Wednesday, February 4, 2009

Product (re)design

In yesterday's post, I mentioned that a product redesign might be more effective than creating a new product out of whole cloth. Although developing completely new products is always an option, MFIs are frequently better off exploring changes to existing products before developing new ones (see Figure above).

This reflects back upon the pitfalls of having too many products. Why waste resources on multiple products that don’t go anywhere, when you can have one or two great products that reach scale? It can be more efficient and effective to develop one strong, simple product which can be slightly changed to expand the market, rather than create a host of completely new products. The former option better enables MFIs to achieve scale when serving poor and low income markets, but this can only be achieved if the MFI knows its customers well – what the benefits are, how they use the products, and what the care about. For example...

The MFI can change the core product. In this case, the product is changed or marketed to serve different needs or highlight new benefits. For example, an MFI might discover that borrowers are using its short-term inventory loans to pay for medical emergencies, and decides that this usage fits with the MFI’s social mission. The MFI then introduces and markets a medical emergency loan, which has the same terms and conditions as its short-term inventory loan.

The MFI may change its augmented product. Here the product retains the same features (i.e. terms and conditions), but the delivery speed, customer service, forms, etc. are changed. One example of this is the “speed loan”. At one microfinance bank, the Speed Loan carries the same terms and conditions as its standard microfinance loan, but the bank is able to disburse it in three hours. Though this is a relatively simple change, it must be carefully implemented to mitigate risk.

Repositioning the product is another option. Again, terms and conditions remain the same; however, the product is repositioned with a new marketing campaign targeting a different segment. For example, a “women’s empowerment loan” might now be marketed to men – it’s the same product, but the name and promotional materials are changed to a “business power loan” in order to appeal to the male market.

MFIs can extend the product line. For example, in some countries the demand for inventory purchasing power increases around key holidays. The MFI might add a seasonal loan with similar terms to its core product meet this demand.

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