Tuesday, February 3, 2009

What part of the product are you (re)designing?

In marketing, we think of a product having three distinct components: the core, actual, and augmented products.

The core product isn’t always obvious, but it’s what clients are really buying. It’s the benefit the client gets from the product. For example, when people take out a loan, they’re not buying money, they’re buying the ability to increase their income, expand their business and send their children to school.
Understanding why different market segments take out a loan – what benefits they get and what needs the loan fulfills – is important as a basis for conducting market research, when selling the product, and when promoting the product. Analyzing what benefits the clients receive from a loan is the key to designing pro-poor products. Access to finance isn’t beneficial if it puts the borrower into a situation of burdensome debt for consumer products they could live without. Benefits analysis, therefore, has a two-fold purpose: designing products the customers want and achieving the MFI’s social goals.

The “actual” product in terms of a loan would be its terms and conditions. E.g. what’s the interest? How frequent are repayments? How big is the loan?

The “augmented” product encompasses the other intangibles associated with product delivery, e.g. how quickly the loan is disbursed, the quality of customer service, whether the loan is repaid at an MFI’s branch or at the client’s home, or how many forms the client must fill out.
These points are not theoretical; they are essential elements to consider when it comes to achieving scale with pro-poor products, because a completely new product may not be the best way to expand outreach.
Understanding the difference between the core, actual, and augmented products opens up ways to create “newly designed” products without incurring the costs and stresses of developing products out of whole cloth, and which enable MFIs to expand within the poor and low-income markets on a sustainable basis.
Action item:
Review your existing products and break them down into core, actual, and augmented components. How do these components serve the needs of your existing markets? Can one of these components be changed to expand your market?

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