Market research on target customers and appropriated services for ky son microfinance institution

MARKET RESEARCH ON TARGET CUSTOMERS AND APPROPRIATED SERVICES FOR KY SON MICROFINANCE INSTITUTION Program : Master of Marketing and Prospective; Corhot 6 2016-2018 Supervisors : Dr..

MARKET RESEARCH ON TARGET CUSTOMERS AND

APPROPRIATED SERVICES FOR KY SON

MICROFINANCE INSTITUTION

Program : Master of Marketing and Prospective; Corhot 6 (2016-2018)

Supervisors : Dr Trần Thị Bich Hạnh

“Microfinance is an idea whose time has come”

– Kofi Annan

Former United Nations Secretary – General

This is not charity This is business: Business with a social objective,

which is to help people get out of poverty

- Muhammad Yunus

Founder of Grameen Bank and Nobel Peace Prize recipient

Furthermore I would also like to acknowledge with much appreciation the crucial role of the staffs of ChildFund Australia in Vietnam and Ky Son microfinance Institution, who gave the permission to use all required information to complete the research “Market research on target customers and appropriated services for Ky Son Microfinance Institution” Special thanks go to

my supporters at Ky Son MFI, who‟s helped me to complete questionnaires

Last but not least, many thanks go to attendants who involved in express ideas, without their sharing, I wouldn‟t figure out issues and recommendation in this research

Contents

ACKNOWLEDGEMENT 3

PREFACE 9

CHAPTER I: INTRODUCTION 10

I OVERVIEW 10

1 Microfinance- one effective method to reduce customer poverty 10

2 The microfinance in Vietnam, the history and its development 11

Figure 2: Leading Microfinance Institution in Vietnam 14

3 Segmentation for microfinance? 16

4 Measure Customer satisfaction? 17

5 The necessity of the research 18

CHAPTER II: THEORIES RELATED TO THE RESEARCH 19

2.1 SEGMENTATION 19

CHAPTER 3: SITUATION OF KY SON MFI 27

3.1 OVERVIEW 27

3.1.1 History 27

3.1.2 Vision and mission 28

3.2.1 The situation 28

3.2.1.1 The company‟s structure 28

3.1.2.2 The Competitors 30

3.2 Problems of Ky Son MFI 32

CHAPTER 4: METHODOLOGY 33

CHAPTER 5: MAIN FINDINGS 36

2 Assurance 40

3 Empathy 40

4 Tangibles 40

5 Responsiveness 40

3 Segmentation 46

5.1 Orientation of business activities in the coming time 50

5.1.1 Potential customers 50

5.1.2 Core services 51

5.2 Recommendations to improve operational effectiveness 51

ANNEX 52

QUESTIONNAIRES 52

REFERENCES: 57

LIST OF ABBREVIATIONS

ADB: Asian Development Bank

WB: World Bank

SBV: State Bank of Vietnam

MFI: Microfinance institution

MF: Microfinance

PCF: People's Credit Fund

CPCF: Central People's Credit Fund

VBSP: Vietnam Bank for Social Policies

NGO – non-governmental organization

VN: Vietnam

Table 10 : Rotated Component Matrixa Error! Bookmark not defined Table 11 Testing correlations between factors of service quality and customer satisfaction Error! Bookmark not defined

Table 12 Model Summaryb Error! Bookmark not defined

Table 19Cluster centroids Error! Bookmark not defined Table 20 Group characterization Error! Bookmark not defined

LIST OF FIGURES

Figure 1: Segmentation of Microfinance in Vietnam 13

Figure 2: Leading Microfinance Institution in Vietnam 14

Figure 3 SERVQUAL model 26

Figure 4 Borrowing purpose 36

Figure 5 Expectation of clients on borrowing amount 37

Figure 6 Borrowing duration 38

Figure 7 Repay methods (for the interest and loan) 39

Figure 8 HAC dendogram 47

Figure 9 Segmentation 47

PREFACE

After many years formulation and building its activities in Vietnam, Microfinance has become an one of the effective tool for improve the lives of the poor and marginalized people and promoting economic growth, as part of its overarching goal to reduce poverty Along with financial service, supported by government and policies, where brings benefit to

it customer and itself- microfinance are well known by its coverage to poor and pro-poor people and household in over Vietnam

Beside its achievements and contributions to the national poverty alleviation, microfinance organizations and programs/projects have been faced many difficulties/challenges, particularly in sustainable development Such as policies for microfinance, the weakened linkage among MFIs themselves, lack of collaborative mechanism in providing products and services, exchanging information and training One of the most issues that they are facing is the health of it financial recourses

Base on mindset of NGOs, who developed MFIs- they didn‟t pay attention much about benefit In the project cycle, many organization only care about it objectives and goals and didn‟t care about sustainable development of MFIs or even pay attention but not enough After phased out of many NGOs in Vietnam, MFIs is facing to how to maintain it mission and vision is support poor people and poverty alleviation along with developing benefit and raising coverage They must to compete with banks, financial intuitions to survive

Consequently, some MFIs may miss the direction and their mission This is why I develop this research to figure out problems The research reviews the operation of Ky Son MFI in

Ky Son district, Hoa Binh province in Viet Nam Through the lends of business and

marketing, focused on segmentation as well as customer satisfaction I would like to use Ky Son MFI as an example of how to survive in competitive environment and change MFI‟s services in order to bring useful and meaningful intervention to its clients

CHAPTER I: INTRODUCTION

I OVERVIEW

1 Microfinance- one effective method to reduce customer poverty

A microfinance institution (MFI) is a type of special social enterprise which provides financial services to meet the needs of individuals and families with low incomes or micro-enterprises (ADB, 2000; the Law on Credit Institutions, 2010) Microfinance plays a very important role in socio-economic development, especially in the reduction of the poverty and social development

in developing countries

Theoretical research (Legerwood, 1999; ADB, 2000; Morduch and Haley, 2002; Khandker, 2003), as well as the well-known empirical cases in Bangladesh (Grameen Bank), Indonesia (Bank Rakyat Indonesia), the Philippines (CARD Bank), and Bolivia (BalcoSol), provide

persuasive evidence of microfinance‟s socio - economical role, especially in developing

countries.By providing small loans and savings facilities to people who are excluded from

commercial financial services, microfinance has become a strategy for reducing poverty Access

to credit and deposit services is a way to provide poor women and men with opportunities to take

an active role in their respective economies through entrepreneurship and building income, bargaining power, and social empowerment

2 The microfinance in Vietnam, the history and its development

Overview of microfinance in Vietnam

About 72 % of Vietnam's population currently lives in rural areas, with about 94% coming from lower-income households Agriculture is the key economic sector in these areas, with 54%

participation of the labor force in the country The Government's poverty reduction program aims at promoting agricultural modernization and processing methods to increase value-added, promoting non-agricultural business, increasing employment opportunities in small and medium sized enterprises, and industrializing all geographical regions The results of this poverty

reduction program are impressive, with the poverty rate falling from 58% in 1993 to 14.5% in

2008

However, the distribution of lower-income households are still a cause for concern, with 45 % of

lower-income households (14% of the population as a whole) being ethnic minorities living in

remote areas One of the major obstacles to achieving poverty reduction goals is the lack of appropriate financial services that meet the needs of the majority of low-income population One such example of this is when microenterprises have difficulty in accessing traditional banking services

Since the late 1980's, the role of microfinance has become increasingly important, with many programs and projects funded by international NGOs, or bilateral and multilateral official

development assistance (ODA) programs Starting on a very small scale, some programs have

been transformed into models for credit institutions, with microfinance funds used

professionally After nearly 30 operations, microfinance has been recognized as an effective tool for poverty reduction strategy in Vietnam Therefore, in order to establish a safe and sustainable microfinance system which serves poorer, low–income households, the Government has placed a large amount of strategic importance on the development of microenterprises to be achieved by

2020

Microfinance market in Vietnam

Vietnam is a potential market for microfinance services About 60 million Vietnamese (more than 70 % of the population) reside in rural areas, and about 24.8 million people (about 67% of the labor force in youth and adult) are involved in agriculture, forestry or fishery sectors

With the economic development of the country, rural areas are being rapidly converted The demand of capital and financial services for agriculture, for household businesses, and for the rural economy in general, is significant

Although Vietnam has a powerful system of providing financial services to rural areas including

the Vietnamese Bank for Agriculture and Rural Development (VBARD, or Agribank), Vietnam

Bank for Social Policies, the network of People's Credit Fund, and other Microfinance

institutions, a large gap in the market continues to exist A survey on the credit market for micro,

small, and medium enterprises in 2010 conducted by International Finance Corporation (under the World Bank Group) and McKinsey showed that only 5.7 million people out of 11.9 million people possess informal businesses in Vietnam do not have access (or are unsatisfied) to formal

credit provisions According to a statement by the Banking for the Poor Network in 2008, the proportion of rural populations who approach formal financial services in rural areas of Vietnam

is quite low

Less than 25% of the rural population use any type of these financial services Although serving

in microfinance market, rural financial services providers orient themselves towards different client segments

Figure 1: Segmentation of Microfinance in Vietnam

Figure 2: Leading Microfinance Institution in Vietnam

The three leading Vietnamese MFIs (in terms of both size and number of clients) are: Bank of Agriculture and Rural Development (Agribank), the system of People's Credit Funds (PCFs), and Vietnam Bank for Social Policies (VBSP)

Table 1 Overview of Vietnamese Microfinance of clients and loan portfolio, 2010-2012

3 Segmentation for microfinance?

Many companies, business firms including MFIs spend a lot of their time, energy and resources chasing new business Beside that, it is confederation in growing the business and compete with competitors in new markets But, the last but not least is keeping existing clients and enhancing relationship between them and business firms

Market segmentation involves the grouping of customers with similar needs and buying behavior into segments, each of which can be reached by a distinct marketing programme The concept attempts to reconcile differing customer needs with limited company resources, and allows product and marketing offerings to be adjusted to suit different customer groups (Wind, 1978) The theoretical grounding for market segmentation comes from economic pricing theory, which indicates that profits can be maximized when prices that discriminates segments are set (Frank

et, al., 1972) According to Kotler (1994), companies from all industries are increasingly

embracing target marketing This has followed a natural progression “Mass Marketing”, where one product is produced and sold to all buyers and “Product-differentiated marketing” where more than one product, with different features, styles and characteristics are produced for offer to

a variety of buyers

This research looks at the use of market segmentation as a tool for improving customer

satisfaction in service delivery MFIs are always seeking alternative ways to improve the level of satisfactionamong their customers; market segmentation may be a useful tool The paper argues that in spite of the egalitarian approach that underpins the marketing of MFIs , market

segmentation may be used to better serve the needs of their customers In utilizing market

segmentation, the MFIs must pay particular attention to barriers that may negatively impact the effectiveness of the market segmentation exercise

4 Measure Customer satisfaction?

Customer satisfaction has been extensively studied in the field of marketing over the last two decades (Oliver, 1980, 1999; Fornell et al.,et al.,, 1996; Yi, 1989; Johnson et al.,et al.,, 2001; Anderson

et al.,et al.,, 2004) It has become an important construct for marketing scholars (McQuitty et al., 2000) and an important goal to achieve for marketing practitioners (Erevelles and Leavitt, 1992) It is by far the most commonly used customer- oriented metric by managers (Gupta and Zeithaml, 2006) because it is generic and can be measured universally for all products and services including nonprofit and public services (Zeithaml et al., 2006; Johnson and Fornell 1991) After an extensive and critical review of the customer satisfaction literature,

Yi (1989), conceptualized customer satisfaction as an attitude like judgment following a purchase act or based on a series of consumer-product interactions This definition highlights that customer satisfaction is essentially customer‟s judgment about the extent to which a product or service meets or falls short of expectations The literature has also emphasized the disconfirmation of expectations paradigm to a great extent (Oliver, 1996; Yi, 1989) This implies that the consumer compares the product/service with a pre-consumption expectation

If the expectation confirms with the product/service performance, then customers will be satisfied otherwise they will be dissatisfied Tse and Wilton (1988) defined customer

satisfaction as “the consumer‟s response to the evaluation of the perceived discrepancy between prior expectations (or some form of performance) and the actual performance of the product as perceived after its consumption.”

Customer satisfaction research has developed around two broad types of evaluations: (1) transaction-specific satisfaction (2) cumulative satisfaction or an overall satisfaction concept which is similar to the attitude (Johnson et al., 2001)

Traditionally, satisfaction was considered to be transaction- The following conceptual model (as shown in figure-1) has been used for the study The model links the antecedents and

consequences of customer satisfaction

5 The necessity of the research

Although the important of its sustainable, most of microfinance institution in Vietnam is rarely looked at financial sustainability through the lens of business Due to the mindset of almost operators in MFIs, they lack an understanding about marketing in Microfinance sector Every customer and/or client are treated equal for the same services It is very good because of their mission, but sometimes, MFIs need to look back and so they might create more appreciated services

This research focuses on how to realize MFIs customers/ potential customers and treat them well

as the way they deserve This research also uses Ky Son MFI as an example to investigate

customer satisfaction to dimensions of service quality and Ky Son MFI‟s market segmentation

Research objectives

This research has 3 objectives:

quality in Ky Son MFI

(ii) To study the segmentation of Ky Son Microfinance institutions‟

(iii) To propose some meaningful recommendations to Ky Son‟s management BOARD

Scope of the research

The research scope focuses segmentation and customer satisfaction of Ky Son MFI in 2018

CHAPTER II: THEORIES RELATED TO THE

customer satisfaction and return on investment, as well as an assessment of the organization‟s capabilities and resources (Doyle, 1995)

Keaveney (1995) classified those customers‟ reasons for switching service providers into eight general categories:

• Pricing

• Inconvenience

• Core service failure

• Failed service encounters

• Response to failed service

2.1.1 Aims of Market Segmentation

The underlying aim of market segmentation is to group customers with similar needs and buying behavior into segments thereby facilitating each segment being targeted by a distinct product and

marketing offerings to be developed to suit the requirements of different customer segments (Wind, 1978)

Market segmentation is widely regarded as a panacea for a variety of marketing ailments

However research in the financial services market highlight a number of significant barriers to the implementation of segmentation programmed The barrier may include the lack of

availability of appropriate customer data and an organizational philosophy that is mindful of the differences between customers While the marketing literature acknowledges that these

difficulties exist, there has been little formal analysis to capture the characteristics of these

barriers Typically in the financial services sector, the industry competitiveness has become very high This change has resulted in increased interest in market segmentation from financial

service providers, including MFIs, who believe that it may help in pursuing new opportunities and ultimately lead to more satisfied customers (Speed & Smith, 1992) Certain characteristics of the insurance sector indicate that it is a suitable area for market segmentation Most notable among these is a diverse customer base with a wide range of needs and buying behavior

Weinstein (2002) advocates that service providers attempt to know who the better customers are through the use of demographic, geographic, psychographic and benefit research In doing so a profile of the “typical user” is determined Such information then becomes very useful in the subsequent marketing effort To retain customers and to gain a larger share of their business, service providers need to develop better understanding of the customers‟ purchasing pattern Increasing a company‟s share of customers‟ business can ultimately have a dramatic impact on market share and profitability In evaluating customers‟ usage and loyalty pattern, regency, frequency and monetary value (RFM) analysis can be a useful tool Regency refers to the last

2.1.2 Bases of Market Segmentation

In seeking to develop the use of market segmentation, MFIs need to properly assess the bases of segmentation before commencing on such an exercise This would involve settling on the best mix between the following:

• Demographic

• Lifestyle

• Psychographic

• Attitudinal

Segmentation bases such as age or lifestyle may be found to be “too crude” as they give

insufficient insight into customer requirements and behavior, such as which distribution channels they prefer to use The MFIs may therefore have to attempt more sophisticated forms of

segmentation, using attitudinal or psychographic data gathered from a small sample of

customers The small sample size tends to make weaknesses in the data even more apparent, with the result that it may not be possible to allocate customers to segments with a high degree of confidence

2.1.3 Potential Benefits of Market Segmentation

The marketing literatures (Kotler, 1994; Wind, 1978) suggest that segmentation leads to more satisfied customers, because it offers practitioners a number of clear benefits including:

• Improved understanding of customer needs

• More appropriate resource allocation

• Clearer identification of market opportunities and

• Better turned and positioned marketing programmed

According to the marketing literature, with segmentation helping organizations to identify

market opportunities and improving the allocation of resources, this should assists in the

development of a sustainable competitive position and ultimately leads to more satisfied

customers (Wind, 1978).Zeroing in on profitability by customers allows MFIs to identify the mix

of products and services that reaps the most revenue and to promote that mix to less active

customers to have a product profile that is similar to that of the profitable customers

The MFIs then can build a anticipate behavioral model that identifies clients that are most likely

to lend their product use existing accounts in a way that produce more revenue and also points

out which product customers in certain segments are most likely to purchase next

Conventional wisdom suggests that it costs at least five times more to get a new customer than

to keep an existing one (Weinstein, 2002) According to Weinstein, in many markets, share of customer, which is a customer retention measure, has supplanted market share, which is a

customer attraction measure, as the relevant business performance objective

Consequently, a good understanding of customers‟ purchasing patterns helps companies keep customers and gain a greater share of their business This applies also to MFIs Customer

satisfaction, customer loyalty and customer retention are important intermediate goals for

financial service providers on their way to superior economic success in the liberalized markets

As market growth slows or as the markets become more competitive, companies will more likely attempt to maintain their market share by focusing on retaining existing customers, rather than attempting to attract new customers

Customer retention has been advocated To improve customer retention, companies initiate a variety of activities, including programs on customer satisfaction (Rust & Zahorik, 1993),

complaint management (Fornell & Wernerfelt, 2003), and loyalty (Reichheld, 2000) Speed and Smith (1992) advocate the use of segmentation as a way to improve customer satisfaction,

customer loyalty and customer retention

Increasingly more firms have been focusing on the advantages of placing more emphasis on defensive strategies (designed to retain existing customers) than on offensive strategies (designed

Most academic research into segmentation in the financial services industry has focused on alternative approaches and base variables while little attention has been paid to implementation issues, despite management‟s concerns about the practicality and usefulness of segmentation

Despite the advantages which segmentation can bring, financial institutions in general and MFIs

in particular, have been slower to capitalize on its potential than other industries However as the regulatory situation has changed, competitive pressures have increased and profits have been squeezed, so that many institutions are now looking for ways to direct their resources at the most lucrative customer groups According to Doyle (1995), the combination of economic conditions and regulatory forces, together with an increase in competitive activity, has resulted in an

upsurge in interest in market segmentation

Academic research in the financial service sector, as in other industries, has sought to identify appropriate segmentation, suggest that a priori segmentation, which charges the researcher with determining the size and characteristics of segments, as outlined by Green (2001), is the most widely used approach The use of demographic variables such as age and social class, are

especially popular Post hoc segmentation is less widely used This entails the grouping of

respondents according to their responses to particular variables Multi-variate techniques may be applied to post hoc research, such as cluster analysis, factor analysis or multidimensional scaling

2.2 CUSTOMER SATISFACTION

Service quality according to Newman (2006), is derived from the comparison of customer‟s expectation (what the customer expect the organization to offer) and what they really got and how they felt about it It is very serious to note that, service quality is one important factor to the success of any organization, microfinance bank inclusive

Service quality cannot be static over a period of time in the mist of competitors Supporting this view, Siddiqi (2011) noted that service quality of bank must be improved from time to time This

is due to the fact that what is considered best service today may not be the best for tomorrow‟s customers Customers‟ need and demand is dynamic It changes from time to time, Therefore MFIs need to pay attention to such needs and demand in order to improve the quality of their services to customers otherwise competitors will take advantage of the gap existing to attract their existing and potential customers Services quality assessment is paramount to any MFB who wants to retain existing customers and attracts potential ones

It is worth notifying that there are many service quality assessment models in early literature For instance Parasuramin, Zeitham and Berry (1985) propounded the SERVQUAL model These authors postulated that service quality can be measured through the assessment of gaps between customers‟ expectations of the service provided and their perception of the actual service

provided by an organization In assessing the gaps, five dimensions of the service quality are measured These are represented diagrammatically:

The dimensions of assessing service quality as shown in figure above show that there are five dimensions to service quality which are:

Tangibles: This has to do with visual appealing state of the physical facilities, personnel and

equipment of service providing company

Reliability: This is concerned with the ability of the service firm to provide the promised

services dependably and accurately

Responsiveness: This is concerned with assessing the willingness of the firm to assist customers

and provide prompt service

Assurance: This has to do with the ability of the service firm to inspired trust and confidence

through the attitude, knowledge and courtesy of their personnel

Empathy: This is concerned with assessing the personalized attention given through

interpersonal communication and human relation

Nowadays, many researchers and marketing practioner are using 22 questions/ to measure about SERQUAL and I also applied this model into my study as figure following:

Figure 3 SERVQUAL model

CHAPTER 3: SITUATION OF KY SON MFI

3.1 OVERVIEW

3.1.1 History

Ky Son MFI is sat up by ChildFund Australia in Vietnam in co-operated with Ky Son committee since 2014

ChildFund Australia in Vietnam is the representative office of ChildFund Australia – an

independent and non-religious international development organization that works to reduce poverty for children in the developing world

ChildFund Australia is a member of the ChildFund Alliance – a global network of 11

organizations which assists more than 14 million children and families in 63 countries

ChildFund Australia is a registered charity and is fully accredited by the Department of Foreign Affairs and Trade which manages the Australian Government‟s overseas aid program

ChildFund began working in Vietnam in 1995 and operates community development programs

in the areas of education, water and sanitation, sustainable livelihoods, child rights and child protection, food security, and maternal and child health, including HIV prevention With a strong focus on building the resilience of young people, ChildFund also gives children and youth the opportunity to take part in sports, vocational education and life skills training, and supports their participation in local decision-making processes

ChildFund‟s programs are being implemented across the northern provinces of Bac Kan, Cao Bang and Hoa Binh, where the majority of people are from ethnic minority groups, often the disadvantaged or marginalized groups of the population

Before 2014, Ky Son MFI is one of the program of ChildFund what designed for its intervention

in this area Along with this program, ChildFund has a lot of intervention to promote life

condition of poor household in here So, this is the advantage to Ky Son MFI to develop because

it always received huge support from ChildFund, not only techniques and facilities but also financial resources

3.1.2 Vision and mission

Ky Son MFI was created with Vision that “Support to all poor women in Ky Son in enhance their right through financial assess”

3.2 THE SITUATION AND PROBLEMS OF KY SON MFI

3.2.1 The situation

3.2.1.1 The company’s structure

From 2015, Ky Son MFI has 21 staffs including 3 members of BOARD, 6 staffs at district level,

12 staffs at commune level and more than 50 collaborates at hamlets level The collaborators at hamlet level are the one who live closest with customer and so they are most understanding about them Staffs at each level have clear duties and responsibilities themes

The following figure is the structure of Ky Son MFI

BOD: 1 Director

2 Vice chair women of Ky Son comitee

3 Head of Finance departerment

Director

Commune staffs

Hamlet collaborators