One might well ask, “What do micro-entrepreneurs in urban and slum neighborhoods across Cape Town, South Africa have to learn from the elite business schools of the world? It turns out that the answer to this question is: “Plenty.”
I recently had the honour of being Chairman of Judges of the prestigious Gary Lilien Practice Prize given by the INFORMS Society for Marketing Science, in conjunction with the Marketing Science Institute and the European Marketing Academy. The award winning study proves that the tools of marketing science can make a major positive impact in helping to grow disadvantaged economies like the ones in Cape Town.
The award winner was a 2016 study of 850 Cape Town entrepreneurs led by Stephen Anderson-Macdonald of Stanford University, Rajesh Chandy of the London Business School and Bilal Zia of the World Bank. They tested three interventions when trying to gauge the best way to help small retailers in the slums of South Africa grow their business: The first group was given training in marketing and sales, the second group was given training in finance and accounting, and the third control group was given no assistance, being told that they would receive training on the next round.
The researchers found significant improvements in profitability from both types of business skills training, relative to the control. Monthly profits increased by 30-40% on average for both. However, more interestingly, the way these gains were achieved differed substantially between the two groups.
The small business owners who received marketing training tended to improve and become more profitable through a focus on growth. They increased sales, purchased extra stock and materials, and added more part-time sales staff. These entrepreneurs also implemented more marketing related business practices (e.g., market research, marketing tactics, sales tactics). By contrast, the finance group achieved similar profit gains but through an “efficiency focus” on lower costs and the use of more finance and accounting practices. While both led to more viable businesses, in terms of employment and business activity, it was marketing that grew the pie.
The study shows that powerful 21st century tools are being used in the townships in South Africa and that they can be extremely effective.Anderson-MacDonald and Chandy’s suggested tools include:
- Take time out from your day to day activities to think about your business. Don’t let your business be busyness.
- Look at your business from the point of view of your customers and potential customers. Put yourself in their shoes so that you can feel the reaction that they have to your products and services. That will help identify where you can meet their needs better and any unmet needs that they might have.
- Look for leverage points in your business. That is, where are the points where you can make the greatest change for the least amount of effort?
- Think of the criteria of success for your business. For any initiative to succeed, it has to satisfy four criteria.
- Can I do this? Understand your capabilities and how you are going to develop them.
- Do I want to do this? Make sure you think about what you want to achieve and do those things which will get you to where you want to go.
- Will customers value this? An analysis of the things that your customers value, need, want (such as consistency) and the things that they don’t (such as gold-plating) will help you.
- Will the market let you do this? Have a good feel for the size of the market, the competition, your supply and collaborators, the economic climate and other environmental factors.
- Generate options creatively. Take time to brain storm with your friends and family around new products and services, new customers and markets, opportunities to grow the value and frequency of purchase of your existing products, etc. Successful businesses recognise opportunities that others fail to see.
- When you have done your analysis, generated your options for growth, work out a migration path. You have your vision, now you need that first step on the path to achieving it. Undertake little pilot projects, start by picking the low hanging fruit (the easiest opportunity), and don’t be discouraged by early failures but learn from them as much as you can.
The study reinforces the fact that we are living in a global world where the power of management technology can be used across the world for the betterment of mankind.