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PRODUCT DESIGN AND DEVELOPMENT
Both an absentee captain and mutinous sailors will scuttle a ship. Anonymous.
The product development process is designed as a funnel into which an institution enters, starting broadly with a range of potential product opportunities and successively narrowing the new product choices as project feasibility is researched and analyzed through the various stages of development
The design and development phase, the subject of Chapter Two, delineates how to design and develop a prototype (a representation of all or parts of a product) to be pilot tested. This phase requires two major steps:
1. Internal setup. This process involves mobilizing the interdepartmental collaboration necessary to undertake the development of the new product including identifying a product champion (its main proponent), staffing the cross-functional team, and building institutional buy-in, or full acceptance, of extending the product line.
2. Market research. Once the desired product mix has been defined, the MFI undergoes a process of segmenting the market and forecasting demand through different methods of market research. Sources of information and approaches for gathering data can be pulled from both inside the organization and external sources, including valuable customer feedback.
Successful product design and development involves:
• The team. Multidisciplinary skills and a product champion.
• Buy-in. Support within the institution for the process.
• Market segmentation. Definition of the customer group to be targeted.
• Market research. Identification of unmet or poorly met financial service needs and design of the product prototype.
STEPS FOR THE NEW PRODUCT DEVELOPEMENT:-
INTERNAL PREPARATION: ASSEMBLING THE DEVELOPMENT TEAM
The first step to methodical product development is mobilizing the organization to introduce a new product to the market. For organizations that have evolved from a specific financial methodology, the proposed addition of a new product will have repercussions throughout the organization. It is important to explain to the institution’s personnel the rationale for changing the methodology and expanding the product line because buy-in is crucial for successful implementation.
The product champion is typically the person who becomes the product’s main proponent and assumes responsibility for managing the development process. The product champion is the de facto leader of the team that oversees the market research and pilot testing phases and maintains the momentum behind what can be a tedious process.
Responsibilities of a product champion:
• Oversee and guide the entire process;
• Set work schedules and maintain momentum behind project;
• Build institutional support for product;
• Manage the cross-functional team and keep it on track; and
• Sell the idea to decision makers (management and board) and key stakeholders.
Although the product champion is responsible for oversight of each step of the development process, the day-to-day tasks are undertaken by a product development team of key personnel from the different parts of the organization, which are critical to the product’s ultimate success.
Cross-functional teams in most conventional financial institutions comprise three to seven staff members from the marketing, sales (credit officers), finance, management information systems (MIS), operations, and legal departments.
DIFFERENT ASPECTS DURING THE PRODUCT DESIGN:-
MARKET RESEARCH: DESIGNING THE PROTOTYPE
The new product team is charged with designing the initial prototype—the sample product to pilot test. To become a successful product, the prototype must be based on targeted market research. The product team needs to gather data that is qualitative, which will help decide how to design and deliver the product, and quantitative, which will help the MFI set a price and estimate demand.
To create sophisticated products, the new product development team must consider the entire product, including its component parts, and solicit client feedback on four factors that marketing professionals refer to as the four Ps:
# Product (design)—includes specific features, terms, packaging, and liquidity, ancillary services such as loan review and disbursement times, and collateral or guarantees;
# Price—includes the interest rate, loan fees, prepayment penalties, prompt payment incentives, and other discounts;9
# Promotion—includes advertising, public relations, direct marketing, publicity; and
# positioning—includes both the physical placement of the product (delivery channels through branches, door-to-door, automatic teller machines, and affinity groups) and its competitive position in the market (low price, high quality, quick turnaround time, professional service, and so forth).
Secondary Data—General Market Analysis
The product development team needs to get as much market information as possible to design the product features. Most financial institutions have built up a valuable internal database from their experience with lending and through general research and development. This information can provide valuable insight into designing the new product. Sources of secondary data are as follows:
# Current Product Information. To unearth market information hidden in their portfolio,
MFIs should go through a process of product disaggregation, where monoproducts (single, multifaceted products) are separated for analysis by distinctive features such as term structure, loan size, guarantee, or price (see Annex C).
# Company Documents. Loan files of both accepted and declined clients contain valuable information about client preferences and projected demand. If this information is stored in a database, files can be sorted by geography, income level, type of business, and so forth to see if any trends surface that can provide insight into target markets for the new product.