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World Bank Conference on New Technologies for SME Finance:

Differentiating Markets for SME Finance


December 4, 2002

Amsterdam

Athens

Los Angeles

Madrid

San Francisco

Cambridge

Manila

So Paulo

Chicago

Melbourne
Seoul

Singapore

Frankfurt

Milan

Hong Kong

Moscow
Stockholm

Istanbul

Mumbai
Tel Aviv

Johannesburg

Munich
Tokyo

New York
Toronto

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

London

Paris
Zurich

Confidential

Market Research Can Tell Us A Great Deal About Our Customers


Understanding Who, What, and Why Informs Key Decisions and Actions
Through focused market research, we can develop an actionable segmentation of
the SME financing market to more effectively target, understand and serve SME
customers.
Market Research
Decisions & Actions
Action Segmentation
45 and Older

30-44

18-29
Male

Female

Male

Customer Portrait

Female

<50K

Purchase
Purchase
and
and Usage
Usage
Environment
Environment

50K+

<50K 50K+

Casual

Light
Hiking

Back packing /
Mountaineering

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 or
enhance the look of her kitchen
Shouldnt 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 that
important)

Dishwasher is an important part of the


attractiveness of the kitchen
Has a sense of some brands being acceptable
and others being too cheap and unreliable
Believes that some brands are better at
making some appliances than others
May have a view (based on prior experience)
that a particular store will give her a better price
or 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 clients brand is old-fashioned
Believes that most major manufacturers offer
similar quality

Collapsed because
individual segments
were too small

Female head of household is primary shopper because appliance has to


look 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 and
durability
Shows off kitchen to friends and family once remodeling is complete and new
appliance is in place

Note: Hypothesis in italics

Who, What, and Why

Not All SME Customers Are the Same

ZIS-SME -SMEFinance-12-4-02-DAB

Strengthening
Delivery Channels

Purchase
Purchase and
and
Usage
Usage Behavior
Behavior

Do not target

Product
Product // Service
Service
Beliefs
Beliefs and
and
Associations
Associations

Desired
Desired
Experience
Experience

Middle to upper income households


Kitchen is important part of her home and her life
Where she plays a large part of her role as
provider 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 on
the 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 to
justify price
Dishwashers look quite similar across brands

Developing Products
and Services

Improving
Information
Infrastructure
Addressing Policy
and Strategic
Challenges

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Action Segmentation
What Is It and What Do You Get From It?
Action Segmentation is a tool used to create a base of knowledge and insight
about customers and the market to enable better decision-making.
Structured Process

Output

Extensive Facilitated Sessions


with Managers & Market Experts

Target Segments

Multi-functional group develops


hypothesized market definition and
desired behavioral change

Leveraging of Existing
Organizational Data

Key Differences Between


Segments

Qualitative and quantitative research to


capture relevant market data and test
hypotheses
Market experience to understand
customer behavior

Selective Primary Research

Focused qualitative and quantitative


research to validate segmentation and
test hypotheses

ZIS-SME -SMEFinance-12-4-02-DAB

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
Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Action Segmentation
Defining the Market & Behavioral Objectives For SME Finance

The first step is to hypothesize a definition of the market . . .


Primary

business owners of
small and medium-sized
enterprises, in country, in need
of loans and other financial
products and services

. . . And then identify the desired behavioral change.


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
ZIS-SME -SMEFinance-12-4-02-DAB

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

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.
Which Variables Do We Think Are Predictive of A SMEs Financing Choice?
Who

Business type

Business location

Age of primary business


owner

Gender of the primary


business owner

ZIS-SME -SMEFinance-12-4-02-DAB

Situation

Condition of the local


economy

Familiarity with formal


financial institutions

Channels available to the


SME

Intended use of the loan

Past Behavior

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?

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Action Segmentation
Creating the Market Map and Selecting Target Segments
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.
Business
Information
Product
Requirements

Urban Setting
<500K INR
>500K INR
Men
Women
Men
Women

Rural Setting
<500K
INR

>500K
INR

Lending
Lending Plus
(Savings,
Insurance, etc.)
Full Service
Banking
(Lending, Savings,
Insurance,
Urban
Payment Transfer,
Women
other services)
Illustrative Market Data
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
Note: INR indicates Indian rupees.
ZIS-SME -SMEFinance-12-4-02-DAB

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Portrait

Customer
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 customers behaviors and motivations.

Integrated Process

Output
Who?
Who

are these
customers?

Organizes and synthesizes


existing organizational data
Market research
Market experience

What?
What

are they like?


What do they do?

Why?
Identifies

critical data gaps to


guide in-depth primary
research on target customers

ZIS-SME -SMEFinance-12-4-02-DAB

Why

do they behave
the way they do?

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Customer Portrait
Framework

Confidential

The Customer Portrait framework captures key influencers of customers


decisions as well as critical beliefs and behaviors.

Purchase
and Usage
Environment
The Setting

Desired
Experience
What the Customer Wants
Out of the Experience

Product/
Service
Beliefs &
Associations
The Customers Mental
Model of Purchase and
Consumption

Purchase and
Usage Behavior
What the Customer
Does
ZIS-SME -SMEFinance-12-4-02-DAB

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Portrait

Customer
SME Example: Small Businesswomen in Urban Areas
Purchase and
Usage
ThisEnvironment
businesswoman

Desired
Experience
baked
goods

Product / Service
Beliefs and
urban
area. She
Associations

owns a small
business in an
distributes her products through a couple of small stores in her neighborhood and
Women 25-35 years old
Invest in growing business
Welcome products offering them
a handful
of employees,and
relatives who help out during
the busy holiday
Livehas
and work
in urban areas
Desire flexibility in loan terms due to
greater flexibility in managing their
Varied
education
levels
season.
The
countrys recent economic
downturn
has impacted
her
sales and
exposure to business
fluctuations
cash
flows
Fluctuating income, dependent on
Want
lending
plusher
or full
serviceto expand
made her question whether she
can
afford
plans
her financial
business
by will not
Believe
institutions
business performance
banking relationship
provide loans
buying
a new
oven
Expect
to continue
running
the to keep pace with upcoming holiday demand.
Local lender is preferred source of
business during lifetime
financing
Household
children, not old
She ishas
anyoung
established,
if small, business owner and takes pride
in her ability to
Easily accessible for loan
enough to run business, but in case of
support
her family
children
through
her business efforts. In the past, she
has and
taken
initiation
repayment
death,
expect other
members
to
continue
thefrom
business
smallrunning
loans
a local credit union, which she has always paid back on
Borrows money from local lender when
schedule.
necessary, limited exposure to financial
institutions
Purchase and

However, to pay for the new oven, Usage


she would
need to resort to taking multiple
Behavior
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
Usually purchased one prior loan
can access
it during the slower parts of the year. While she is concerned about
from local lender
taking on additional
loans, she does not believe a formal
financial
institution
Prefer monthly
payment
schedule as it
5-year term is common
helps
them
manage
short-term
fluctuations
would lend money to a small woman-owned business, so she makes plans
to
in business income
approach a local money-lender for the rest of the capital required to purchase the
Prefer option to vary monthly payments
new oven.
subject to business fluctuation

ZIS-SME -SMEFinance-12-4-02-DAB

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Summary Through Uncovering the Who, What, and Why We Can Take
Decisions and Actions to Profitably Serve the SME Market
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.
Market Research
Decisions & Actions
Action Segmentation
Male

Female

Customer Portrait

45 and Older

30-44

18-29
Male

Female

<50K

Purchase
Purchase
and
and Usage
Usage
Environment
Environment

50K+

<50K 50K+

Casual

Light
Hiking

Back packing /
Mountaineering

Middle to upper income households


Kitchen is important part of her home and her life
Where she plays a large part of her role as
provider 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 on
the 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 to
justify price
Dishwashers look quite similar across brands

Strengthening
Delivery Channels

Product
Product // Service
Service
Beliefs
Beliefs and
and
Associations
Associations

Desired
Desired
Experience
Experience

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 or
enhance the look of her kitchen
Shouldnt 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 that
important)

Dishwasher is an important part of the


attractiveness of the kitchen
Has a sense of some brands being acceptable
and others being too cheap and unreliable
Believes that some brands are better at
making some appliances than others
May have a view (based on prior experience)
that a particular store will give her a better price
or 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 clients brand is old-fashioned
Believes that most major manufacturers offer
similar quality

Improving
Information
Infrastructure

Purchase
Purchase and
and
Usage
Usage Behavior
Behavior

Do not target

Developing Products
and Services

Collapsed because
individual segments
were too small

Female head of household is primary shopper because appliance has to


look 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 and
durability
Shows off kitchen to friends and family once remodeling is complete and new
appliance is in place

Note: Hypothesis in italics

Addressing Policy
and Strategic
Challenges

Action Segmentation
enables us to identify
target customer
segments

ZIS-SME -SMEFinance-12-4-02-DAB

The Customer Portrait


then captures a robust
understanding of the
customers in each
target segment
10

These insights inform


choices around how to
best serve these
customers in a profitable
way
Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Summary
Benefits of Better Understanding the SME Customer
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

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

ZIS-SME -SMEFinance-12-4-02-DAB

11

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

An Integrated Financial Services Example


Average Bank is the retail banking division of a leading national financial services
organization.

Products & Services

Distribution Locations

Mortgage Loans

Checking

Savings

Etc.

ZIS-SME -SMEFinance-12-4-02-DAB

12

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Asset Retention: A Serious Problem


Average Bank had difficulty retaining its customers assets as they accumulated
more and more money.
Retention Rates

40%
35%

30%
30%

Percent
of Bank 20%
Customer
Base

20%

10%
10%

0%

Competitor A

ZIS-SME -SMEFinance-12-4-02-DAB

Competitor B

13

Competitor C

Average Bank

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Selecting Target Segments

We developed a deeper understanding of the customer landscape . . .


Life Stage
Bank
Needs

1854 Years
Renters

55+ Years

Home Owners
<$50K

$50K$250K

$250K$500K

>$500K

Wealthy
Individuals

Management

Equity

Mutual
Funds

Savings

ZIS-SME -SMEFinance-12-4-02-DAB

Young
Families
Established
Families

14

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

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

500

$/
Opportunity 250
(MM)

$350
$150
$75

Young Families
ZIS-SME -SMEFinance-12-4-02-DAB

Established Families
15

Wealthy Individuals
Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Understanding the Customer


Young Families Segment
Resulting in the development of an in-depth understanding of the Young
Families segment.

ZIS-SME -SMEFinance-12-4-02-DAB

Busy balancing work with


spending 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

16

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

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

100
75
50
25

ZIS-SME -SMEFinance-12-4-02-DAB

17

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Then
Average Banks previous strategy had focused on products instead of customers,
resulting in poor performance.

Strategy

Results

The same product for


everyone

Performance Before
20%

Broadcast advertising
No segmentation

Product focus

10%

Percent 10%

Marketing / sales at the


end of the process
Focus on new customers

0%
0%

Mortgage
Margins

ZIS-SME -SMEFinance-12-4-02-DAB

18

Asset
Retention

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Now A Marketing Turnaround with Results


Average Bank has completed a strategic turnaround which improved retention of
assets and increased margins.

Strategy

Results

Repositioned from a mortgage to a home


ownership bank
Designed unique products to attract new Young
Families consumers

Improved profitability
and customer
retention

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

ZIS-SME -SMEFinance-12-4-02-DAB

19

Copyright 2002 Monitor Company Group, L.P. Confidential CAM

Confidential

Introduction to Monitor Group


Group Companies
Monitors 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

Early stage venture fund


Includes strategic advice, business
development, and management intervention

Private equity firm with $625MM fund


Focus on LBOs, restructuring, late
stage ventures

Investment banking
Focus on M&A, spin-offs,
and fund-raising

Monitor
Ventures

M2C

Activities,
Processes
and Systems

Monitor
Clipper

MAST

The Action Company

First Street
Global
Investors

Investments in global
public equities markets

Helps private capital firms


earn superior returns by
deploying Group capabilities
across all transaction stages

Monitor
Equity
Advisors

Monitors 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
Extensive experience in
Group
companies in a unified manner

consulting for telecom


incumbents and new entrants

Decision
Architects

Merchant Banking Group


Action Group
Intelligent Products Group
ZIS-SME -SMEFinance-12-4-02-DAB

Develops cutting edge decision


support technology, such as
simulations based on game theory

Translates strategic choices into a


configuration of operating activities that
create sustainable competitive
advantage

Marketspace

e-Business strategy for large


corporations and dotcoms

Provides customer intelligence, marketing /


branding advice, and growth programs

Innovation
Management

Monitor
University

Provides technology and


innovation management to
increase the value of product
pipeline and to speed the
innovation process
20

Corporate
Finance

Global Business
Network

Monitor
Institute

Uses financial tools and


frameworks to create
value enhancing
strategies and to enable
strategic transactions

Leaders in the application


of evolution and scenariobased strategic thinking

Non-profit consulting

Designs and delivers highly


customized executive training /
education

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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.

Amsterdam
Munich
Frankfurt
Stockholm
Moscow
San Francisco
Emeryville
Palo Alto

London
Paris

Toronto
Chicago

Cambridge
New York

Zurich

Madrid
Athens

Los Angeles

Milan
Istanbul

Beijing

Tel Aviv
Mumbai

Seoul
Tokyo
Hong Kong
Manila

Singapore

Johannesburg

So Paulo

Melbourne

ZIS-SME -SMEFinance-12-4-02-DAB

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