By Surabhi Mall, IFMR Rural Finance
This is the third post in our blog series on KGFS Model Incubation. The objective of the series is to methodically conceptualize an approach to build the branch network while incubating a new KGFS entity or expanding to contiguous districts. The posts focus on themes that range from district selection to identification of branch locations and optimization of the distribution network.
The previous blog post of the series discussed the costs and benefits involved in mapping the service area based on the extent of detail sought. Having mapped the area, the next step is to identify an ideal location to set up the branch premise. This post elucidates the factors, importance and possible implications of this activity.
Site selection has long been acknowledged as the key to success for several businesses. Management texts are replete with examples of how a great site selection methodology could be the difference between a successful and unsuccessful business. These businesses are diverse – chains of fast food stores, coffee shops, convenience stores, ATMs among others. Most will argue that such businesses are typically characterised as those wherein the customer convenience is of utmost priority; the client has multiple options to choose from and make impulse purchases by voting quickly with their feet! This post however argues that these are just as important for a rural financier who is often operating in an environment with low(er) competition, serving a not-so-demanding customer with a product like credit that is often demanded but rarely available in the form, quantity and manner as may be desired by them.
What are the location-specific factors & how do they impact business at a branch?
There are several factors at play when it comes to site-selection of any business. These include location demographics, operational feasibility, and competition among others. However, different firms perceive the nexus between these factors differently. For example, while most would agree and avoid positioning the business next to the competitors’ from the threat of market cannibalization, the two most successful fast food joints – McDonalds and Burger King are almost always located next to each other. Similarly, gas stations are often located across the street from each other, rather than being spread out. This behaviour is not irrational, rather coherent and well substantiated by game theory models.
In the KGFS context, site selection activity aids our goal of being customer-centric. Given the service area of every branch is defined with the objective of providing customised products and services, site selection furthers this foundation by putting forth ‘customer convenience’ and ‘access’ as non-negotiable. This is achieved by identifying locations within the village set-up that are natural convergence points and thereby are most likely to be suitable access points for the customers. By positioning the branch in the realm of customer’s day to day activities, it also offers them greater flexibility to manage their daily chores and financial consultations in parallel. For example, a shop owner will find it easy to visit the KGFS branch for a repayment at the lean-hour of business if the branch is proximate to the market area. Unlike a retail business set-up that targets ‘eligible customers’ in its area, KGFS aspires to be relevant to all the customers. This commands great degree of detail to the activities, events and choices they have. A prudently chosen branch premise directly fosters this, thereby enabling high degree of customisation to meet every customer’s need and preference.
Simultaneously, this activity facilitates business decision-making. Like a retail business, setting up a KGFS branch involves hard costs such as construction, equipment, furniture and soft costs such as training and personnel relocation. Site selection aids the ability to justify these costs by projecting revenues as accurately as possible in the given location. By mapping infrastructure and access-related attributes in the area, one gets granular details on estimated footfall at the branch at different points in time, indicative level of proximity and expected market penetration across service villages. This influences decision-making on the scale of investment in the branch infrastructure (e.g. thin branch vs normal branch). It gives insights on questions such as “where to hold KGFS Awareness Meetings (KAMs) to on-board new customers?” If the branch is positioned in high traffic areas, such as next to the bus stop, a school or the panchayat office, it is likely to be more ‘visible’, have more ‘walk-ins’ by inquisitive visitors and add to the KGFS brand recall among villagers. In fact, detailed mapping opens up opportunities for better customisation. For example, by knowing the medical institutions and schools in the area, KGFS branch can be aware of stakeholders it can collaborate with for products such as health insurance and education loan. Finally, if a proposed site scores low of existing financial access and infrastructure, this approach enables discussions to look beyond operational hurdles – such as low population density, poor transport connectivity – if the demand and revenue projections for that location rationalize the associated costs of doing business there.
In the next and concluding post of the series we focus on the nexus between site selection of an individual branch and the larger branch network in the geography and observation techniques to optimise this.