Factors influencing new product development in microfinance institutions: a perspective from north Indian microfinance institutions
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THE UNIQUE SELLING PROPOSITION:
NEW PRODUCT DEVELOPMENT Product development plays a vital role in increasing the client outreach for any organization. This increase in customer base, in turn, catalyzes the ef- forts of any organization for achieving sustainability and increasing prof- itability. The product development process starts with conceiving an idea for a new product and ends with its launch followed by feedback cycles. It passes through the stages of evaluating the idea of introducing new product, background preparations for designing a new product, prototype designing, and pilot testing before it is finally launched (Brand, 2001). It is also impor- tant to note here that the product development process does not end once the product is formally launched in the market. It is a recurrent process of refining the terms, characteristics, and conditions of that product, based on customer feedback and market analysis. In fact, sometimes product refine- ment (rather than new product development) is precisely the “innovation” that is needed. © De Boeck Supérieur | Téléchargé le 25/04/2022 sur www.cairn.info (IP: 178.237.70.187) Sanjeev KAPOOR and Gaurav SINHA 84
Journal of Innovation Economics – 2013/1 – n° 11 The importance of new product development or product refinement in the life of an organization can be discovered in two different schools of thought evolved in marketing function. Traditionally marketing focuses on what is presently called as “product driven approach”, which signifies that whatever organization produces or makes available to the customer, it will be sold in the market. This approach assumes that the company knows what to make and the market will buy enough units to generate profit for the company. This proposition is more applicable when there is scarcity of goods and services in which the company is involved. But, gradually the scientific concept of marketing replaced this approach with a more humane concept of “market driven approach”. This approach places importance on custom- ers and values their needs and demands for a particular product or service (Wright, Cracknell, 2005). The financial services sector in India has been no exception to the above mentioned schools of thought. After economic liberalization, the private banking channel arrived with customer focused products and services which led other operators especially the public sector banks, to follow the suite (Fisher, Sriram, 2002). However, the banking services were largely accessible only by a selected few in Indian society despite several efforts by government to make these services available to the poor (Fisher, Sriram, 2002). While working with the poor, some of the voluntary development organizations (or non-government organizations, NGOs) in India felt this need for banking and financial services to the poor population in India. Voluntary development organizations like MYRADA and PRADAN came up with the concept of informal lending and savings by forming self- help groups (SHGs) of the poor women. This initiative got boost up from National Bank for Agriculture and Rural Development (NABARD) in the early nineties. During the same time, Small Industries Development Bank of India (SIDBI) came up with the model of an organization delivering small value of loan products to rural segment, particularly the women (Sa-Dhan, 2004). However, historically most MFIs in India were methodology driven 1
with little competition and there was huge unmet demand for financial products. During this time, MFIs offered highly standardized loans with lit- tle variation or field-officer discretion to help keep costs low and maintain internal control as the institutions expanded to meet huge demand. This 1. There were only one or two loan products and that too with fixed amounts, available to the customers through group mechanisms. The MFIs focused on building systems and processes with this type of standardized loan products during this period. In this context the word “methodol- ogy driven” is used here. © De Boeck Supérieur | Téléchargé le 25/04/2022 sur www.cairn.info (IP: 178.237.70.187)
Factors influencing new product development… n° 11 – Journal of Innovation Economics – 2013/1 85 “vanilla” product was an outcome of popular “Joint Liability Group” model in Bangladesh. 2 The MFIs nonetheless grew and prospered, as did their clients, creating a more sophisticated customer base and an attractive market for new competi- tors. This was visible in the astronomical growth rates of these institutions both in outreach and volumes. The MFIs in India grew with the compound- ed annual growth rate (CAGR) of 76% (during the year 2001-2005). Even between March 2006 and 2007, the outstanding portfolios of MFIs in India grew by an impressive 77% (Intellecap, 2006). This growth was further com- pounded in the subsequent year with 60 per cent increase in the customer base and 97% growth in the outstanding portfolio compared to previous year (Sa-Dhan, 2009). Today, MFIs either need to understand and attend to their customers’ evolving demands for financial services or face customer de- sertion to more-responsive, market-driven competitors. A number of MFIs have gone out of their way to design market based products and services to reach out to critical mass and to remain in the market. This paper is based on a research study undertaken in northern part of In- dia to understand the process of new product development in microfinance. It attempted to map the role of organizational factors in the process of new product development by some of the MFIs operating in northern part of In- dia. It also aimed at drawing lessons from experimentation of different MFIs in this direction including the role of institutional capacities, thought proc- esses and changes that took place in their institutional culture for adopting the new product.
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