cgap training product development participant materials

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Product Development

C O N S U L T A T I V E G R O U P T O A S S I S T T H E P O O R

NOTE The Participant Course Materials contain the main technical messages and concepts delivered in this course. It is not intended to substitute for the full information and skills delivered through the individual courses in the Skills for Microfinance Managers training series. During the actual courses, key concepts are presented with case studies, exchange of participant experiences, and other activities to help transfer skills. Users interested in attending a training course should directly contact CGAP hubs and partners for course dates and venues or visit the CGAP website at www.cgap.org/html/mfis_skills_microfinance_manag.html. CGAP would like to thank those who were instrumental to the development and design of the original course that led to this participant summary: Janis Sabetta, Monica Brand, Kim Craig, Monique Cohen, Javier Fernandez, Lorna Grace, Imran Matin, Mike McCord, Benedito Murambire, Zan Northrip, Elma Valenzuela, Niraj Vermat, Graham Wright, Nicola Young, Brigit Helms and Jennifer Isern, and all CGAP training hubs and partners. Copyright 2003, The Consultative Group to Assist the Poor (CGAP).

Contents

Overview ...................................................................................................... 3

Goal of the course ............................................................................................. 3

Objectives of the course ..................................................................................... 3

What is Product Development? ........................................................................ 5

Characteristics of a microfinance product............................................................... 5

Distinguishing between a new and a refined product................................................ 6

Product development process .............................................................................. 7

Success factors................................................................................................. 8

Identifying a product development team................................................................ 8

Organizational impact ........................................................................................ 9

Market Research ........................................................................................... 11

What is market research and why is it important for product development? ................11

Developing research objectives...........................................................................12

Approaches to market research...........................................................................13

Product Concept and Design .......................................................................... 19

Designing a product prototype............................................................................19

Considering institutional issues in product design...................................................20

Costing ...................................................................................................... 21

Distinguishing between cost allocation and activity-based costing .............................22

Pricing ......................................................................................................... 29

Determining product viability for a credit product...................................................29

Determining product viability for a savings product ................................................31

Price sensitivity................................................................................................33

Pilot Test .................................................................................................... 34

Establishing testing protocol...............................................................................37

Product Rollout ............................................................................................. 38

List of Resources .......................................................................................... 39

General ..........................................................................................................39

Focus groups and PRA.......................................................................................39

Costing and pricing...........................................................................................39

Pilot testing.....................................................................................................39

CGAP Participant Course Materials: Product Development • 3

Overview

Over the past 20 years, a microfinance industry has emerged in response to the lack of

access to formal financial services for most of the world’s poor. Microfinance institutions

serve an ever-increasing number of poor clients, but the demand for financial services still

far outstrips their capacity to supply such services to their clients.

This course is designed to introduce microfinance institutions to the process and the tools

used to develop new or refined products. Based on sound and tested product development

techniques, the process introduced is methodical, market driven, and client oriented. It

promotes continuous feedback and sees product development as an integral and ongoing

part of delivering financial services.

Goal of the course

To provide guidelines for a systematic process of product development that is focused on

client needs, driven by ongoing analysis, and oriented towards achieving results.

Objectives of the course

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Describe the process of product development

Assess institutional capacity for product development


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Apply various client-oriented market research techniques

Interpret research results to design product prototypes

Cost and price products

Pilot test products

Launch new products that result in increased profits and client satisfaction

Participant Course Materials: Product Development • 5

What is Product Development?

Typical Characteristics of Selected Financial Products

Credit

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Term—frequency, length Interest rate Interest rate method Loan amount Collateral type Collateral amount Fees

Savings

Fees Deposit frequency Withdrawal frequency Minimum balances Interest rate

ance

Fees Premiums Use (health, life, property) Deductible Extent of coverage

Characteristics of a microfinance product

A product is a bundle of attributes (features,

functions, benefits, delivery, and uses) that

can be either tangible (as in the case of

physical goods) or intangible, such as those

associated with services, or a combination of

the two. It is what the customer buys. The

total product includes everything that is

delivered to the client.

CGAP

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Insur

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Distinguishing between a new and a refined product

It is not always necessary to design a totally new product. MFIs can choose to refine

existing products, which is also an important strategy. In the end, whether new or refined,

products will appear in some degree to be new and desirable to the consumer.

A new product is a product new to the MFI that is marketing it. Examples of new

products for an MFI with only a group loan would include the introduction of an

individual loan product, a savings product, or an insurance product.

A refined product is an improvement or addition to an existing product offered by the

MFI. Examples of refinements might be a change in interest rate, a change in

withdrawal frequency allowances, or a change in the loan size.

More on Product Development

Worldwide, product development research has shown that most product development efforts

go towards refining existing products:

New-to-the-world product (10% of all new products introduced each year) New product line (20% of all new products) Addition to existing product lines (26% of all new products) Improvement to or revision of existing products (26% of all new products) Repositioned product (7% of all new products) Lower-cost product (11% of all new products)

Source: Karen Stewart, Richard Stockton College of New Jersey. www.swcollege.com/marketing/gitm/gitm28-1.html

http://www.swcollege.com/marketing/gitm/gitm28-1.html

Whether the product is technically new or refined, the same process should be followed when developing or refining it.

Product development process

The product development process (see Figure 1) is a systematic, iterative, and step-by-

step approach to developing new or refining existing products. The process is market-

driven, implying that institutions must continually ensure that the product answers clients’

needs, while taking into account the MFI’s strengths and competitive advantage.

Figure 1. Product Development Process

EVALUATION AND PREPARATION

CUSTOMER NEEDS

INSTITUTIONAL STRENGTHS

COMPETITIVE POSITIONING

PILOT TEST

LAUNCH

DESIGN

MARKET RESEARCH


C Participant Course Materials: Product Development • 8

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Success factors

Some institutions have discovered the hard way that people do not always want something

new. New products do fail. Many factors contribute to the success of a product, such as

Ingredients for Failure

Failing to analyze the market Rushing to the market with a

defective product Letting wishful thinking drive

development projections Failing to consider timing Ignoring the competition Spending millions for R&D but

nothing on marketing Believing a small market is better

than none

Uniqueness and superiority of the product

Customer and market-driven focus

Thorough preparation

Sharp, clear, early product definition

Quality of execution

Correct organizational structure and climate

Focus and sound decision making

Planning and resourcing the launch

Role of top management

Speed—but not at the expense of quality

Identifying a product development team

elopment, an MFI should assemble

g a “product champion,” to guide

GAP

After analyzing its readiness to undertake product dev

a multidisciplinary product development team, includin

the process of product development.


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Organizational impact

Institutions must analyze their capacity and readiness to undertake product development.

A number of institutional areas might be affected when introducing a new product,

including

Human resources

Information systems

Training

Organizational structure

Institutional culture

Profitability

Strategy and mission

Funding

Liquidity

Strategic linkages

Risk management

Questions MFIs Should Ask Themselves

While many MFIs look at new product development as a way of responding to their clients’

needs, they often do not understand the complexity and cost of product development.

There are a few essential questions to ask before setting about new product development.

1. Motivation: “Are we starting product development to make our MFI more client-

driven?”

2. Commitment: “Are we setting about product development as a systematic process to

reach defined objectives?”

3. Capacity: “Can our MFI handle the strains and stresses of introducing a new product?”

4. Cost Effectiveness and Profitability: “Do we fully understand the cost structure of our

products?”

5. Simplicity: “Can we refine, repackage, and re-launch existing product(s) before we

develop a new one?”

6. Minimize Confusion, Complexity, and Cannibalization: “Are we falling into the product

proliferation trap?” (Cannibalization occurs when the introduction of a new product

diverts sales from a company’s existing products, and when revenue is displaced rather

than created.)



Market Research

What is market research and why is it important for product development?

Market research can be defined as the procedures and techniques involved in the research

design, data collection, analysis and presentation of information used by managers in

making marketing decisions. Market research is used by MFIs to respond to needs and

opportunities by improving current marketing, promotion, outreach, and delivery activities.

Market research takes time; it cannot be taught or conducted in a day.

Best results come when market research is well thought out and planned, when institutions are willing to commit resources

for market research, and when a combination of market research techniques and types is used.


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The steps involved in market research include

Defining research objectives

Defining research methods

Reviewing secondary data (previously collected data)

Preparing for primary data collection

Collecting primary data

Analyzing all data

Reporting

Market research is vital to the success of product development. The cost to correct a

product error at each stage of the product development process is ten times more costly

than the previous stage.

Developing research objectives

It is important to develop a clear research objective before embarking on market research.

The research objective is a statement that precisely details the specific, measurable

outcomes or results that an organization plans to achieve with its market research.

Defining the research objective guides the entire research process.


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There are 3 types of research objectives:

Exploratory—to gather preliminary data to shed light on market realities and to

suggest possible solutions or new ideas

Descriptive—to ascertain how widespread certain opinions or perceptions are (how

many people do/do not agree to a certain savings idea etc.)

Causal—to test cause-and-effect relationships

Approaches to market research

MFIs have differing approaches to market research (see Table 1). Those that are

committed to offering client- or market-driven financial services use a variety of market

research tools in various combinations:

Primary/Secondary Sources of Data

Primary data are data collected for the first time by a researcher for the specific

research project at hand.

Secondary data are data previously gathered for some other purpose but is pertinent

to the current project. More often than not the proper place to begin a research study

is to investigate previous work related to the research issues under study. Secondary

data can also be divided into internal and external sources.


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Ongoing/Periodic Activities

Ongoing activities and systems include such activities as simple questions on loan

application or savings account opening forms, suggestion boxes in branches, drop out

questionnaires, discussing client-focused information at staff meetings, monitoring of

internal management/financial information, and reviews of industry data/trends.

Periodic activities and systems are often activated in response to signals from the

on-going systems. Examples include customer consultative groups, focus group

discussions with clients, potential clients and dropouts, 3- to 6-question minisurveys,

and detailed competition analysis.

Table 1. Examples of Market Research Approaches

ONGOING PERIODIC Primary Secondary Primary Secondary

MIS portfolio reports

Focus groups Client exit

forms

MIS other reports

Product satisfaction

surveys

Client intake forms

Client feedback surveys

Individual interviews

Client household surveys

Observation Branch market

analyses

Data collected for the first time by a researcher for the specific research project at hand

MIS reports


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Qualitative versus Quantitative Methods

Qualitative research methods are used to understand, illuminate, and explain human

behavior and ideas. In qualitative research, one question and its answers lead to

another set of questions. The sample used in qualitative research is composed of

people with the same demographic profile.

Quantitative research has a scientific base. The questions and range of possible

answers is determined beforehand and the sample used is representative of the

population.

Table 2. Differences in Qualitative and Quantitative Approaches

Qualitative Quantitative Unstructured questioning Structured questionnaire

For in-depth understanding of consumer behavior and motives

Statistically representative of population

Output: consumer words and descriptions

Statistical output analyzed by computer

Highly trained professional moderator

Enumerators trained for consistency and accuracy in asking questions

Moderator must understand research objectives

Enumerators do not have to understand or interpret research

objectives Questions not determined Questions determined beforehand

Range of possible answers not determined

Usually range of possible answers determined beforehand.

Sample group of people with demographic similarities

Sample representative of the population


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Client-oriented methods to market research

There are many ways to capture data. The choice will depend on a number of variables

such as the research objective and resources available. Among the most participatory and

client-focused methods are focus group discussions and Participatory Rapid Appraisals.

Focus group discussions

A focus group is a qualitative market research technique where a small number of market

participants (usually 8 to 12) are gathered in one room for a discussion under the

leadership of a trained moderator. Discussion focuses on a customer problem, product, or

potential solution to a problem.

Focus group discussions in microfinance enable an MFI to get to know the sector as well as

its clients. When appropriately used, they can efficiently achieve the goals of exploratory

research:

Generating new ideas, or hypotheses which can be tested in later phases of the

research study

Clarifying concepts, actions, or terms used by consumer

Prioritizing issues for further investigation

Providing an opportunity for management to see to see how their customers think,

feel, and act

Obtaining an “early read” on changing market trends

More on how to organize a good focus group discussion

Plan ahead Develop questions to ask Determine which people to invite Arrange a conducive seating plan Use skilled moderators with proven facilitation and

questioning skills Use good recording devices Analyze the data Follow up

Participatory Rapid Appraisal (PRA) Tools

Traditional quantitative research methods fail to capture the rich complexity of poor households’ reality and livelihoods. They often overlook the importance of microfinance services’ role in diversifying sources of income, smoothing income and expenditure fluctuations, protecting and developing important household assets (physical as well as human), and in the development of key social contacts and skills.

Participatory Rapid Appraisal (PRA) techniques such as interviews, discussions (including focus groups), mapping, ranking, and trend analysis exercises with local people allow the researcher/practitioner to examine the complexity of poor households’ financial, economic and social environment.



More on useful PRA tools for microfinance

• Seasonality Analysis of household income, expenditure, savings, and credit is used to obtain

information on seasonal flows of income and expenditure, and the demand for credit and savings

services.

• Life-Cycle Profile is used to determine which events require lump-sums of cash and to examine

the implication for household income/expenditure. The profile can also give insight into current

coping mechanisms and how access to MFI financial services can help the household respond to

these.

• Wealth Ranking provides a rapid way of classifying a community into basic categories and is useful

for examining the socio-economic characteristics of people who chose to join (or don’t join) the MFI

and also those who leave or whose accounts become dormant.

• Cash Mobility Mapping provides an understanding of where members of the community go to

acquire or spend cash (markets, waged labor, co-operatives, informal financial organizations, etc.)

and which financial service institutions they trust or value and why.

• Time Series of sickness, death, loss of employment, theft, natural disaster etc. in a community

over time can help to design a range of opportunities for improved delivery of financial services to

cope with crises.

• Financial Services Matrix is useful in determining which financial services are used by which

socio-economic or socio-cultural strata of society and why, and thus the potential for designing or

refining appropriate financial products.

• Financial Sector Trend Analysis is useful for understanding the changes in the use or availability

of a variety of financial services over time, and why participants used them.


Product Concept and Design

Designing a product prototype

The next step in the process is to use the results from the market research to design a

product prototype. The prototype should include all the attributes or characteristics of the

product, including its features, functions, benefits, delivery, and uses. A product

specification sheet is a useful tool to record a product’s characteristics.

Sample Product Specifications for a Savings Product 1. Product Name 2. Purpose/Focus Savings use Client profile Location(s)

3. Amount Minimum balance Minimum deposit amount Maximum deposit Minimum withdrawal Maximum withdrawal

4. Preconditions Opening balance Minimum balance Average balance to maintain account Basis for calculating average balance (daily,

monthly, etc.)

Calculation method for average balance Min/Max deposit Min/Max withdrawal Deposit frequency Withdrawal frequency

5. Pricing Interest rate Interest rate method Commission and fees: amounts Commissions and fees; timing/frequency;

upfront, ongoing Basis Index to external value Penalties


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Considering institutional issues in product design

After designing a product prototype (in this example, savings), the MFI needs to ask itself

a series questions, including the following.

Operational Methodology Will methodology have to be changed? How? Do we add these products to our current menu? Do we stop offering other products? Which ones? How do we deliver it?

Information Systems How will information systems have to be changed? Who will do it? How much will it cost? How long will it take?

Human Resources Do we have enough staff with the right skills? Will they need training?

Infrastructure How will savings be protected? Do we have enough space for new clients?

Legal and regulatory Will the new products comply?

Competition What do we know?


Costing

Microfinance managers, especially those working in more competitive markets, increasingly

recognize the importance of streamlining operations and cost management for long-term

viability. Product costing offers them a key tool to better understand operations and cost

structure as a first step toward increasing efficiency, lowering costs, and ultimately

providing better services to their clients.

To price a new or refined product,

it is easier if the prices of existing products are known.

Current product costs can then be used as a basis

to estimate future costs for a new product.


Distinguishing between cost allocation and activity-based costing

Cost Allocation

Drawbacks of Traditional Cost Allocation

Allocations can overestimate the per unit costs of the “larger” products and may not capture the complexities of “smaller” products. Alone, traditional cost allocation

methods do not provide managers with much insight into WHY a particular product may cost more than another.

Traditional cost allocation methods use allocation

bases to distribute costs, for instance, direct

labor hours or total account balances among

products (such as a specific loan product). The

cost allocation exercise can be relatively simple

to implement and can provide insight into how

much is spent on each product. Most cost

allocation methods rely on volume-related

allocation bases to allocate costs among

products.


Figure 2. Cost Allocation

Note: In the cost allocation method, each line of the income and expense statement is allocated to

different financial products on the basis of a logical criterion called an allocation basis. In Figure 2, staff

time sheets and portfolio volume are used as the allocation bases. Staff costs (i.e., salaries and

benefits) are allocated to Loan Product 1, Loan Product 2, and the Saving Product based on staff time.

Non-staff costs (items such as rent and transportation) are allocated using the allocation basis of the

relative volume of each product.


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Activity-Based Costing

Instead of allocating costs directly to products as in cost allocation, activity-based

costing (ABC) first determines the cost of an MFI’s core processes and activities and

then allocates costs to products on the basis of the extent to which each product

“consumes” these activities.

ABC allows MFIs to cost their individual products to determine whether they are viable

(see Figure 3).

ABC traces costs to specific activities undertaken by the MFI, such as processing a

loan application or opening a savings account. The costs of these activities are then

“driven”, or applied, to products and other cost objects (such as branches)with

estimates of usage of these activities by the cost objects. Inserting activities into the

costing process distinguishes ABC from other costing methods. It provides much

richer information because it answers HOW and WHY costs are incurred? This

information leads directly to specific adjustments or modifications in an MFI’s

activities to streamline costs.


Figure 3. Activity-Based Costing

Notes: 1. The core processes of a typical MFI include client identification, making new loans, servicing

existing loans, opening deposit accounts, servicing deposits and withdrawals from savings accounts,

etc.

2. Sustaining activities are those activities not easily traced to products. These activities include

general management, accounting, secretarial, information technology support, human resource

management, marketing, etc.


In Figure 3, staff costs and non-staff costs are allocated to core processes on the basis of

staff time spent. Where members of staff do not directly spend time on core processes but

rather provide support functions this time is booked to “sustaining activities.”

Once a cost for a particular core process has been determined based on staff time, these

costs are then driven through to the products on the basis of a logical cost driver. For

example, once the cost for processing a loan application has been determined, the logical

cost driver would be the number of loan applications. Each product then absorbs costs for

processing loan applications in proportion to the number of loan applications it generates.

Different processes will have different cost drivers. However, sustaining activities cannot be

driven directly to particular products. The costs of sustaining activities need to be allocated

to the different loan and savings products using allocation based costing techniques.

More on the steps of ABC 1. Plan for the costing exercise 2. Identify products for costing 3. Ascertain core processes 4. Designate specific activities for each core process 5. Conduct staff time estimates for each activity 6. Calculate costs per activity 7. Assign cost drivers and determine unit activity costs1 8. Drive unit activity costs to products

Comparing Cost Allocation and ABC

Cost allocation methods that distribute costs organized according to an MFI’s chart of

accounts provide valuable information about product costs. Managers can see the major

components of costs by cost category (staff costs, rent, etc.). Combined with cost

information at the department or branch level, product costs derived from a cost allocation

exercise can help managers begin to pinpoint the sources of costs.

However, accounting categories of costs are not necessarily that useful for decision making

on their own. They do not directly address questions related to how and why costs are

1Identifying cost drivers for each activity allows for the calculation of a per-unit or per-transaction cost for each activity. Dividing the total activity costs by the total number of cash transactions yields a unit cost per transaction. These unit costs can then be transferred to the individual products based on how intensively each product uses each activity.



incurred. ABC provides additional information about how or why costs are incurred by

allocating costs first to processes and activities and then to products. Most MFI staff can

relate much better to the concept of an activity (such as reviewing loan applications) than

to a cost line item (utilities expenses), when breaking down the costs of a product.

Figure 4. Difference between Cost Allocation and Activity-Based Costing

For more information on activity-based costing, you can download CGAP’s

Product Costing Tool from http://www.cgap.org/html/p_technical_guides.html

http://www.cgap.org/html/p_technical_guides.html


Pricing 5

A number of factors affect product pricing, including costs, clients’ sense of value,

competition, and profit. Institutions may have different pricing strategies. Some

common strategies include cost recovery, profitability, social mission, competitive pricing,

market positioning or penetration pricing, and cross subsidization.

No matter what pricing strategy or combination of strategies an MFI

may use, the product should be viable.

Determining product viability for a credit product

For loan products, costs are compared to income earned from interest and fee charges to

determine profitability as shown in the sample calculation below.


Annualized Net Income by Loan Product Sample Loan Product A Sample Loan Product B

Line 1 Average Portfolio Balance 6,000,000 8,000,000

Line 2 Interest and Fee Income on Loans 2,160,000 2,300,000

Line 3 Interest Expense on Borrowed Funds 1,080,000 1,200,000

Operating Expenses

Line 4 Make New Loans 100,000 150,000

Line 5 Service Existing Loans 600,000 900,000

Line 6 Sustaining Activities 200,000 400,000

Line 7 Total Operating Expenses

(Line 4 + Line 5 + Line 6)

900,000 1,450,000

Line 8 Provision for Loan Loss 60,000 80,000

Line 9 Net Income

(Line 2 – Line 3 – Line 7 – Line 8)

120,000 -430,000

Line 10 Net Income/Avg Portfolio Balance

Line 9/Line 1

2.00% -5.38%

Sample Loan Product A is viable because the result at Line 10 is positive; Product B is not.


Determining product viability for a savings product

Since savings products do not directly earn income, when analyzing the viability of a

savings product, it is necessary to compare the total cost of the savings product to

alternative source of funds (or the next best proxy) with similar terms that might be

available in the market. This alternative source price is often referred to as the “transfer

rate.” The difference between the interest cost of savings and that of the funding

alternative is called the interest cost “contribution margin” of that product, or the “interest

contribution.”

More on Determining the Viability for a Savings Product

Suppose that an MFI pays 4 percent interest on its regular passbook loan, and

its next best wholesale alternative for raising funds is a commercial loan at 7.5

percent. The interest contribution to the MFI of collecting savings rather than

contracting a commercial loan equals 7.5% - 4% = 3.5%.

Using the ABC methodology, the next step entails comparing each product’s

interest contribution to the net administrative costs (which are administrative

costs for core processes minus fees). Finally, the implicit “cost” of holding


savings in reserve should be subtracted. This reserve cost is calculated by using

the following formula:

Financial Cost (e.g., interest rate) (1 – Reserve Rate)

– Financial Cost

For this example, if the reserve rate equals 10%, then, the reserve cost equals

(4%/.90) – 4% = 0.44%

The following calculation shows how to complete the viability analysis for this

simple example where the core administrative costs equal 4% and fees are

1.5% (all figures expressed as a percentage of average product balance):

3.5% interest contribution (A)

- 4.0% minus core administrative costs (B)

+ 1.5% plus fees (C)

- 0.4% minus reserve cost (D)___________

0.6% A – B + C – D

If sustaining activity costs for that product fall below 0.6 percent, then the

product is completely viable and covers both the core administrative costs and

the sustaining costs.


If, on the other hand, sustaining costs exceed 0.5 percent, then the MFI must

evaluate whether it makes sense to continue with the product, seriously modify

the product, or consciously continue to offer it with the expectation that other

more lucrative products will make up the difference in covering sustaining

costs. Another option entails figuring out how to reduce the costs of all

activities, especially sustaining activities.

Price sensitivity

Further market research is also necessary at this point to get feedback on pricing issues

from clients. There are a number of approaches to collecting information on customer

reaction to prices (price sensitivity) that are currently used in the banking industry that

could be applied to microfinance. It is recommended that some type of price sensitivity

testing be conducted and used in the product development process.


Pilot Test 5

A pilot test is something that measures the worth of a product in such a way that the

results of the test guide management decision making. The pilot testing process can be

broken down into ten steps that, if followed carefully, can minimize the chance for failure

of the test and provide valuable information that management can use to improve the

product. If all steps are followed, management can ensure a successful decision about the

rollout of the product in its final form.

Ten Steps of a Pilot Test

1. Choose the pilot test team

2. Develop the testing protocol

3. Define objectives

4. Prepare all systems

5. Model financial projections

6. Document product definitions and procedures

7. Train the relevant staff

8. Develop customer marketing materials

9. Begin the pilot test

10. Evaluate the test


The first step to conducting a successful pilot test is to draw together a formal pilot test

Team, which, ideally, is made up of individuals from each major area or department of the

institution. The team members must be skilled in their areas of representation. If MFI staff

members do not have the necessary expertise, the MFI must obtain this expertise

elsewhere. An experienced team leader will also be needed.

In order to function, the team will require a strong commitment from institutional

management. The team should therefore have at least one senior manager as a member

so that they have someone who can communicate directly to the CEO and other senior

managers about the product.

Some specific activities that team members might perform are listed on the next page.


Pilot Test Team Skill Areas Specific Activity

Product Champion/Team Leader Manages the team, is responsible for reporting and outputs, calls meetings,

assigns tasks to team members, represents the team to top management,

coordinates preparation of recommendation letter

Finance/Accounting Prepares costing and financial projections, ensures liquidity

Information Technology/MIS Coordinates IT selection and installation, related fixed-asset purchases and

installation, develops a systems manual

Marketing Prepares marketing plan for test, conducts test-product marketing training,

coordinates development of marketing documents, tracks marketing

effectiveness

Training Writes curriculum for test-product training, trains front and back office

related staff

Operations/Management Coordinates with branch activities

Credit/Management Develops policies and documents procedures

Credit/Frontline Provides frontline customer information to team, distributes and collects new

customer information sheets

Research Collects and summarizes data, prepares monthly and quarterly reports to

team and others

Audit/Controls Assists in formalization of procedures, authorizes procedures, conducts full

product audit (and follow-up if necessary) during test

Source: Michael McCord, Graham A.N. Wright, and David Cracknell, “It Can Work: A Toolkit for Planning,

Conducting and Monitoring Pilot Tests for MFIs—Loan Products,” (Nairobi, Kenya: MicroSave Africa, July 2001).


Establishing testing protocol

The goal of the test and the work parameters must be clear if the team is to complete its

job effectively. A testing protocol should be established, asking:

• How many customers should be included?

• Where and in how many locations should the test take place?

• How long should the pilot last?

• When will the report on the pilot be completed?

• What data should be analyzed?

• What would cause the pause or cancellation of the test?

When the test is complete, and the team has considered all the implications of the new

product for the MFI as well as for the customers, a decision must be made about whether

or not to recommend going forward with the product launch. The pilot test could lead to

further changes to the product and thus a continuation of the pilot test. It could be

cancelled altogether, or hopefully, it will help to create a strategy for a full rollout of the

product.


Product Rollout 5

Once the recommendation is made to “roll out” or expand the product to other market

areas, revised financial projections and a rollout plan, both directly reflective of the results

of the test, must be prepared. Key variables to consider in planning and executing a

product rollout include:

• Time period and duration

• Level of effort (staff time)

• Responsible person(s)

• Resources (financial, training, equipment, etc.)

• Evaluation of rollout

Following the rollout of new or revised products, the process of product development does

not end. A product may need to evolve as clients mature and the market changes, and

product features and delivery procedures must be revised from time to time to meet these

new demands. Evaluation of how successful a product is at meeting both client needs and

institutional demands is therefore an ongoing and iterative process for MFIs committed to

meeting client needs with viable products.


List of Resources 5

General Rosenberg, Richard. “Microcredit Interest Rates.” CGAP Occasional Paper No. 1. Washington, D.C.: CGAP, revised November 2002. www.cgap.org/html/p_occasional_papers.html

Wright, Graham, Monica Brand, Zan Northrip, Monique Cohen, Michael McCord, and Brigit Helms. “Looking before You Leap: Key Questions That Should Precede Starting New Product Development.” 2001. www.microfinancegateway.org/static/2164.htm

Focus groups and PRA Wright, Graham, Shanaz Ahmed, and Leonard Mutesasira, with Stuart Rutherford. “Focus Group Discussions and a Participatory Rapid Appraisal for MicroFinance—A Toolkit/Course.” [Kampala, Uganda: MicroSave-Africa, 1999]

Costing and pricing Product Costing Tool, version 1.3 (draft). Washington, D.C.: CGAP, 2002. www.cgap.org/html/p_technical_guides.html

Pilot testing McCord, Michael J., Graham A.N. Wright, and David Cracknell. “It Can Work: A Toolkit for Planning, Conducting, and Monitoring Pilot Tests for MFIs—Loan Products.” Nairobi, Kenya: MicroSave-Africa, July 2001. www.microfinancegateway.org/static/2658.htm

www.microfinancegateway.org/static/2164.htm

www.cgap.org/html/p_technical_guides.html

www.cgap.org/html/p_occasional_papers.html

www.microfinancegateway.org/static/2658.htm

cgap training product development participant materials

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