Credit, Change, and Lost Sales: A Field Experiment Among Firms in KenyaPDF version
Small businesses in developing countries are thought to face numerous challenges in their efforts to expand and increase profitability. While credit and human capital constraints (i.e. lack of training) have frequently been highlighted as potential barriers, another constraint may be limited attention. Most people face constant tradeoffs between investing attention in work versus in other matters, such as homelife. The poor may face comparatively greater challenges in maintaining their homefront (because of higher rates of illness, for example), which may divert attention away from their work. It is possible to test whether this limited attention reduces productivity by focusing on one particular business decision for small firms: how much change to keep on hand to break larger bills. Not having proper change can have an impact of a firm's profit level. If a firm does not have sufficient small bills or coins to give a buyer change, the buyer may choose to buy the item elsewhere and the firm would lose the sale. Evaluation estimates suggest that the average firm in Western Kenya loses 5 to 8 percent of profits due to lost sales because of a lack of small change.
The businesses included in this evaluation, which were randomly selected from ten market centers in Western Kenya, included barbers, tailors or other artisans, market vendors, and hardware shops. The typical business was small - only 16 percent of businesses had any salaried workers - and approximately 55 percent of firms were operated by women. Losing sales because of insufficient change was a common problem for these firms. At the baseline, over 50 percent of firms reported having lost at least one sale in the previous 7 days because they did not have sufficient change. Furthermore, firms spent over 2 hours on average looking for coins or small bills in the previous 7 days. Even firms that had not lost any sales in the past week spent over an hour and a half searching for change for customers.
To understand whether firms run out of change because they do not fully internalize the profits they are losing, the evaluation proceeded in two phases. First, a field officer visited each firm on a weekly basis to administer a short “changeout” questionnaire, which asked a number of questions about change management, including the number of times they ran out of change (i.e. the number of “changeouts”), the number of lost sales due to changeouts in the previous 7 days, the value of these sales, how much time they spent searching for change, and how often they gave or received change from nearby firms. The survey also asked about total sales and profits. Although the survey did not provide any training or information about change, or any direct "reminders," it may have served as a catalyst for firms to start altering behavior, as lost sales and profits due to poor change management became more salient. To measure this effect, the start date for the changeout questionnaire was randomized across firms. This enabled an estimation of the impact of the visits themselves, by comparing lost sales between those firms that started the survey earlier to those that started later.
Impact on frequency of changeouts: Veteran firms, meaning firms that had joined the survey early, were, on average, 6 percentage points less likely to experience a changeout in a given week than firms who we had just begun the changeout survey. Firms who were randomly selected for the information intervention were similarly 8 percentage points less likely to experience a changeout than those not selected.
