Friday, February 20, 2009

The product development cycle: part 2

The next two stages in the product development cycle are concept development and financial analysis.

Concept development: During this stage, concept development fleshes out the ideas that pass the “screen test.” Concept development asks and answers the following questions:

  • Who is the "buying" decision maker? E.g. one product being talked about a lot these days are microloans for youth. How much influence will the parents have on the youth's "purchase" of the loan product? Who is the real decision maker -- the young borrower or his mother or father?
  • What features must the product include?
  • What are the benefits to the target market?
  • How will clients react?
  • What will it cost to deliver?
  • How will the product be delivered most cost-effectively?

The concept is then tested in focus groups of clients or potential clients. Focus groups might answer questions such as:

  • Do they need this product?
  • How could they use it?
  • When do they need it?
  • How quickly do they need it?
  • Is it structured appropriately?
  • What other questions could you ask?

Financial analysis: Once the product idea has passed the concept test phase, the MFI enters the financial analysis phase. Here, interest and fees are estimated based on competition and an understanding of what the client will pay.

Then sales volumes are estimated, alongside profitability and how many loans must be disbursed (at what size) to break-even. The cost analysis should take into account the costs of new staff (hiring and training), MIS, marketing/promotion, and anything else which will affect fixed and variable costs. In short, here MFIs estimate if this new product idea makes financial sense. Too often, MFIs skip this stage!

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