information, it’s time to stop.

Here’s how to prepare for a focus group:

Step 1) Figure out what you want to learn. A focus group can run an hour in length and you don’t want to waste your clients’ time (or your own) with nonsensical questions. What do you really need to know? How will the information help you make decisions?

Step 2) Decide who you want to learn about – i.e., who is your sample? In market research, a sample is a select group of people. You need to make sure the people who participate in your focus groups can actually answer your questions and meet your research objectives.

Imagine that you want to learn about the impact of advertising in bringing you new clients. Should your focus group include potential clients who have never borrowed from your MFI, or existing clients? The former, of course! Yes, it may seem obvious, but you would be surprised at how many MFI managers bring in the wrong group of people to answer the wrong questions.

Step 3) Write a discussion plan. At its simplest (and I like simple) this is a list of questions you’ll ask during the focus group. Questions should be designed to encourage honest answers.

Some general rules for designing your questions include:

· Include warm up questions. The order you ask questions in is important – you want participants to feel relaxed enough to answer your questions honestly. Starting with hard or complex questions can freeze people up, so start with easy, “getting to know you” type questions.
· Move from general to specific – this will allow you to get a more in-depth understanding of what participants think.
· Move from past to future – this is how most of us think, and will make it easier for people to respond.
· Start with general questions and then move to probing questions.
· Use simple language.
· Use open questions, i.e. questions starting with the words, “what,” “how,” “when,” “why”, and “where.”

Step 4) Plan your logistics. You’ll get a lot of information during a focus group. Optimally, you will video tape it for later review. Tape recorders can work too, though it’s frequently difficult for everyone to be heard on the tape. Your third option is to have a note taker, but they’ll need to be able to write fast!

Additionally:

· Secure an appropriate, quiet, meeting place where you won’t be interrupted by ringing phones or other MFI staff;
· Choose a convenient time for the respondents;
· Make appointments with the participants;
· Ensure invitations to the focus group are clearly communicated;
· Arrange for transport where it is necessary;
· Provide food, drink, and gifts for participants – they’re taking time to help you, and should be rewarded for it.

Next up: moderating focus groups.

Wednesday, December 17, 2008

Case study: Focus group, Afghanistan

We wanted to do some industry level advertising for rural microfinance in Afghanistan, and we didn’t have much money to do it. So we came up with the idea of a poster campaign.

Problem: the literacy rate in Afghanistan’s rural areas is quite low.

Solution: a poster comic strip, getting our idea across in pictures rather than words.

I had a general idea for the strip and hired a local artist to sketch it out. But we didn’t really know if it would work. I understood what the pictures meant – they were my idea, after all. But would the Afghan women we targeted understand it? Did our comic strip show the benefits of a microloan?

There was one way to find out – ask!

We pulled together focus groups of female rural borrowers (our target market), showed them the draft cartoon, and asked them to tell us what the story “said.” Then we told them what we had intended for it to say, and asked how we could fix the pictures to make them more understandable.

The information they gave us was golden – change the headscarf on the borrower to a floral print to make her look rural, change the headscarf on the loan officer to a solid, dark color so she looked like a more sophisticated “city girl,” etc., etc. The artist frantically took notes while our focus group told us what life in rural countries was really like, what mattered to them, and how we could show that in our cartoon.

We made the changes, printed the posters, and… Participating MFIs reported that women were lined up outside their doors to ask about loans.

The focus group was simple, inexpensive, and invaluable. If we had printed the posters without this crucial step, it’s unlikely our message would have been understood. Money would have been wasted on ineffective advertising.

So how does one run a focus group? Stay tuned…

Sunday, December 14, 2008

Exit surveys

I love exit surveys. First, exit surveys provide MFIs with critical data. Since profits are typically made in later loan cycles, repeat clients are critical to an MFI’s sustainability. Second, exit surveys are easy. The greatest danger of exit interviews is that MFIs will over complicate them, and then end up not conducting them because of it. So my advice is to keep it simple.

The easiest way to run the exit survey is to let your loan officers conduct them at their last meeting with the client. This way, there’s no need for an extra visit to the client – it saves everyone time and money. And since the loan officers are used to extracting all sorts of personal information from clients, they’re quite capable of asking one more question: why are you leaving?

The trick, of course, is creating a list of standardized responses so the answers loan officers collect can be entered into a database by the marketing department and analyzed by management. A good step towards developing the survey instrument, therefore, includes discussing typical drop-out reasons with loan officers.

While there need only be one survey question, “why are you leaving,” the loan officers should have a list of boxes and check the one box which best matches the client’s response. Those responses could include:

· Failure to repay the loan (i.e. the client is being forced from the program)
· Don’t need another loan
· Closed business
· Illness/death
· Too many group meetings
· Interest rate too high
· Loan too small
· Group closing

But only consider the above list a starting point. Every environment will be different, and yours may lead to other important reasons clients leave that aren’t included in the above list.

Of course, there is one answer which borrowers may be reluctant to give a loan officer – what if they’re leaving because they don’t like the loan officer? The best answer I can give to this is to include the loan officer’s name on the form and include that in the data analysis as well – the MFI should track drop-outs by loan officer, and if someone’s is unusually high, that’s a red flag for management.

Wednesday, December 10, 2008

Case Study: Measuring Client Satisfaction

A microfinance bank in North Africa conducted a series of focus groups with existing customers to determine their satisfaction with current products. Initially, they had lumped their clients into one segment. However, during the course of the pre-test focus groups, they discovered that they had three distinct client segments with very different wants and needs.

Their female clients were happy with the savings requirements and cared most about having the loan delivered to their homes, but they needed more “income smoothing” loans. The male clients with traditional microloan sizes had neutral feelings about the savings, and cared the most about speed of delivery. The male clients with larger loans, in the small enterprise range, didn’t like the savings requirements at all, preferring to invest their savings in their own business, where they could achieve a greater return. This group was also the most sensitive to price.

As the bank expanded their focus groups beyond the pre-test phase, they organized the groups by segment in order to get data by client group. They further segmented their data by geographic region, recognizing that urban borrowers were different from their rural borrowers. Through these segmented focus groups, they learned that in urban areas, in order to keep their larger clients happy, they’d have to address the savings issue and examine their pricing. They also realized that they would have to pay greater attention to speed of loan delivery for their microloans targeting urban men, and that there was an opportunity to expand their lending to urban women through supplementary education and housing loans.

Discussion questions:
1) What other client data might the managers want to understand by segment?
2) How often should the MFI conduct client satisfaction focus groups?

Market research and client satisfaction

Market research tools should be appropriate to the size of the MFI. Though a notable few MFIs have made the leap to “major corporation” status, most MFIs are closer to medium-sized than large-scale enterprises, and this blog will focus on market research methods for the small to mid-sized MFI.

Though larger MFIs have the advantage of more funding for sizable market studies, this doesn’t mean that market research by more modestly sized MFIs must be sub-standard. Small to medium-sized MFIs can effectively collect market data using tools such as focus groups, surveys, and observation. They can also conduct high quality exploratory, exit and satisfaction research.

Today, I’d like to focus on the latter – researching customer satisfaction. Questionnaires, surveys, interviews or focus groups can all be used when researching customer satisfaction. Whichever method you use, there are some general rules to keep in mind.

1) Segment your market (and your market research). Different groups of customers (i.e. market segments) will make their buying decision for different reasons. If you mash all your client groups together in one survey, without differentiating between who says what, the data you receive will be confused.

2) Decide in advance what specific aspects of satisfaction with products you’ll be researching. Generally, clients look at price (no one will ever admit to liking your interest rate), speed of delivery, point of access, loan size, customer service, range of products/services, product flexibility, and collateral requirements. There may be some other aspects of your services you’d like to focus on as well, or some points listed above which don’t apply.

3) Satisfaction vs. loyalty. According to a survey, 60-80% of clients reported being “very satisfied” before switching to a new supplier! (Reichart, 1996). The goal of having satisfied clients is having repeat clients. Verify your satisfaction data against your drop-out data. Are your clients staying with your program for years or for months? Are they using your MFIs other financial services? Are your clients referring your services to their friends? These are all indicators of loyalty.

4) Pre-test your research instrument. Expect that your first “draft” of a questionnaire or focus group script will be flawed and be ready to fix it before you go too far.

5) Do it regularly. Whether you randomly survey clients at the end of each loan cycle or conduct annual focus groups, data should be collected regularly.

6) Report it! There should be a system for analyzing the data and delivering it to management and loan officers. Loan officers are on the front-lines of providing customer satisfaction, and managers need the data for more strategic decision making (e.g. product redesigns).

Monday, December 8, 2008

Case Study: Making pricing decisions

[In this true story, names have been deleted to protect confidentiality. Rather than referencing the country’s currency, I use the abbreviation “C.U.” for “currency unit.”]

“We know why people drop out of our program – price,” the MFI’s senior manager said. “The banks have lower rates than us, but our costs are higher. We’re considering lowering the interest rate for our individual loan program in the third or fourth cycles. What do you think?”

“Are clients dropping out because of price in the 3rd and 4th cycles?” the consultant asked. It was the consultant's first meeting with this MFI, and before she told anyone what she thought, she wanted to learn more. One thing was already clear, however - the MFI managers were skeptical of marketing. They had never used it in the past and didn't see a reason to start now.

There was a pause. “We don’t know,” the senior manager admitted.

“Then that might be a topic for research. I’d be interested to know exactly when the price factor causes people to drop out. There’s no sense in giving a discount in the third cycle if people are dropping out due to price in the fifth cycle. Have you seen any differences between your individual loan clients with small loans and those with larger-sized loans?”

The consultant explained that different market segments will prioritize certain loan attributes differently. When people consider taking a loan, they’ll look at the loan’s price, speed of delivery, terms, flexibility, customer service, and access/delivery.

Typically, MFIs have found that people with larger businesses and credit needs have different priorities than smaller loan clients. For example, people with larger loan sizes may be more price sensitive, while smaller borrowers care more about the loan officers coming to their business to collect repayments.

One of the branch managers in the meeting spoke up: “Our clients with loans around 20,000 C.U. care first about speed – how quickly they can get their next loan. Clients who take out 1,000 C.U. loans care most about price.”

“1,000 C.U. – that’s your starting loan size, isn’t it?” the consultant said.

“Yes,” replied the branch manager.

“So you’re saying price is an issue with your new clients?”

“Yes,” the branch manager replied. “Once people are in the program, they understand the benefits of the loan and stay with us. Price isn’t such an issue then.”

“Then why are you considering reducing price in the 3rd or 4th cycle, if price is only an issue with new clients?” the consultant asked.

“As a promotion,” said the senior manager.

“But are you promoting something which people don’t care about? Won’t you be cutting into your profits needlessly? It sounds as if this might be a sales issue rather than a pricing issue. Perhaps your loan officers aren’t selling the other benefits of the loan.”

“Oh no,” said the senior manager. “We train our credit officers not to even mention price. They’re trained to discuss the non-financial programs we offer our clients, such as health training and insurance.”

“Do your clients care about those non-financial programs?” the consultant asked.

The MFI’s managers couldn’t answer her. They didn’t have any hard information on what their clients cared about. Instead, they were making strategic decisions, such as pricing, on assumptions rather than on real data.

Here are some questions for you to think about:

1) What sort of information would it be helpful for these managers to have?
2) Where does the pricing decision intersect with marketing?
3) Should this MFI drop its price in the 3rd and 4th cycle?
4) How could integrated marketing help this MFI's managers?

Thursday, December 4, 2008

The market research loop

Too often, market research is not conducted at all (how many times have we heard, “we don’t need to do market research – our loan officers know our clients intimately!”). If it is conducted, market research is frequently not fully utilized.

At one MFI I worked with, drop-out data was collected for every client and then sat in a computer file – no one saw it except for the data entry staff.

What a waste of time and information!

In a market-driven MFI, market demand drives products and strategy. For this to happen, managers must know and understand client demand, and they need research data to do this. But unless all levels of the company use the research data and can drive what questions are being researched, market research is wasted. Too often, research data languishes in a file, unreported and un-used.

The solution to this is to ensure that market research flows in a loop through your institution. Research findings must flow up to management and down to loan officers, and loan officers and managers must provide feedback to the researchers. Do they agree or disagree with the findings? Would they like research to explore other issues or to explore certain findings more deeply?

Action item: Make a “wish list” of information you’d like to know about your clients and how you can use it. Look in your credit files to see if any information on your list is already being collected by your loan officers. How can you access that data on a regular basis?

Wednesday, December 3, 2008

Case Study: Intgrated marketing reduces drop-outs

Fonkoze, a Haitian MFI, has a Social Performance Monitoring (SPM) unit which behaves like an integrated marketing department.

How, you ask?

They collect market data on a regular basis, manage the information they gather and disburse it throughout the MFI, and management actually uses the data for strategic decision making.

What makes this department “integrated” is the level of coordination between managers and the SPM unit. Social monitors continually feed the information they collect to their supervisors, and the department director manages the data to make sure it gets to the board and upper management. The unit also works with top management and branch managers to find out what questions they most want answered, for example in the bi-annual focus groups conducted by Fonkoze’s “social impact monitors.”

Like most MFI’s Fonkoze realized that they don’t earn a profit on a client until the borrower has been with the program for 10-11 months – in Fonkoze’s case, the third loan cycle. By regularly monitoring drop-outs, the MFI determined that the highest proportion of clients who drop out, drop out after the first or second cycles. Fortunately, Fonkoze’s social impact monitors conduct regular client exit interviews, and reported results to managers.

Thanks to their integrated marketing/SPM program, Fonkoze was able to develop strategies to provide incentives for clients to stay with the MFI. For example, Fonkoze adopted a life and credit micro-insurance program for all our clients to decrease the dropout rate and increase profitability, and has introduced other initiatives to keep clients with the program.

Monday, December 1, 2008

Integrated marketing and social performance management

If you’re still unconvinced about the benefits of integrated marketing, how do you feel about social performance management? Because the two practices are so similar – in design and data collected and data reported – that their functions can be contained within one department (whatever you decide to call it).

First, however, let’s define our terms. Social performance management (or “SPM” for short) is a regular, systematic model for client knowledge management – i.e. learning about the client and managing that information. Under SPM, three types of data are collected: indicators which assess the MFI’s client outreach, its client needs, and the benefits clients receive from the program – e.g. changes in lifestyle or income.

Integrated marketing is also a regular, systematic model for client knowledge management. The data collected by market research typically includes indicators which analyze the MFI’s target market (i.e. outreach), its client needs, and the benefits its clients receive from the program – e.g. changes in lifestyle or income.

Notice any similarities?

The data collected is the same. The focus on regular collection and managing the data so it is utilized throughout the institution – at strategic and operational levels – is the same.
Data collected under SPM and integrated marketing programs flow throughout the institution the same way – to and from upper management and loan officers alike. In both cases, the data is used to improve outreach, develop better products, and communicate more effectively with current and potential clients.

Imagine an MFI with a stated social mission to support at-risk families. Through the MFI’s integrated marketing/SPM system, the managers have learned that a key segment of female urban borrowers use the MFI’s business loans not for their business, but to pay for school fees, because they believe education is the key to their children’s success.

Seeing an opportunity, the MFI redesigns the product so it better fits the timing and loan size needed for school fees. The MFI then trains its loan officers to promote the product’s benefits, (e.g. education loans help children earn more later in life). It also develops a poster campaign on urban subways, which research has shown most of these borrowers ride on daily.

The re-designed product fulfills the MFI’s social mission, while expanding its client base. The social and profit/sustainability outputs are interwoven. Integrated marketing is what weaves it all together.

Saturday, November 29, 2008

Integrated marketing

In both the corporate and non-profit worlds, one tends to find four different mindsets about marketing:
  • The first believes marketing equals sales and advertising;
  • The second thinks marketing equals the "4 Ps": price, product, place and promotion;
  • The third believes marketing includes segmentation, targeting and positioning (i.e. the 5th “P”, people) and next the 4 Ps;
  • The fourth considers marketing to be the driver of business and the source of the institution's growth in the market.
Too many MFI managers live in the first and second mindsets. This has the affect of bottling up the power of marketing. The market research “genie” remains corked in her container, only to be unleashed for special projects, if at all. But by doing so, market intelligence is under-utilized, neither informing strategy nor enhancing day-to-day operations.

In a market-driven MFI, market intelligence drives pricing, product design, distribution methods and speed of delivery, sales, promotion, and the company’s overall strategy. Market intelligence flows throughout the MFI, and MFI staff provide feedback to the marketing department.

MFIs can improve the role of marketing within the organization, first by determining how marketing is actually seen within the MFI. What mindset do the CEO and other staff members have about marketing? Is marketing respected within the MFI, or seen as a waste of time?

Next, MFIs can properly structure the marketing department. In mid- to large-size MFIs, there should be a marketing department headed by a Chief Marketing Officer. This department manages market research, product development, and promotion (the latter includes everything from sales training to advertising). In small MFIs, a single person may be in charge of all of these functions, closely coordinating with other department heads.

Action item: To start integrating your MFI’s marketing, first review which reports upper management and loan officers receive from your marketing department, and how often. At a minimum, I’d recommend:

• Customer drop-out reports to upper managers and loan officers - quarterly;
• Customer satisfaction reports to upper managers and loan officers - quarterly;
• Market trends report to upper management - annually;
• Competitive analysis to upper management and loan officers - twice a year;
• What else would you add? Please comment and let me know!

Wednesday, November 26, 2008

Do MFIs need marketing?

As a microfinance practitioner and later, consultant, I’ve encountered my share of MFI managers who fail to utilize marketing. Some are quite happy to rely on direct sales and “word of mouth.” Others avoid marketing because it smacks of cold, calculating business practices. MFIs are social enterprises, and marketing is so... capitalist.

However, donors are drifting away from grant funding for MFIs. They've noticed that commercial MFIs tend to reach more clients than their subsidized brethren. MFIs that behave like for-profit businesses (even if they aren't registered as such) do better for their clients. And any MFI with a mission to serve the poor should care intensely about serving its clients well.

MFIs that are market-driven are more effective at extending their outreach. And to be truly market-driven, MFIs need to engage in marketing. The good news is that with a dose of common sense, a strong integrated marketing program is within reach.

The failures of most marketing programs typically have to do with lack of integration with the MFI's strategy and overall operations, and misunderstandings about the role of marketing. Marketing isn't advertising. It isn't sales. Advertising and sales are only parts of the marketing mix. Marketing actually integrates the “5 Ps”: people (think market research), pricing, products, promotion, and place (i.e. distribution).

The most important element, however, is people. People, or the customers, drive the process. By thoroughly understanding why your clients want your financial products, and what your clients want, MFI managers can make strategic decisions about pricing, product design, promotion, and distribution channels. This in turn increases client outreach and the MFI's sustainability.

But too often marketing stands outside the day-to-day operations of the MFI. Market research data sits on a shelf, unused. Loan officer understanding of clients does not flow to managers. Products are designed haphazardly, with little understanding of their strategic role within the product line.

In a market-driven MFI, all levels of the organization must be intensely aware of their clients. Marketing must be integrated. Market research findings must flow up and down the organizational chain so they can inform pricing, product design, distribution methods and timing, promotion, and the company’s overall strategy. When this happens, the power of marketing is unleashed.

Action item: I’m going to attempt to add a concrete example or a simple action item to each blog entry, which MFI managers can implement immediately. Since this is the introductory blog, today’s suggested action item is a bit theoretical, but in the future I plan to make them more “concrete.”

So for today, just think about how marketing is integrated in your MFI. How does market intelligence flow through your company, and how is it used? Does it drive strategy?