world bank conference on new technologies for sme finance: differentiating markets for sme finance...
TRANSCRIPT
World Bank Conference on New Technologies for SME Finance:
Differentiating Markets for SME Finance
December 4, 2002
Copyright © 2002 by Monitor Company Group, L.P.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Monitor Company Group, L.P.
This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
COMPANY CONFIDENTIAL
Melbourne
Amsterdam Athens Cambridge Chicago Frankfurt Hong Kong Istanbul Johannesburg London
Los Angeles Madrid Manila Milan Moscow Mumbai Munich New York Paris
San Francisco São Paulo Seoul Singapore Stockholm Tel Aviv Tokyo Toronto Zurich
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 2
Decisions & ActionsDecisions & ActionsDecisions & ActionsDecisions & ActionsMarket ResearchMarket ResearchMarket ResearchMarket Research
Market Research Can Tell Us A Great Deal About Our Customers
Understanding Who, What, and Why Informs Key Decisions and Actions
Action Segmentation™ Customer Portrait®
Middle to upper income households Kitchen is important part of her home and her life
– Where she plays a large part of her role asprovider and caregiver for her family
– Entertaining often occurs in or includes the kitchen Remodeling to build her dream kitchen is a very
exciting project– Redoing the cabinets and countertops is the most
exciting part as they have the greatest impact onthe look / feel of the kitchen
– Not as excited about the new appliances Shops at several nearby stores
– Husband may go along to endorse selection– Each store has a reasonably wide selection of
brands and price ranges– Cabinet depth product is displayed alongside
regular product with no explanation of benefits tojustify price
– Dishwashers look quite similar across brands
Wants to build her dream kitchen in this house– This may be their home for a long time– Wants to feel good in her kitchen and have others
complement her More than someone who is replacing a broken unit, wants her
dishwasher to also look attractive and to complement orenhance the look of her kitchen
– Shouldn’t stick out in kitchen– Usually wants a more energy-efficient dishwasher than
she currently has– Her husband wants one that makes less noise– Price, within a broad range, is not a big factor
Must be able to physically see and touch it before buying it– Wants to imagine the dishwasher in her beautiful, new
kitchen Wants to feel she is getting a good deal on whatever she
selects (though all things considered, price is not thatimportant)
Dishwasher is an important part of theattractiveness of the kitchen
Has a sense of some brands being acceptableand others being too “cheap” and unreliable
– Believes that some brands are better atmaking some appliances than others
May have a view (based on prior experience)that a particular store will give her a better priceor will have more helpful staff
Price is usually within the range she expects The best value is a style that is right for her and
her husband and a brand they think is good Dishwashers that “stick out” destroy the “look” of
the kitchen Believes that client’s brand is ‘old-fashioned’ Believes that most major manufacturers offer
similar quality
DesiredExperience
DesiredExperience
Product / ServiceBeliefs and
Associations
Product / ServiceBeliefs and
Associations
Purchaseand Usage
Environment
Purchaseand Usage
Environment
Purchase andUsage Behavior
Purchase andUsage Behavior
Female head of household is primary shopper because appliance has tolook good based on her tastes
Rejects brands that she is unfamiliar with Talks to friends and family, browses stores and reads shelter magazines
to learn about what is available and figure out style options When shopping for her dishwasher, she tries to imagine how it will look
in her kitchen, how it will blend-in, how it will enhance it
Visits several stores to find the dishwasher that best fits her desired style– May price shop once she has identified a specific SKU
Asks her husband to endorse her choice — he may have input on price anddurability
Shows off kitchen to friends and family once remodeling is complete and newappliance is in place
Note: Hypothesis in italics
<50K 50K+
Casual
LightHiking
Back -packing /Mountain-
eering
18-29 30-44 45 and Older
MaleMale Female Female <50K 50K+
AA
CC
EE
D
IB
F
H
G
L
JJ K
Collapsed becauseindividual segmentswere too small
Do not target
Developing Products and Services
Developing Products and Services
Strengthening Delivery Channels
Strengthening Delivery Channels
Improving Information
Infrastructure
Improving Information
Infrastructure
Addressing Policy and Strategic Challenges
Addressing Policy and Strategic Challenges
Through focused market research, we can develop an actionable segmentation of the SME financing market to more effectively target, understand and serve SME customers.
Who, What, and Why
Not All SME Customers Are the Same
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 3
Action SegmentationWhat Is It and What Do You Get From It?
Extensive Facilitated Sessions with Managers & Market “Experts”
Extensive Facilitated Sessions with Managers & Market “Experts”
Leveraging of Existing Organizational Data
Leveraging of Existing Organizational Data
Selective Primary ResearchSelective Primary Research
Multi-functional group develops hypothesized market definition and desired behavioral change
Qualitative and quantitative research to capture relevant market data and test hypotheses
Market experience to understand customer behavior
Focused qualitative and quantitative research to validate segmentation and test hypotheses
Action Segmentation™ is a tool used to create a base of knowledge and insight about customers and the market to enable better decision-making.
Determine the target customer segments and/or what occasions to target
Determine which customer segments not to address
Understand key differences between customer segments and determine allocation of resources
Develop foundation for creating– Segment specific strategies– Products, brands, customer
experience for different segments– Integrated marketing strategy
Structured Process Output
Target SegmentsTarget Segments Target SegmentsTarget Segments
Key Differences Between Key Differences Between SegmentsSegments
Key Differences Between Key Differences Between SegmentsSegments
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 4
Action SegmentationDefining the Market & Behavioral Objectives For SME Finance
The first step is to hypothesize a definition of the market . . .
. . . And then identify the desired behavioral change.
Primary business owners of small and medium-sized enterprises, in country, in need of loans and other financial products and services
Move away from using family, local money lenders and/or consumer credit and look to formal financial institutions for business financing
Secure loans, and ultimately a full range of financial products and services via our organization
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 5
Action Segmentation™
Developing the List of Potential Segmentation Variables
Through a combination of structured facilitation sessions and leveraging of existing data, a list of potential segmentation variables can be built.
WhoWhoWhoWho SituationSituationSituationSituation Past BehaviorPast BehaviorPast BehaviorPast Behavior
Business type
Business location
Age of primary business owner
Gender of the primary business owner
Condition of the local economy
Familiarity with formal financial institutions
Channels available to the SME
Intended use of the loan
What, if any, financial products have they purchased?
Where did they purchase these products and services? Informal / formal financial institutions?
For loan products, what was the intended use of the loan?
What was the loan amount and term?
Is the previous loan(s) in good standing?
Which Variables Do We Think Are Predictive of A SME’s Financing Choice?
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 6
Urban Setting Rural Setting
<500K INR >500K INR
Men Women Men Women <500K
INR >500K
INR
Lending
Lending Plus (Savings, Insurance, etc.)
Full Service Banking (Lending, Savings, Insurance, Payment Transfer, other services)
Action Segmentation™
Creating the Market Map and Selecting Target Segments
Business Information
Product Requirements
These variables are then used to create a map that can be populated with the market data that has been collected. This allows us to prioritize segments based on relative size / attractiveness and our ability to execute.
Want more than local lender can offer in terms of product flexibility and/or breadth Women are more likely than men to look beyond local financing alternatives Our organization has facilities / representatives in densely populated urban areas where these
businesses are located
Want more than local lender can offer in terms of product flexibility and/or breadth Women are more likely than men to look beyond local financing alternatives Our organization has facilities / representatives in densely populated urban areas where these
businesses are located
Urban Women
Illustrative Market Data
Note: INR indicates Indian rupees.
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 7
Customer Portrait®
What Is It and What Do You Get from It?
The Customer Portrait® is an integrated process which results in a detailed understanding of a target customer’s behaviors and motivations.
Who?Who? Who?Who?
What?What? What?What?
Why?Why? Why?Why?
Integrated Process
Organizes and synthesizes existing organizational data
– Market research
– Market experience
Identifies critical data gaps to guide in-depth primary research on target customers
Output
Who are these customers?
What are they like?What do they do?
Why do they behave the way they do?
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 8
Desired Experience
Desired Experience
Product/Service
Beliefs & Associations
Product/Service
Beliefs & Associations
Purchaseand Usage
Environment
Purchaseand Usage
Environment
Purchase andUsage
Behavior
Purchase andUsage
Behavior
What the Customer WantsOut of the Experience
The Customer’s Mental Model of Purchase and
Consumption
The Setting
What the Customer Does
Customer Portrait®
Framework
The Customer Portrait® framework captures key influencers of customers’ decisions as well as critical beliefs and behaviors.
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 9
Desired Experience
Desired Experience
Product / Service Beliefs and
Associations
Product / Service Beliefs and
Associations
Purchase and Usage
Environment
Purchase and Usage
Environment
Invest in growing business Desire flexibility in loan terms due to
exposure to business fluctuations Want “lending plus” or full service
banking relationship
Women 25-35 years old Live and work in urban areas Varied education levels Fluctuating income, dependent on
business performance Expect to continue running the
business during lifetime Household has young children, not old
enough to run business, but in case of death, expect other family members to continue running the business
Borrows money from local lender when necessary, limited exposure to financial institutions
Customer Portrait®
SME Example: Small Businesswomen in Urban Areas
Purchase andUsage Behavior
Purchase andUsage Behavior
Welcome products offering them greater flexibility in managing their cash flows
Believe financial institutions will not provide loans
Local lender is preferred source of financing– Easily accessible for loan
initiation and repayment
Usually purchased one prior loan from local lender– 5-year term is common Prefer monthly payment schedule as it
helps them manage short-term fluctuations in business income
Prefer option to vary monthly payments subject to business fluctuation
This businesswoman owns a small baked goods business in an urban area. She distributes her products through a couple of small stores in her neighborhood and has a handful of employees, and relatives who help out during the busy holiday season. The country’s recent economic downturn has impacted her sales and made her question whether she can afford her plans to expand her business by buying a new oven to keep pace with upcoming holiday demand.
She is an established, if small, business owner and takes pride in her ability to support her children through her business efforts. In the past, she has taken small loans from a local credit union, which she has always paid back on schedule.
However, to pay for the new oven, she would need to resort to taking multiple loans from sources other than the credit union. In addition, she would like a secure place to keep the profit she generates during the holiday season so she can access it during the slower parts of the year. While she is concerned about taking on additional loans, she does not believe a formal financial institution would lend money to a small woman-owned business, so she makes plans to approach a local money-lender for the rest of the capital required to purchase the new oven.
This businesswoman owns a small baked goods business in an urban area. She distributes her products through a couple of small stores in her neighborhood and has a handful of employees, and relatives who help out during the busy holiday season. The country’s recent economic downturn has impacted her sales and made her question whether she can afford her plans to expand her business by buying a new oven to keep pace with upcoming holiday demand.
She is an established, if small, business owner and takes pride in her ability to support her children through her business efforts. In the past, she has taken small loans from a local credit union, which she has always paid back on schedule.
However, to pay for the new oven, she would need to resort to taking multiple loans from sources other than the credit union. In addition, she would like a secure place to keep the profit she generates during the holiday season so she can access it during the slower parts of the year. While she is concerned about taking on additional loans, she does not believe a formal financial institution would lend money to a small woman-owned business, so she makes plans to approach a local money-lender for the rest of the capital required to purchase the new oven.
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 10
Decisions & ActionsDecisions & ActionsDecisions & ActionsDecisions & ActionsMarket ResearchMarket ResearchMarket ResearchMarket Research
Summary — Through Uncovering the Who, What, and Why We Can Take
Decisions and Actions to Profitably Serve the SME Market
Action Segmentation™ Customer Portrait®
Middle to upper income households Kitchen is important part of her home and her life
– Where she plays a large part of her role asprovider and caregiver for her family
– Entertaining often occurs in or includes the kitchen Remodeling to build her dream kitchen is a very
exciting project– Redoing the cabinets and countertops is the most
exciting part as they have the greatest impact onthe look / feel of the kitchen
– Not as excited about the new appliances Shops at several nearby stores
– Husband may go along to endorse selection– Each store has a reasonably wide selection of
brands and price ranges– Cabinet depth product is displayed alongside
regular product with no explanation of benefits tojustify price
– Dishwashers look quite similar across brands
Wants to build her dream kitchen in this house– This may be their home for a long time– Wants to feel good in her kitchen and have others
complement her More than someone who is replacing a broken unit, wants her
dishwasher to also look attractive and to complement orenhance the look of her kitchen
– Shouldn’t stick out in kitchen– Usually wants a more energy-efficient dishwasher than
she currently has– Her husband wants one that makes less noise– Price, within a broad range, is not a big factor
Must be able to physically see and touch it before buying it– Wants to imagine the dishwasher in her beautiful, new
kitchen Wants to feel she is getting a good deal on whatever she
selects (though all things considered, price is not thatimportant)
Dishwasher is an important part of theattractiveness of the kitchen
Has a sense of some brands being acceptableand others being too “cheap” and unreliable
– Believes that some brands are better atmaking some appliances than others
May have a view (based on prior experience)that a particular store will give her a better priceor will have more helpful staff
Price is usually within the range she expects The best value is a style that is right for her and
her husband and a brand they think is good Dishwashers that “stick out” destroy the “look” of
the kitchen Believes that client’s brand is ‘old-fashioned’ Believes that most major manufacturers offer
similar quality
DesiredExperience
DesiredExperience
Product / ServiceBeliefs and
Associations
Product / ServiceBeliefs and
Associations
Purchaseand Usage
Environment
Purchaseand Usage
Environment
Purchase andUsage Behavior
Purchase andUsage Behavior
Female head of household is primary shopper because appliance has tolook good based on her tastes
Rejects brands that she is unfamiliar with Talks to friends and family, browses stores and reads shelter magazines
to learn about what is available and figure out style options When shopping for her dishwasher, she tries to imagine how it will look
in her kitchen, how it will blend-in, how it will enhance it
Visits several stores to find the dishwasher that best fits her desired style– May price shop once she has identified a specific SKU
Asks her husband to endorse her choice — he may have input on price anddurability
Shows off kitchen to friends and family once remodeling is complete and newappliance is in place
Note: Hypothesis in italics
<50K 50K+
Casual
LightHiking
Back -packing /Mountain-
eering
18-29 30-44 45 and Older
MaleMale Female Female <50K 50K+
AA
CC
EE
D
IB
F
H
G
L
JJ K
Collapsed becauseindividual segmentswere too small
Do not target
Developing Products and Services
Developing Products and Services
Strengthening Delivery Channels
Strengthening Delivery Channels
Improving Information
Infrastructure
Improving Information
Infrastructure
Addressing Policy and Strategic Challenges
Addressing Policy and Strategic Challenges
Through focused market research, we can target SME customers, develop a robust understanding of their needs and identify means of profitably serving them based on our ability to execute.
Action Segmentation™ enables us to identify target customer segments
The Customer Portrait® then captures a robust understanding of the customers in each target segment
These insights inform choices around how to best serve these customers in a profitable way
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 11
Summary
Benefits of Better Understanding the SME Customer
Increased ability to “mass-customize” products and services
– Targeted product and service design to better meet the needs of attractive SME customer segments
Ability to capitalize on SME opportunities that were previously “invisible”
– Lower the risk of “unknowns” in the SME financing market by truly understanding customers and capturing risk profile data more accurately
– Gain a better understanding of SME customers’ abilities to access technologies that could lower transaction costs and improve access
Better, more efficient use of resources to target new opportunities
– Improved credit approval capabilities by adding meaningful, qualitative data to existing credit-scoring approaches
– Effectively bridging the gap between relationship-driven corporate lending and consumer credit-scoring
This approach to truly getting to know the SME customer results in an increased ability to identify and activate this segment of the financial services market.
Benefits of Better Understanding the SME Customer
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 12
An Integrated Financial Services Example
Average Bank is the retail banking division of a leading national financial services organization.
Mortgage LoansMortgage Loans
CheckingChecking
SavingsSavings
Etc.Etc.
Distribution LocationsProducts & Services
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 13
Asset Retention: A Serious Problem
Average Bank had difficulty retaining its customers’ assets as they accumulated more and more money.
35%
30%
20%
10%
0%
10%
20%
30%
40%
Competitor A Competitor B Competitor C Average Bank
Percent of Bank
Customer Base
Retention Rates
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 14
18–54 Years 55+ Years
Home Owners Renters
<$50K $50K–$250K $250K–$500K >$500K
Management
Equity
Mutual Funds
Savings
Selecting Target Segments
Life Stage
BankNeeds
We developed a deeper understanding of the customer landscape . . .
Young Families
Established Families
Wealthy Individuals
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 15
Identifying Segment Opportunities
. . . And worked with Average Bank to identify and quantify segment opportunities…
Improve Customer Experience to
Attract Customers and Build Loyalty
Cross-sell Borrowing Products
Retain through Customized Wealth
Management
$350
$150$75
0
250
500
Young Families Established Families Wealthy Individuals
$ / Opportunity
(MM)
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 16
Understanding the Customer
‘Young Families’ Segment
Busy balancing work withspending time with family
Prefer to conduct transactions by telephone
Some of these customers have mortgages(most of which are with Average Bank)
Enough income to pay mortgage and daily expenses
Starting to save small amounts
…Resulting in the development of an in-depth understanding of the “Young Families” segment.
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 17
0
25
50
75
100
Understanding the Customer
‘Young Families’ Segment (cont.)
Believe other banks have better investment products
Think Average Bank offers only basic products
Unsure whether they will continue investing with Average Bank as they accumulate assets ?
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 18
Then…
The same product for everyone
– Broadcast advertising
– No segmentation
– Product focus
– Marketing / sales at the end of the process
– Focus on new customers
Percent
Performance Before
0%
10%
0%
10%
20%
MortgageMargins
AssetRetention
Strategy Results
Average Bank’s previous strategy had focused on products instead of customers, resulting in poor performance.
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 19
Now… A Marketing Turnaround with Results
Improved profitability and customer retention
Repositioned from a ‘mortgage’ to a ‘home ownership’ bank
Designed unique products to attract new ‘Young Families’ consumers
– Launched no-payment down mortgage loan (first in its market)
Improved customer experience to build loyalty
– Embedded customer mindset and understanding of the ‘Young Families’ segment across company
– Redesigned telephone support and sales to be convenient for ‘Young Families’
– Created life cycle products appropriate for ‘Young Families’ as they grow
Strategy Results
Average Bank has completed a strategic turnaround which improved retention of assets and increased margins.
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 20
Extensive experience in consulting for telecom incumbents and new entrants
Private equity firm with $625MM fund Focus on LBOs, restructuring, late
stage ventures
Translates strategic choices into a configuration of operating activities that create sustainable competitive advantage Investment banking
Focus on M&A, spin-offs, and fund-raising
Non-profit consulting
Designs and delivers highly customized executive training / education
Develops cutting edge decision support technology, such as simulations based on game theory
Uses financial tools and frameworks to create value enhancing strategies and to enable strategic transactions
e-Business strategy for large corporations and dotcoms
Early stage venture fund Includes strategic advice, business
development, and management intervention
Investments in global public equities markets
Provides customer intelligence, marketing / branding advice, and growth programs
Monitor’s “group” companies provide unique access to world class capabilities across a wide range of activities which can be marshaled to serve our clients and partners
Introduction to Monitor Group
Group Companies
Leaders in the application of evolution and scenario-based strategic thinking
Merchant Banking Group
Action Group
Intelligent Products Group
The Action CompanyThe Action CompanyThe Action CompanyThe Action Company
M2CM2CM2CM2C
Marketspace™ Marketspace™ Marketspace™ Marketspace™ MAST™MAST™MAST™MAST™
MonitorMonitorUniversityUniversity
MonitorMonitorUniversityUniversity
Activities, Processes
and Systems
Activities, Processes
and Systems
Monitor Monitor ClipperClipper
Monitor Monitor ClipperClipper
Decision Decision ArchitectsArchitects®®
Decision Decision ArchitectsArchitects®®
CorporateCorporateFinanceFinance
CorporateCorporateFinanceFinance
MonitorMonitorInstituteInstitute
MonitorMonitorInstituteInstitute
Monitor Monitor VenturesVentures
Monitor Monitor VenturesVentures
First Street First Street Global Global
InvestorsInvestors
First Street First Street Global Global
InvestorsInvestors
Global Business Global Business NetworkNetwork
Global Business Global Business NetworkNetwork
Monitor Monitor Equity Equity
AdvisorsAdvisors
Monitor Monitor Equity Equity
AdvisorsAdvisors
Helps private capital firms earn superior returns by deploying Group capabilities across all transaction stages
Monitor’s largest and oldest Group company Tackles questions of strategic importance
including but not limited to competitive strategy, org. strategy, and corporate structure
Often serves as catalyst in bringing together Group companies in a unified manner
Innovation Innovation ManagementManagement
Innovation Innovation ManagementManagement
Provides technology and innovation management to increase the value of product pipeline and to speed the innovation process
Confidential
Copyright © 2002 Monitor Company Group, L.P. — Confidential — CAMZIS-SME -SMEFinance-12-4-02-DAB 21
Introduction to Monitor Group
Our Geographic Footprint
Monitor has approximately 1,050 professionals in 29 offices worldwide functioning as a single firm- we put a premium on serving our clients globally.
Los AngelesNew York
Cambridge
Toronto
LondonParis
Madrid
AmsterdamMunich
Stockholm
São Paulo
ZurichMilan
Johannesburg
AthensTel Aviv
Moscow
Singapore
Manila
Hong Kong
Tokyo
SeoulChicago
Frankfurt
Mumbai
San FranciscoEmeryvillePalo Alto
Melbourne
BeijingIstanbul