How to Do Market Segmentation in Microfinance?


Knowing Your Client is the Start of Doing Business.

“Know your client” is as old as the marketing concept. Sure. Every good MFI’s loan officers  generally do know their individual client well enough.

But, how does this knowledge translate to good decision making on the part of MFI’s management?

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My last post delved into some practical ways of selecting areas for microfinance program. Today, we will dig deeper by segmenting your prospective markets.

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Goal of Market Segmentation

Individuals with diverse product needs have heterogeneous needs.

Market segmentation is the process of dividing a total market into market groups consisting of people who have relatively similar product needs.

The purpose is to design a Market Mix that more precisely matches the needs of individuals in a selected market segment(s).

A market segment consists of individuals, groups or organizations with one or more characteristics that cause them to have relatively similar product needs.

The major objective here is to be able to design a microfinance product that caters your target market segment and maximize rate of return

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Not Everyone Likes Your Services

Not everyone wants a loan from your MFI, so it’s necessary to understand just what types of people do want your financial products and services.

Effective segmentation starts with identifying a group of potential clients who have similar attributes and who will help your MFI achieve its outreach and development goals.

Next, you must ask if the segment is large enough to justify serving it with tailored products or services. At this point, you can now estimate the number of potential clients within the segment and their total demand for credit.

There is a simple way to do market segmentation in microfinance. Write out a biography of a typical client. Each biography should attempt to answer the following questions:

  • What are the problems of this type of client?
  • Where do they turn to for information to solve their problems?
  • What are this client’s hopes and dreams?
  • What benefits can this client get from your product?
  • What product attributes do they want?

Your loan officers can help you build customer segment profiles. However, you can not rely on one source alone. Multiple sources help you get a more accurate picture. And the best sources in this case are the clients.

The best way, to answer these questions, is to sit down with some typical clients and ask them.

  • How did they learn about your MFI?
  • What are they really using your services for?
  • What benefits do they get from your services?
  • What do and don’t they like about your services?

Once  you have that clear picture of different segment profiles, write down a biography of a typical client from each segment.

Here’s an example:

Maring used to work as a clerk. But due to the financial crisis, Maring and her husband were cut off and lost their jobs. Maring and his husband have saved a little amount of money for their children’s schooling. So, Maring puts up a modest sari-sari store — a high turn-over business — somewhere near the public market. Maring needs a small loan which she could pay in regular basis, a loan that meets her cash flows.

Maring’s level of education makes her capable of managing her business but she is not keen on doing some accounting and get rid of having record books for her sari-sari store.

Maring’s husband remains unemployed, and she is the primary source of income for her family. She’s determined to send her children to the best schools. But Maring is not a trader. She would give up her business anytime she could get back her old job. During business slow time, Maring likes to chat with other vendors or sometimes, she is reading newspapers.

From the example profile, you may want to answer these questions:

  • What benefits/features of loan product Maring want?
  • What advertising medium can you use to reach Maring?
  • What approaches you can use to appeal to Maring?
  • What product and delivery issues should you consider given Maring’s educational profile?

So, you NOW have a typical biographical profile of a typical client. Maybe there are 500 other women entrepreneurs whose biographical profiles are almost the same as Maring’s. These 500 women are within the 5 kilometer radius from your office.

There are 500 prospective clients, develop the PRODUCT!

Do another biographical profiles for the other segments. And develop product for them, too.

I hope this will help you for now. So long…

Florentino

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If you are not satisfied with the above-simplified explanation on how to do a market segmentation in microfinance, do the list here for detailed information on market segmentation (outside link).

You may want to know also the Importance of PEST Analysis in Microfinance.

Related Posts on Microfinance:

Microfinance Opportunities

What is Microfinance?

Trends on Microfinance

How Microfinance Works?

Area Selection Processes

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