Lately I've been noticing a lot of writing about innovation inanely citing Steve Jobs (“People don't know what they want until you show it to them”) and/or Henry Ford (“If I had asked people what they wanted, they would have said faster horses.”) quotations about customers not knowing what they want. An example last week, in an otherwise reasonable piece about how to measure economic progress, caused my frustration to boil over.
I think this perspective on innovation rears its head a lot when it comes to financial services for poor households which is concerning because it is 90% (at least) dead wrong.
Let’s start with the Ford quotation. First, it’s apocryphal. There is no evidence that Henry Ford ever said it. Second, Ford’s intransigence when it came to understanding customers is likely responsible for Ford ceding its early market leadership to GM. Those factual matters aside, let’s get to the substance of the idea. In Ford’s time, it is extremely unlikely that people would have asked for faster horses. When horses were a major mode of transportation they were almost never ridden at peak speed. Doing so was (and still is) dangerous. It is as unlikely that the people in the invented quotation would have preferred faster horses as the average commuter today would ask for a faster car. The speed of the vehicle is not the issue. The primary concerns then and now would be about safety, reliability, infrastructure and expense.
So what does this have to do with financial services innovation? There is a general tendency to underestimate poor households’ sophistication and understanding of their own needs. That misjudgment played into the design and deployment of microcredit as a one-size fits all tool for driving microenterprise. In retrospect, it is clear that the customers knew better what they needed and they adapted the product available to them to those needs: borrowing to save, smoothing consumption, a stop-gap between other sources of credit.
We see it again today in the mobile money and electronic payments world. The “customer doesn’t know what they need” is a powerful driver of the instinct to copy successful innovation without fully understanding customer needs—thus we have people surprised when rollouts that mimic M-Pesa signally fail to achieve anything like M-Pesa’s success. I often think back to the stories researchers presented at the IMTFI conference about the sophistication of poor households in choosing to use or not use mobile money. A quick example is the “revelation” that women are uncomfortable sharing their phone numbers with male money transfer agents in many contexts—these women know that, like the examples of horses and cars above, speed doesn’t matter if you don’t meet the safety, reliability, infrastructure and expense needs first.
Customers almost always DO know what they want and need. In many cases with financial services they are going to extremes to cobble together ill-suited products to meet those needs (and let’s not forget that they are willing to pay for services that better meet those needs). Of course there are situations where truly breakthrough innovations happen that open up entirely new possibilities and markets. But—and this is critical for innovators in this sector to internalize—financial services is not a new market. There may be new customers for certain providers of financial services, but even the “unbanked” are no stranger to the basic tasks of storing and exchanging value. In general they can be trusted to know what they need.
That 10% of the time where the sentiment of the Ford and Jobs quotations is correct is that customers may not know the specific details of design that will make a product work best for them and beat the competition. No one could have described an iPod in detail before Jobs and his team created it. But that is a very different from the customer not knowing that they wanted a more convenient way to listen to music.
The bottom line: trust potential customers of financial services to know what they need. Take the time to understand customers. Learn how they are cobbling services together today. Dig deep into the contexts that drive their financial choices and behaviors. That takes more than just asking customers or conducting surveys, something we’ll delve into more soon. For now, check out this paper from ideas42 on designing a savings product that worked for poor households.