Microfinance Marketing

Youth in Microfinance

2010-05-11T10:08:00.000-07:00

Now here's an interesting marketing idea - not marketing to clients, but to other external stakeholders and particularly, youth. Check out The Hillsdale Effect - they're a pretty remarkable bunch!

Engaging the Private Sector

2009-09-14T12:39:00.000-07:00

I just interviewed Elisabeth Rhyne from ACCION about her new book and upcoming presentation to the Silicon Valley Microfinance Network on Engaging the Private Sector in Microfinance. While her book is geared more toward folks in the private sector, it may inspire some ideas for how MFI managers can engage with the private sector as well. If you're in the Silicon Valley, I encourage you to see her presentation in Santa Clara on September 15th.

For more information, read the interview here.

Does technology make your head spin?

2009-09-02T15:12:00.001-07:00

For better or worse (I think better), technology is more frequently becoming a key part of product development in the microfinance world. However, for many of us, technology is confusing and intimidating. I grew up in the Silicon Valley, but after being away for 14 years working in microfinance abroad, I find myself sadly behind the technology curve. In an attempt to get myself up to speed on technology in emerging markets, I attended a presentation by Stephen Goodman of Sun Microsystems at the Silicon Valley Microfinance Network.

Read my interview with Stephen Goodman about "Technology and Emerging Market Models" here.

Elevator pitch madness!

2009-08-18T10:59:00.000-07:00

Now that I'm thinking about elevator pitches, I keep encountering new formats. Here's one more:

1) Name
2) Name of company
3) What good I do
4) A success story

For example, "My name is Maria Montara with More Money MFI. I help small business owners increase their income through microlending. One client of mine took out a loan for $100, increased her inventory of used clothing, repaid it, took out another loan, and after one year had increased her income by 50%."

An elevator pitch format

2009-07-31T20:06:00.001-07:00

I recently learned of an interesting format for elevator pitches. To review, elevator pitches are quick, 30 second statements about what you do - short enough for an elevator ride and interesting enough to generate more conversation. This format breaks the pitch into three pieces:

I work with… [describe target clients/market];
Who have the problem of/opportunity to… [describe problem your product solves or opportunity your product enables them to take advantage of];
I help them…. [describe benefit clients receive from your product].

For example, "I work with women business owners whose growth is limited by lack of capital. I help them expand their businesses so they can improve the lives of their families and communities."

Note that the above elevator pitch doesn’t mention microcredit at all! But it does create curiosity by encouraging the person you’re speaking with to ask, “how?” One could, of course, add to the pitch a bit about microlending, e.g. “I help them expand their businesses with small loans, so they can improve the lives off their families and communities.” Either elevator pitch “works”.

Product Innovations - Microfinance and Water

2009-07-30T11:17:00.000-07:00

What does Matt Damon have to do with microfinance? Read about Water.org's innovative microcredit initiative on Mykro.org and find out!

Your vision and product development

2009-04-30T13:54:00.001-07:00

Let's face it, frequently vision statements are exercises that end up on the shelf. Nice to trot out when the auditors come by, or to post on our websites, but not things that we actually use. But should we?

I came across an interesting article today about a bank which has successfully navigated the recent subprime crisis because it stuck to its philosophy and avoided certain types of new products. It's food for thought, and can be found here.

Donor marketing: Your MFI and the Internet

2009-04-14T21:28:00.000-07:00

When we think of donor marketing, one of the first things we think of is our MFI's website. And rightly so - the Internet has an international reach. But it isn't enough to have a site, one needs content, and that content needs to be regularly updated. Yes, bells and whistles and shiny graphics are nice, but really what keeps folks coming back is up-to-date information they can use.

Look at your donor or funder needs the same way you'd look at your client needs. What do they care about? What benefits can you provide them?

Next, leverage your website content through social marketing tools such as FaceBook, which enables organizations to create their own web pages with links back to the original website, updates, and to even create "fan groups" so friends can publicize you.

Want some inspiration? Check out the Bridge2Rwanda site, and see how it leverages FaceBook and other types of web media to promote its cause. Okay, it's not a microfinance site, but don't you wish it was yours?

Donor marketing: Just one thing

2009-03-25T13:57:00.000-07:00

When I was managing an MFI, something I struggled with was donor marketing. Okay - let's be honest. What I struggled with was getting new donor funding. A colleague of mine operating in another country seemed to have no trouble, however. Donors funded him on a regular basis. Finally, I swallowed my pride and asked him what his secret was.

He talked to them.

Yes, it was that simple. On a quarterly or bi-annual basis he'd make an appointment, sit down with the donor, tell him or her what his MFI was doing and then ask what was happening in the donor world. Invariably, when funding came available for microfinance, they would think of him and his MFI.

Should you fear that your sales skills aren't good enough to "shmooze" a donor, let me tell you that neither were my colleague's. He's not a "shmoozer", not a smooth salesperson by any means. What he is, however, is open, honest, and in general a very nice person.

You don't need glitzy sales skills to have a successful donor meeting. What you need is a genuine passion for your MFI, understanding of your environment (donors want to hear about your challenges too), and the ability to tell your MFI's story: the facts, the figures, trials and successes.

Donors want to meet with you. Sometimes it seems that their whole job is to have meetings - trust me, they won't mind spending thirty minutes with you. They'll be happy to be able to report upward on what they learned about your MFI and the industry in your region.

Action item:

Write out a short agenda for a donor meeting. What will you tell them about your MFI? The state of the industry? Now, pick up the phone and make some appointments!

Marketing the informal economy

2009-03-17T16:19:00.001-07:00

I was going to start a series of posts on donor marketing, and then I saw this article in the March 14-15th edition of the Wall St. Journal: "The Rise of the Underground," by Patrick Barta.

The article starts:

"Economists have long thought the underground economy -- the vast, unregulated market encompassing everything from street vendors to unlicensed cab drivers -- was bad news for the world economy."

Yes, and donors have thought so too. How many times have you, as an MFI manager, heard a donor asking how many of your borrowers had moved into the formal economy after taking out a loan? Or government officials demanding that formal licensing be a condition of a loan?

In my opinion, the "problem" with the underground economy is that it doesn't pay taxes (formally) at least to the state. That isn't the fault of the business people within it, however. In my opinion it points to a failure on the part of the state -- to provide clear and understandable ways to formalize one's business, and to make a case that the benefits to registration outweight the advantages of going "informal."

So how should MFIs address this issue when a donor or government official laments about our informal borrowers? This article makes a good case for the informal economy, but I'm curious to hear your thoughts. Let me know in the comments section!

Internal and external marketing

2009-03-11T17:42:00.000-07:00

Before I talk about marketing to donors, I'd like to back up a bit and organize our thoughts on marketing. There are two sets of folks an MFI should be marketing to - no, not donors and clients - internal and external customers.

External customers are those outside your MFI who benefit from or should hear about your services. This group includes your borrowers, donors, investors, and opinion leaders (such as government officials). If you're lucky, you've got an MFI association or umbrella agency which handles "industry marketing" to the latter. If you're not - well, their opinions can affect your business so it's helpful to communicate with them.

Internal customers are the folks inside your MFI who you should be communicating with.

"Huh? But my employees know about my MFI!"

Do they? Most people know their jobs, but unless management makes an effort to circulate information within a company (or MFI), it usually doesn't happen. Finance doesn't know why Credit wants to change a policy and resists. Loan officers don't understand the benefits of a change to the clients, and so they can't sell as effectively. Branch managers don't hear about the latest satisfaction research findings, so they can't apply them.

Action item:

Analyze the information flow between departments. Is it formal, or does it rely upon personal relationships (e.g. the Finance manager is friends with the Credit manager, so they understand each other's needs well, but Credit doesn't know audit so...)? What systems can be implemented to ensure regular flow of data between departments?

Study exchange

2009-03-07T12:11:00.000-08:00

Okay, this has nothing to do with marketing, but I need help!

I'm trying to set up a study tour for an MFI in Palestine to visit an MFI in Eastern Europe. Like Eastern Europe, Palestine's West Bank has a highly educated populace, larger loan sizes, and relatively high wage costs.

If you know of any MFIs in East or Central Europe which might be willing to host them (not pay for them - just let 2-3 of their managers spend time with their operations), please let me know!

Thanks!

The Five Touch System

2009-03-02T17:02:00.000-08:00

While working on a business plan for my new financial planning business, I came across a concept called the "Five Touch System." The idea is that for someone to put their faith (and finances) in your hands, they usually need to have five contacts with the financial planner before committing. In financial planning, like microfinance, direct sales is a key component. However, the "five touches" or contacts don't have to be face-to-face, they can include advertising, newspaper articles, or other promotional activities that get one's name in front of the public.

It reminded me of marketing for microfinance.

In microfinance, the customer is taking a risk when they take out a loan. Most of us don't want to become over-indebted, we want to be able to pay our loans on time, and the idea that we might not be able to handle the interest and principal payments is a source of stress. This is just one of the reasons why loan officers have to spend so much time with clients before they take out the loan - to make the clients comfortable with the MFI and with the borrowing concept. (Other reasons of course include underwriting, ensuring the client understands her obligations, etc., but part of it is, yes, sales and hand holding.)

A good campaign which puts your MFI's brand or products in front of the public can shorten the time it takes for a loan officer to sell the product - to make the client comfortable with your MFI. With advertising, promotion, and branding, you can reduce the number of contacts your loan officers have to make to sell the product. This makes them more efficient, can drive down costs, and increase sustainability.

Customer service and Ghandi?

2009-03-01T14:04:00.000-08:00

Found at Andy Sernovitz's blog, "Damn, I wish I'd Thought of That!" It stands in the lobby of the Chicago Tribune newspaper -- something we should all remember about customer service.

Commercialization: the "final" stage in product development?

2009-03-01T10:57:00.000-08:00

The pilot test is a success! We roll out the product and we're done - right?

Well...

Not really.

First, remember that product development is a cycle - once the new loan product is "out there" the smart MFI will continue to gather client feedback on it, for example through exit surveys and regular client satisfaction research. If the MFI has an integrated marketing program, then that data can be used to further refine the product or get ideas for new financial products and services.

Next, remember that new products effect more than just the credit department. Their administration will impact MIS, human resources, finance, and perhaps even general office management. Staff in all departments may need training in how to cope with the new product. Generally, the sooner you can bring other departments into the product development process, the better (i.e. during the pilot test phase), but typically product roll-out will require an extra "push".

On a final note, the commercialization phase is also the time to implement a promotional program for the new product. I can hear the chorus of shrieks from microfinance managers already -- we don't need advertising, we use word of mouth, or direct sales. Direct sales has proven to be effective in microfinance, and word of mouth is great (if you cultivate it -- it doesn't just happen), but both direct sales and word of mouth can be more effective (i.e. you can increase your clients per loan officer) when backed by a promotional program and a strong brand name.

The pilot test stage

2009-02-26T19:52:00.000-08:00

The next “stage” in the product development cycle, and perhaps the most discussed, is the pilot test. At this point you’ve fleshed out your new product idea and concept, and done some basic financial analysis to ensure you can actually deliver the product sustainably. Now it’s time to stick your toe in the water and test that product idea.

The first step in the pilot test is developing a pilot test plan. The MFI must decide which criteria or targets it will use to determine if the test was a success or failure. The criteria or targets chosen will depend on the product. They may include volume of loans in clients or portfolio value, profitability, productivity and efficiency of loan officers, portfolio at risk, time to disburse the loan, etc.

The test plan also delegates responsibilities for actions among members of the pilot test team, which usually includes people from different departments. An illustrative example can be seen in Figure 7. The new product (or product redesign) will affect multiple departments – from audit to finance to credit to human resources.

The plan also describes in writing how the test will be run – i.e., the test protocols. There may be two sets of protocols – pre-test and pilot test. Pre-test protocols may include:

Where the test will occur
Deadlines for key steps before the test takes place
Who is responsible
Objectives

Pilot-test protocols may include:

Dates of assessments of how the test is running
Dates of monitoring checks and evaluation meetings, where criteria projections/targets are measured against actual results
Reporting (when and to whom)
Dates of go/no-go decision points

One commonly asked question is how long should a pilot test last? In microfinance, defaults tend to come towards the end of the loan term, so ideally a pilot test would last the length of a loan term. Of course, if the MFI is proposing a 5-year housing loan, that isn’t feasible, and a compromise must be made – perhaps a one year test.

The product development cycle: part 2

2009-02-20T20:57:00.000-08:00

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!

The product development cycle: part 1

2009-02-18T10:43:00.000-08:00

Market research drives product development, which can also be thought of as a cycle or loop (as illustrated in Figure above). This is because even after a product has been successfully commercialized, the MFI should regularly assess customer satisfaction with the product to determine if possible improvements are needed. Remember, product development is not only about new products - product redesign can be a much more effective route.

The circles between each stage represent “Go” or “No Go” decision points. If any one of these stages tells you to stop, that’s the end of that product’s development. But lest you think it was all a waste of time, lessons learned from aborted processes should inform the MFI about future product ideas.

Idea development: The "first" stage in the process (remember, it's a cycle so there really is no first stage) is idea development. Ideas can come from anywhere, including your loan officers, but formal market research is also a good source. For example:

SWOT Analysis: The MFI’s internal strengths and weaknesses and external opportunities and threats
PEST Analysis: Trends analysis/research evaluating the Political, Economic, Social and Technological environment.
Client feedback/drop out research can be a rich source of ideas.

Ideas are initially screened to determine if the MFI should take them to the next step, and some rudimentary profitability calculations may take place at this time based on estimates of market size. Idea screening asks the following questions:

Who is the target market?
What are the size and growth forecasts of the target market?
Are we introducing this because of competitive pressures?
What trends are the ideas based upon?

Product development and SPM

2009-02-15T10:27:00.000-08:00

The market research an MFI conducts for product development provides another potential integration point with Social Performance Management (SPM). This occurs because market research for product development and for social performance should answer the same questions:

What do the clients need the product/service for?
What do the clients actually use the product/service for?
What benefits do the clients get or perceive they get from the product/service?

In the case of marketing, the MFI would use the answers to the above questions to develop a product which appeals to a broad base, and to properly sell and market the product. Social performance management systems use the same information to ensure there is a "match" between uses, needs, and benefits and the MFI's social mission.

In an integrated marketing program, the above information will flow through throughout the company - downward to loan officers so they can sell the benefits of the product and upward to management to market the products properly. In a social performance management system the same data will also flow up and down the MFI's hierarchy, but it will be used to ensure the product serves the MFI's mission. I.e., management will take that information to check that the uses, needs and benefits fulfilled by the new product are having the desired impact. Similarly, loan officers will report back their observations in the field - are the clients really benefiting as the research says they are? Is the new product being used for the purposes the research describes?

One set of data - two different uses. With such synergies, it seems foolish for MFIs with social performance management systems not to get "double use" out of their data through integrated marketing, and vice versa.

Market research for pro-poor product development

2009-02-12T09:59:00.000-08:00

MFIs can research just about anything, but to ensure products offered match client needs, most frequently they will research clients, competition, market trends, and gather data for special projects driven by management request e.g. projects to research new product ideas. Unfortunately, too often MFIs rely upon the latter - research for special projects - and neglect the former. Market research really should be ongoing, especially since new pro-poor product ideas can come out of research on the competition, market trends, client satisfaction, etc.

However, once you've got a new product concept, the MFI really needs to "drill down" to determine the product's "fit" with its current or expected client base. In other words, understanding your client is critical for pro-poor product development.

It's easy to believe we know our clients well, but do you know them well enough to write a biography for them? One of the most important outcomes of client research is the development of client profiles for each market segment. A profile answers the question, “who are your clients?” In addition to the more obvious characteristics, such as gender, age, and type of business, profiles should also address:

• Needs and preferences: What do your clients want? Remember the core, actual, and augmented product? Your clients will have needs regarding features, regarding augmented issues such as speed and customer service. You need to know what your clients needs are in order to design the best product. This is important from an impact and a sales perspective.

• Benefits: What benefits are the clients looking for? Ability to send their children to school? Ability to cover expenses during difficult periods? Ability to expand the business? If you don’t know what CORE product they want, what benefits they want, you’ll have to be very lucky in your product development to create the right product. Again, understanding the benefits the client receives is important both for social performance management and product marketing.

• Attitudes: What do they believe about loans? How do they feel about savings? What attitudes do they have toward borrowing? Toward banks? MFIs?

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

Action item:

If you can't write a profile or biography for your typical client, you probably don't know them well enough! Make profile writing a regular part of your product development exercise, and use it as a red flag - if you can't write one, it's time to go back and do more research.

Product design and integrated marketing

2009-02-09T14:12:00.000-08:00

Product development is part of the marketing process and MFIs are most effective at product design when they integrate it into their marketing program. This is because commercial product design is driven by clients – not MFI managers.

In marketing parlance, we talk of the “5 Ps”: People, Price, Product, Place (distribution), and Promotion. People – or the clients – are at the heart at the process, or the top of the pyramid. Everything else flows from an understanding of the clients, i.e. from what we learn from market research, as illustrated in the figure above.

If the goal is to provide the best possible, most beneficial products to poor and low-income people, then MFIs need to figure out exactly who those people are and what they need. However, MFIs often skip this step – they’re given product “templates” from donors or other international MFIs and simply begin selling the product in the market. Sure, they may sell a lot of loans, but are the products benefiting their clients? Are they really providing what their poor and low-income clients want or need?

So MFIs conduct market research and hopefully this research, such as client drop out and satisfaction, is done continuously. But is it fully utilized in the product development process? If product development is a separate special project, it's unlikely that prior research will be maximized, or special research will be cross-checked against what we've learned elsewhere.

For this reason, I like to see the market research and product development functions sit together within a single marketing department. When this happens, there's a greater likelihood of our client knowledge driving the product development process. But integrated marketing doesn't stop there. An integrated marketing program ensures MFIs maximize what they learn, by flowing market research data in a loop through the institution.

Ideally, research findings should flow up to management and down to loan officers, and loan officers and managers should 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?

Product (re)design

2009-02-04T09:02:00.000-08:00

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.

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

2009-02-03T16:27:00.000-08:00

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?

Is your MFI ready for a new product?

2009-02-01T14:15:00.000-08:00

Typically, new product development is driven by increased competition, client dissatisfaction with current products, (which is expressed via high drop-outs), and client demand for new or different products. In spite of these pressures, the MFI must first assess if it’s ready and/or has the capacity for product development.

Does the product fit the MFI’s strategic vision? For example, a consulting team I worked on provided technical assistance to an urban microfinance bank that with was interested in developing agricultural loan products. The bank was fairly new and still working through some arrears issues with its core urban product. We discovered that introducing an agricultural product would require developing an entirely new rural infrastructure and diverting resources from their urban operations. Consequently, the bank decided this product was not a strategic fit and now was not the time to introduce rural or agricultural lending since they primarily identified themselves as an urban bank.

One of the biggest traps MFIs fall into is having too many products. This can become a problem because resources are finite and product development requires resources. Too many products can cause confusion among staff and can limit the growth of core products, as the abovementioned microfinance bank feared if it developed new agricultural lending products. Creating and managing new products can starve products with the potential to reach scale from the resources needed to do so.

The ability to reach scale is a key issue when designing products for poor and low-income people. Worldwide estimates put the unbanked population of microentrepreneurs at 500 million[1]. Statistics such as these strongly indicate that MFIs should seek the widest outreach possible by offering a manageable number of financial products so they can serve the most poor/low-income people while achieving sustainability.

Is management committed to a client-driven approach? New product development cannot be successful unless it is driven by client needs. Management’s primary responsibility is to serve the needs of its customers.

Does the MFI have the management and systems capacity to develop and manage the new product? If management or systems are stretched thin and can’t monitor and control the new product, the MFI faces reputational, operating, and credit risks – i.e. arrears. Long before implementation of a new product, an assessment of management and systems capacity must be made in order to fully understand the ramifications of introducing a new product. Is the MFI large enough to warrant an additional product? The size of the MFI also has an impact on the number of products that can be effectively sold and managed. The larger and more mature an organization, the greater the ability to manage multiple products and multiple segments.

[1] Weiss, Kirsten. “Interview on Microfinance Commercialization with Mariama Ashcroft.” http://www.mykro.org/interview-on-microfinance-commercialization-with-mariama-ashcroft/2009/01/ January, 2009.

Lending to women

2009-01-30T19:58:00.000-08:00

Issue #8 of UpSides magazine focuses on women's entrepreneurship, and how MFIs and banks can focus on the women's market. To download a copy, click here.

"Pro-poor product development"

2009-01-29T10:46:00.001-08:00

A good question which came up at the Nigerian Microfinance Conference was, “How do we ensure our new products are pro-poor?” This is exactly where the nexus between integrated marketing and social performance management systems occur.

Market research for product development and research for social performance should answer the following questions:

1. What do the clients need the product/service for?
2. What do the clients actually use the product/service for?
3. What benefits do the clients get or perceive they get from the product/service?

In an integrated marketing program, that data will flow throughout the company – downward to loan officers so they can sell the benefits of the product and upward to management to market the products properly. In a social performance management system the same data will also flow up and down the MFI’s hierarchy, but it will be used to ensure that the product serves the MFI’s mission. I.e., management will take that data to check that the uses, needs and benefits fulfilled by the new product are having the desired impact and loan officers will report back on their observations in the field.

One set of data – two different uses. With such synergies, it would be foolish for MFIs with social performance management systems not to get “double use” out of their data through integrated marketing, and vice versa.

The brand promise and client savings

2009-01-27T19:48:00.000-08:00

Branding for MFIs: interesting in theory but not so necessary in practice? On the contrary! For commercial microfinance institutions that mobilize savings, branding is critical.

I just returned from a microfinance conference in Nigeria, where Mariama Ashcroft of Women’s World Banking discussed microfinance commercialization. An important point she raised was about trust. When an MFI makes a loan, it must trust the borrower. But when a microfinance bank (MFB) solicits savings, the clients must trust the MFB; this is why savings mobilization is a struggle for many commercial MFIs.

Building trust can be a challenge, and here lies the importance of the brand promise. Your savers must believe that your MFB (and their savings) is here to stay – that your bank is strong and reliable. This belief is created through your brand, which must promise to provide a secure place to keep savings and to pay interest on that savings.

How can an MFI build that brand promise?

Consistency. This includes consistency in promotional messages, customer service, and in every interaction your MFI/MFB has with the public. Is your mission and vision communicated to clients and employees? Do your promotional materials look and “feel” alike, communicating the same message? Can clients expect the same type of service every time they interact with your employees?
Keeping your promises. “But of course we keep our promises! After all, we have contracts, don’t we?” Of course you honor your contracts, but do your loan officers show up at meetings on time? When they say they’ll call a client back, do they? Are your policies communicated clearly, simply, and consistently in order to avoid misunderstandings? If your staff members don’t follow through on the “little” promises, clients will find it difficult to trust you to follow through on the big ones.
Delivering excellence. Good customer service is to be expected. “Good” is a satisfactory grade – a bare minimum, if you will. However, an MFI with a brand promise that stands out from the crowd goes beyond “good” to “fabulous.” How can you delight your customers? How can your loan officers go above and beyond the call of duty to demonstrate that your MFB is worthy of holding the client’s savings?

If these steps sound simple, it’s because they are! However, it’s easy to start a brand campaign with high enthusiasm and good intentions, and then gradually forget about it over time, returning to old habits. MFBs need a marketing department (preferably an integrated one) that can ensure these practices continue over time. After all, in branding consistency is the key.

Action item:

Hold a roundtable with key loan officers and members of every department that interacts with the public (including tellers). Ask participants the above questions and develop a one-page, three point plan to deliver consistency, keep your promises, and deliver excellence. Integrate it into your marketing plan, and ensure someone is responsible for it.

Nigerian Microfinance Conference

2009-01-18T10:10:00.001-08:00

I'll be taking a week off from this blog to attend a microfinance conference in Nigeria, where I'll be presenting on commercial product development. After January 26th, I'll report back.

In the meantime, please feel free to comment on any of the below posts -- we'd like to hear about your marketing experiences!

Brand loyalty and client satisfaction

2009-01-17T14:54:00.001-08:00

Brand loyalty is the level of a client's committment to repurchase the brand. For MFIs, profitability tends to come in later loan cycles, so committment to take another loan is critical. I've talked a bit about client satisfaction, but frequently clients who claim to be satisfied with the loan product switch to another MFI. Making clients feel "satisfied" isn't enough to retain clients, and it isn't enough to generate positive word of mouth, either.

Loyalty is created when MFIs go the "extra mile," for example with spectacular service. What do your loan officers do to make clients rave about your MFI? Comment below and let us know!

Action item:

Spend a day observing your top loan officers - the ones who produce the most loyal clientele. How do they create that "wow" factor that delights clients? Can their techniques be replicated?

The elevator pitch

2009-01-15T14:25:00.000-08:00

When your staff is introduced to someone new, one of the first questions they’re usually asked is, “So what do you do?” A career in microfinance is unusual, which should make for an interesting conversation. However, many people have no idea what microfinance is, and frequently this question is followed by a long, awkward explanation. Instead of wanting to learn more, the questioner wants to run in the other direction.

Your staff members are the face of your MFI – wouldn’t it be nice if they could answer this simple question in a way that was understandable and interesting? In a way that boosted your MFI’s brand image and made them feel good about their jobs?

Your staff are capable of shining when asked about their jobs, but this sort of "artful bragging" doesn't come naturally to everyone. The good news is that it can be learned, by practicing an "elevator pitch."

So called because it's short enough to be used when riding between floors, an elevator pitch is a 30 second answer to the question, “What do you do?” A well-crafted elevator pitch interests others because it allows the speaker to show what they feel passionate about. It's an authentic statement, rather than a shallow boast. Developing a pitch is easy... once you've figured out what excites you about your work!

Action item: Elevator pitch exercise

Time: 15-20 minutes

Purpose: Enable staff to verbally promote your MFI’s brand image and themselves.

Materials required: Paper and pens. White board or poster paper.

Step 1: Invite participants to individually write down the answers to the following questions:

1) What do you like/love about your current job?
2) How does your job use your skills and talents, and what projects are you working on right now that showcase them?
3) What successes are you most proud of from your current work?
4) What new skills have you learned in the past year?

Notice, these questions are about the staff member. Answering them will allow your staff members to speak authentically about what excites them about working for your MFI.

Step 2: Review with staff your MFI’s long tag line – a sentence or two which describes your MFI in 25 words or less (see prior post). Ask participants to list the key words/phrases from the tag line, and list on a white board or sheet of poster paper.

Step 3: Based upon the above, invite participants to write out their personal answers to these two questions:

1. What excites you about what do you do?
2. What excites you about what your MFI does?

Note that I’ve rephrased the questions. Though your new friend in the elevator might just ask you what you do, you should answer what excites you about what you do. This gives you a chance to shine (and to make the MFI look good too)!

Step 4: Ask a few volunteers to read their answers out loud and discuss them. Are the answers short? Interesting? Authentic? Do their answers about the MFI fit with its brand image?

Step 5: Invite staff to practice with each other, asking and answering the questions, “What do you do?” and, “What does your MFI do?” Make sure they keep the answers under 30 seconds each!

So, please join me in discussion -- what's your elevator pitch?

The brand promise: tag lines

2009-01-13T14:53:00.000-08:00

In my last post, I wrote rather generically about branding. In this post I’d like to talk about a specific element of branding: tag lines. A tag line is a short, memorable phrase that summarizes the essence of your MFI – its brand promise. Tags communicate a positive feeling about the MFI through a simple slogan that is easily repeated (repetition is critical to successful branding).

FINCA International, for example, uses the tag, “Small loans — big changes.” It’s a brilliant tag line, explaining in four words what FINCA does (makes small loans) and what benefit the loans provide (big changes). What’s particularly effective about this tag is that the brand promise – big changes – can apply to all FINCA’s clients, regardless of country or target market.

Typically, an MFI has a short tag, which is five words or less, as well as a longer tag – up to 25 words. The short tags can go just about anywhere – from business cards to letterhead to ad copy. Longer tags are frequently used in addition to the short tags, in brochures and other marketing materials where space isn’t as limited.

Action item – develop a short tag line:

To prepare, collect tag lines from other companies. Notice how they catch your attention. Are they easy to remember? Why? What do they communicate?

Next, determine your brand’s promise. Brainstorm the answers to these two questions:

What need to we satisfy in our customers better than our competition?
What benefit to we provide to our clients?

List the top 8 or 10 most important things you want to say about your MFI’s brand promise. Next eliminate repetition as well as items that don’t really communicate the benefits of your MFI or what makes you special. Whittle your list down to 3 or 4 central elements.

Based on the above, develop a five word or less tag line for your MFI, to be used in all your print materials (possibly beneath your MFI’s logo) – from letterhead to business cards to website to ads. Use simple, everyday language.

Finally, test your tag line. Is it short? Is it memorable? Is it distinctive? Does it communicate a positive feeling about your MFI? Does it communicate your brand promise?

Branding for MFIs

2009-01-12T17:35:00.000-08:00

After years of abuse, my much-loved digital camera died. I needed a new one – something that was reliable and would enable me to take high-quality photos. As I am not a professional photographer, I hesitated for weeks, baffled by the wide selection of available camera functions and features. I haunted camera stores, poured over web reviews, and asked friends for recommendations.

Then I saw a new Kodak camera promoted on a television shopping channel and in 60 seconds, without ever handling the camera, I called the shopping channel and bought it, spending more than I’d planned. Why? I knew the Kodak name. One of the best cameras I’d ever owned was a Kodak, and I trusted this new camera would be just as good.

In short, I bought the Kodak brand (and so far am happy with my choice).

So what is branding? Philip Kotler, Professor of International Marketing at Kellogg University, describes it as “a seller’s promise to deliver a specific set of features, benefits and services consistently to the buyers.”

Companies make this promise through a consistent message delivered by their employees, in their promotions, and through their products and/or services. Consistency is critical to developing a memorable brand. We remember things through repetition. For this reason, it’s a bad idea to change your MFI’s colors or slogan on a regular basis. A changeable brand image is a forgettable or confusing one.

But what exactly is your brand remembered for? Kotler’s idea of a promise – of trust—is key to successful branding. Therefore, your MFI’s brand should stand for something real and true, rather than being another clever motto or tag line. (Your motto can be clever, but it should be REAL). This authenticity builds trust.

Is trust important to the clients of an MFI? You bet! MFIs are financial institutions and let’s face it – the interest rates aren’t cheap. Taking out a loan is a big decision, and though we MFI managers tend to focus on our risk as lenders, you’d better believe your borrowers are thinking about the risk to them as well. Is it worth taking on debt from an MFI, or should I just borrow from my Aunt Sally? What if business is bad and I don’t make a profit on this loan?

Clients need a certain comfort level to borrow. Your loan officers should provide this by making sure clients aren’t taking on more debt than they can afford. However, your MFI’s brand image stands behind your loan officers, helping or hurting their message.

What’s your brand saying?

Action item:

Review your promotional materials, including company letterhead, business cards, brochures, and any other advertisements. Is the message consistent? What sort of “personality” does your brand have? Are the colors, fonts, and graphics consistent across your materials? How frequently are your slogan and brand graphics repeated (and can you use them more)?

Sales techniques for loan officers

2009-01-10T15:50:00.000-08:00

Marketing studies have shown that while a product’s attributes are important to borrowers, what people really buy are the benefits of a product. However, too often loan officers focus on attributes – e.g. the interest rate, loan terms, etc. – when they’re selling the loan product.

These attributes are, of course, important and loan officers need to be clear and upfront about them for the benefit of the client and of the MFI. After all, these loans need to be repaid. But a strong loan officer informs the client of the product attribute while selling the benefits, (also known as the core product -- see slide 6 for more information on the core vs. actual vs. augmented product).

So what are the benefits of your microfinance product? Does it enable the borrower to build assets? Increase income? Send her children to school?

It might do all of these things and more, but discussing these benefits will only have an impact on sales if they actually matter to your client. Someone who doesn’t have children probably won’t care much about being able to send kids to school. At an individual level, loan officers should be aware of product benefits and should pay attention to what the potential client responds to. In short, the loan officer should ask open questions to get a feel for what benefits the potential client actually cares about.

At an institutional level, the MFI should segment its borrowers, developing client profiles which address which benefits matter to the client.

Action item: Conduct the below sales training with your loan officers.

Training: Selling the benefits

Time: 20 - 30 minutes

Purpose: Enable loan officers to understand the difference between a product’s benefits and attributes, and how to sell the benefits of the MFI’s products.

Materials Required: White board/large paper and markers.

Notes to Trainer: Make sure the benefits listed are benefits to the CLIENT, not to the MFI!
One key benefit of a microloan should be an increase in the client’s income, however, loan officers should consider how this increase will positively change the client’s life – what the client really wants to do with the extra income. For example, some clients may think of the increased income in terms of better education for their children, the ability to improve their home, better healthcare, or the ability to expand their business.

Training Step 1: Explain: Over and over, marketing studies have shown that while attributes are important, what clients really respond to in marketing are benefits. Ask: What are benefits and attributes? Attributes are the physical features of the product, e.g. a laptop computer might weight 2 kilos. But the benefits are how those features make the client’s life better. E.g., the computer is light enough to easily carry to meetings.

Step 2: Display an object (e.g. a calculator) to participants. Ask what are its attributes? Its benefits?

Step 3: Ask: What are the attributes of our loan products (Note: discuss by type of loan product – loan products will offer different benefits!)

Draw a line down the middle of the board or large white paper. List responses down one side of the board or large white paper.

Step 4: Explain: Clients want to hear how our loan products will benefit THEM, how the loans will make their lives easier or better. Ask: How can we describe these attributes as benefits? List answers next to the attributes listed earlier, e.g. Delivery of the loan to the client’s business saves the borrower time.

Step 5: Ask: How can you find out what benefits matter to the client? I.e., how do you know what the client cares about? Discuss, listing answers on the white board.

Step 6: Emphasize to the credit staff that next time they are meeting with potential clients, they need to sell these benefits!

Customer service and the dissatisfied client

2009-01-10T10:53:00.000-08:00

Here’s a short training for loan officers on how to deliver good customer service to unhappy clients. Consider it an action item.

Time: 15 - 20 minutes

Purpose: Enable loan officers to deal with dissatisfied clients in a positive manner.

Materials: White board/paper, pens

Trainer’s Note: Role-play the complaints in Step 3 with angry facial expressions and tones of voice. Also, be sure a response isn’t to just quote policy back to the client. That will only make them angrier!

Training Step 1:

Ask: What should you do when a client complains about the service she’s received?

Explain: We should Apologize, Acknowledge, and Correct!

Explain: When we complain about something, we need to feel that the person we’re complaining to takes us seriously. Otherwise, we'll just become more upset. That means as loan officers on the receiving end of a complaint, we need to do more than just say we’re sorry. We also need to acknowledge that the person has a valid reason for feeling unhappy. We need to empathize with our clients – i.e. let them know that we understand how they feel.

Finally, we need to let them know how we’ll correct the mistake. Remember, we're human so mistakes do happen. What’s important is that we deal with them correctly, by apologizing, acknowledging how the client is feeling, and correcting the error.

Step 2:

Ask: But what if the client is actually wrong? How do we handle it then?

Explain: if the client is in the wrong, we still need to show empathy and respect, even while we’re being firm about policy.

Step 3:

Review each complaint below and ask: How should a loan officer respond to this complaint?

Well, I just assumed I could use your loan for myself, and not just for my business. Nobody told me that I couldn’t.

Possible response: I can tell that you’re upset, Mrs. Ghaffar.

Your interest rates are too high for me! I have a limited income.

Possible response: I can appreciate your need to save money.

Your report said my group had a B rating, but it actually has a AA rating!

Possible response: Oh no! I’m sorry for the mistake!

We’ve been waiting four weeks to get this loan and now you want to delay it again!

Possible response: I’m sorry for the delay. I know it must be frustrating for you.

Step 4:

Ask: What complaints have you received from clients?

List answers on board. Go through each complaint and ask, “how can a loan officer best respond to this?” Discuss.

Customer service

2009-01-09T15:59:00.000-08:00

In my last post I mentioned the importance of having excellent customer service in order to drive positive word of mouth marketing. Customer service is a big topic, and is based upon fair, open and honest dealing with clients – something your MFI’s policies and procedures should aspire to.

However, though your MFI’s policies may be strong, and your loan officers might have the best intentions towards their customers, creating a friendly and open relationship with clients is a skill. The good news is that it is a skill that can be taught. Loan officers can and should be trained to:

· Smile;
· Greet the customer;
· Use the client’s name;
· Use positive body language;
· Make eye contact; and
· Thank the customer.

Just remember: SGUUMT!

(I’m joking. It’s a ridiculous acronym.)

But do remember that roughly 55% of our communication is non-verbal, i.e. through our gestures, facial expressions, and posture. So it’s important that our body language is positive and in sync what we say.

“Positive” body language is open, e.g. the head is up, arms are uncrossed, eye contact is being made, and the loan officer has a friendly, genuine expression on his or her face (see photos of closed body language on the left, and open on the right).

Thirty eight percent of our communication is through tone of voice. Yes, it’s not just what you say – it’s how you say it! That leaves a tiny 7% of communication flowing through our words. Only 7%! So while it's helpful to drill loan officers on what to say to clients, don’t forget to work with them on their body language and tone of voice as well.

Action item:

Hire students to pose as potential clients of your MFI and report back on the service they receive (this is called being a “mystery shopper”). Sometimes we think our customer service is better than it actually is. Are your loan officers hitting the bullet points above? If not, it may be time for more training.

Word of mouth: Is it all MFIs need?

2009-01-08T16:01:00.000-08:00

“We don’t need to do marketing – we use word of mouth.”

I hear this all the time from MFI managers. Word of mouth (or referrals) is a great way to get clients. However, too often managers simply assume word of mouth is happening, and that it’s positive. “Word of mouth” then becomes an excuse not to do anything.

But did you know that you can actually generate positive word of mouth? Here’s how:

Step 1: Make sure you’ve got a great product and are delivering good service! Unfortunately, bad experiences tend to get more “word of mouth” than good service, so you need to make sure that your products and customer service is as good as you think it is.

Step 2: Identify and cultivate influential people in your markets. Who do your clients listen to? Who do they get their information from? These could be village leaders, well-respected businesswomen, or even local celebrities. Spend time telling them about the benefits of your product, and give them your brochures, business cards, or other materials to help them get the word out.

Step 3: When a new client comes to you, ask how they heard about you and record their answer. Again, this is where an integrated marketing program can be of help. This sort of information is most useful when it’s spread around – enabling the branch manager and loan officers to understand exactly where the referrals are coming from, and enabling upper management and marketing to understand just how effective the word of mouth campaign really is.

Step 4: The group solidarity lending methodology lends itself to referrals – it’s up to the clients to find others to join the group. However, once a group is active the referrals may stop unless loan officers get in the habit of asking existing clients to keep spreading the word. A good time to do this is when they receive a compliment about your MFI’s product or service. Loan officers should be trained to follow up with a “Thank you! Who can you tell about our…?” to prompt good word of mouth marketing.

Action item:

Ask your branch managers to identify opinion leaders in their communities. Work with the branch managers to develop a plan to reach out to these opinion leaders.

Presentation: Commercial product design and MFIs

2009-01-02T09:13:00.000-08:00

What can Baby New Year teach us about strategic marketing?

2008-12-30T16:57:00.000-08:00

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

2008-12-30T08:03:00.000-08:00

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?

Competitive Analysis for MFIs

2008-12-28T07:57:00.000-08:00

“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?

2008-12-28T05:53:00.000-08:00

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!

Rural marketing

2008-12-27T15:30:00.000-08:00

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

2008-12-27T05:30:00.000-08:00

“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?

Combined arms and your marketing department

2008-12-26T15:51:00.000-08:00

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...

Case study: A focus group goes bad

2008-12-25T06:03:00.000-08:00

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?

Moderating focus groups

2008-12-23T23:45:00.000-08:00

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).

Focus group preparation

2008-12-19T01:53:00.000-08:00

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.

Case study: Focus group, Afghanistan

2008-12-17T01:29:00.000-08:00

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…

Exit surveys

2008-12-14T02:43:00.000-08:00

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.

Case Study: Measuring Client Satisfaction

2008-12-10T13:09:00.000-08:00

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

2008-12-10T13:06:00.000-08:00

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).

Case Study: Making pricing decisions

2008-12-08T15:03:00.001-08:00

[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?

The market research loop

2008-12-04T12:43:00.000-08:00

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?

Case Study: Intgrated marketing reduces drop-outs

2008-12-03T07:59:00.000-08:00

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.

Integrated marketing and social performance management

2008-12-01T06:18:00.000-08:00

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.

Integrated marketing

2008-11-29T05:37:00.000-08:00

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!

Do MFIs need marketing?

2008-11-26T10:54:00.000-08:00

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?