Step 1. Clarify scope and goals:
- Do we have specific customer segment in mind? Assume No
- Financial services is a very broad definition that includes transactional, credit, insurance products, etc, do we have anything particular in mind? Assume NO, just any financial product.
- What is the goal: are we looking to launch a product that will generate its own revenue, or it could just help drive outcomes for other existing products? Assume, we are open to all options, as long as there is net positive impact for FB.
- Do we have any resource constraints? Assume no constraints, as long as the product delivers value to our customers and FB business
- When we say Facebook product, do we mean just Facebook itself, or also Instagram and WhatsApp potentially? No, assume just FB itself.
Step 2. List customer segments:
- Consumers – primary users of Facebook who enable the ad revenue monetization model
- Power users – daily active users, those who use FB as their primary social network to engage with friends, post and consume content, etc.
- Moderate users – monthly active users, who use FB one to several days a month, they either use it as one of the social networks or maybe they don’t use any social networks on daily basis.
- Passive users – use FB less than once a month. Maybe they have some specific edge case for using FB, like engaging with their friends who live in different cities.
- Advertisers – businesses who advertise on Facebook. Main sub-segments would be:
- Small businesses
- Medium
- Large businesses
- Agencies – advertise on behalf of their customers
In reality, especially for advertisers, the segmentation would be multi-dimensional – vertical, size of business, how much they rely on facebook (power user, etc), but the sake of simplicity we are looking at these 4 segments.
Out of these segments, I would like to focus on Advertisers, specifically small and medium businesses. Main reason behind choosing these segments is because small and medium businesses are much more underserved when it comes to financial services, while large business generally don’t have that problem. Agencies are intermediaries, so it is not optimal to target them with a new product, because we want to first validate customer need and our solution with customers that we have direct access to.
Step 3. List customer needs:
Before we jump into specific needs, lets start with the overarching goal. The goal of every company who advertises on Facebook is to get their target ROI on marketing campaigns (ratio of revenue generated by acquired customers to the cost of given campaign). With respect to this goal, customers have the following specific needs:
- Build their brand recognition
- Acquire the right customers (right segment, LTV on par with what they have now or better, etc)
- Adverise easier
- Have funds available to pay for advertising
Step 4. Prioritize user needs
My assumption is that the first two needs: building brand and acquiring the right customers are already handled by FB customer success teams, and they are not directly relevant to a financial services product (at least on the surface level).
On the other hand, the goals of advertising easier and allocating money to pay for ads could be potentially address with a financial product, and obviously these goals are in line with our internal goal of increasing ad revenue (or at least sustaining it in the times of COVID).
Step 5. List alternatives and potential solutions
When it comes to alternatives, customers don’t have any satisfactory choices:
- Take a loan from the bank – very long application process, many business do not qualify, low approval rates for those that qualify (especially in COVID times), high APR because the loan is general-purpose
- Save on other non-advertising expenses (e.g. fire people) to free up some cash for FB ads
- Save on advertising through other channels (e.g. google adwords) to free up some cash for FB ads
- Take a loan from friends and family – it is awkward, you are not likely to raise the sum that you need, and strained relationships with friends and family are pretty much guaranteed in case of difficulties repaying the loan.
Based on the needs and alternatives, here are 3 potential solutions and their assessment according to RICE framework, slightly modified in that confidence now also includes internal risks (sorry for bullets, table behaved in a weird way)
Option 1. Advertise now, pay later: one-off payment delay. Customer repays the balance for a sizeable block of ads in the mid-term horizon, for example 3-6 months. This option is best for customers that have ultra long cycle of converting leads into revenue.
- Reach: low. Only small share of customers have these long conversion cycles
- Impact: high. Customers will be able to sustain their advertising level or maybe even increase it.
- Confidence: high. We have reasonable confidence, that feature would be valuable for customers.
- Effort: low-high. Depends on how we implement this – just via delaying payment from customers, or via partnering with banks and letting them handle the credit risks, while we get our revenue immediately
Option 2. Advertise now, pay later: constant arrangement, where balance for all ads run this month is due next month. This option is best for customers with shorter cycle of converting leads into revenue (<1 month)
- Reach: med. More customers would qualify, since shorter conversion cycles are natural for companies who do pay-per-click advertising in the first place
- Impact: high. Customers will be able to sustain their advertising level or maybe even increase it.
- Confidence: high. We have reasonable confidence, that feature would be valuable for customers.
- Effort: low-med. We could also implement this in-house or via partnership with banks, but it would be easier to make arrangements with banks for this product. Both options would be easier to implement than product # 1 because it requires less credit risk exposure from FB or bank due to short term of the loan.
Option 3. “Donate to local business product”: businesses would be able to launch donation campaigns and make them visible to local audience. This product is a great fit for local businesses like restaurants or zoos that are struggling due legal limitations on their occupancy.
- Reach: Low. Only select types of local retail businesses with brands powerful enough to attract donations
- Impact: Med. Customers are not likely to collect significant amounts of money
- Confidence: Low. We have low confidence that the feature will really be valuable to customers.
- Effort: low. We already have the fundraising campaign feature, so it is not expected for this feature to need a lot of development.
As a product manager, I would choose Product # 2 because it has the highest reach, while also having high impact and confidence, and there are two different implementation paths (in-house or partnering with banks) so we choose the level of effort and internal risk that we can tolerate. Products # 1 and #3 do not have enough reach, and when it comes to product #3 it might not provide enough value to customers. In terms of direct revenue – none of the 3 products have it, but product # 2 has the highest impact of helping customers sustain and grow their advertising spend with FB which is in line with our corporate goals.
Step 6. Building a product
First of all, I would validate the hypothesis for customer need and value proposition of chosen product with customers – both with qualitative techniques (interview) and quantitative techniques (survey).
In parallel, i would validate the hypothesis of feasibility by investigating possibilities of partnering with banks. From the vantage point of our internal risks, the optimal way for this product to work is to transfer credit risk to banks, so that bank issues a revolving credit line to customer, and we still get our revenue immediately. In case customer does not pay, they deal directly with the bank. In this case, customers will have to pay fees/% to the bank. In case of in-house implementation (we just correct revenue later), we will put our revenue at risk and carry incremental costs due to time value of money. We can compensate for these risks and costs by also charging customers.
Second, after key hypothesis are validated, i would break down the product into user stories and validate them with customers – from key interactions all the way to usability using product prototype. User stories might include:
- Pre-qualification for the product. To reduce operational load, we will pre-qualify customers ourselves and only extend the offer to apply to eligible customers.
- Formal application: customers that pre-qualify and choose to apply, fill out and submit necessary forms. Ideally, the customer should be able to interface only with Facebook and not deal with the bank.
- Facebook forwards applications to the bank, the bank makes a decision.
- Customer is notified about the decision. In both cases of positive/negative decision, there should be transparent communication and guidance on next steps.
- Customer’s ad account at FB is credited with the money (according to their credit limit) and they can spend it on ads.
- Customer pays balance for ad spend next month
After we have validated the hypothesis of customer need, product value, key features as described by user stories, and usability of the interface, we can move on to develop the product, and then launch it on a subset of target customers, while tracking performance and observing user behavior.
Since the product will not generate revenue by itself, key product metrics will be:
- share of qualified customers that actually applied for the product
- share of applied customers who were approved for the product and starting using it
- share of customers who opted out
- FB ad spend of customers who use the product (relative to FB spend of similar customers who do not use the product, or relative to their previous spend history)
- LTV of customers who use the product (relative to typical LTV for given customer type)
To summarize:
We focused on customer segment of small and medium business Advertisers, and considered 3 product solutions to address the needs for advertising easier and allocating money to pay for advertising. We ultimately decided to implement product that allows customers to pay for ads with one month delay, accomodating their cycle of converting leads into revenue. Product addresses both needs because it takes friction out of the process and allows customers to generate revenue first, and then pay for FB ads. The product will not generate any direct revenue, however our hypothesis is that the product will help increase ad revenue and LTV of customers, as well as help them get make it through the COVID crisis.
Meta