Upgrades Can Help Mom-and-Pop Stores Compete with Big Retail
A project to assist small Mexican shops with branding and management quickly boosted their sales.
Small retailers provide valuable services to their communities but often struggle to stay afloat. | iStock/Margarita-Young
When Sridhar Narayanan first approached small retailers in Mexico City to participate in a research study, many shopkeepers were wary.
“One of our partners in this project was the government of Mexico,” says Narayanan, a professor of marketing at Stanford Graduate School of Business, “and some of the store owners thought the government might be coming to collect taxes!”
In reality, Narayanan and his collaborators hoped to help these tienditas, or traditional neighborhood stores, boost their sales through targeted improvements to their marketing and management practices.
The stakes for small retailers in Mexico and other emerging markets are high. “Retail is a large part of the world economy,” Narayanan says, “and in developing countries, it often represents a much greater share of GDP than in the developed world — something like 30% of the GDP — and an even greater proportion of employment in some countries.
Despite their importance, mom-and-pop retailers often struggle to stay afloat, especially as competition from Big Retail and e-commerce mounts. Still, until recently, there hadn’t been much research into what kinds of marketing strategies or upgrades to their business practices might improve their fortunes. “We typically study brand management and product management in the context of large businesses in developed countries, not businesses such as the ones we focused on,” Narayanan says.
To fill that gap, he joined with Stephen J. Anderson of the University of Texas, Leonardo Iacovone of the World Bank, and Shreya Kankanhalli of Penn State University to introduce marketing and management interventions to hundreds of Mexico City tienditas that form the city’s “retail backbone.” When the researchers compared the participants’ subsequent monthly sales to those of a control group, they found large jumps.
Narayanan thinks that finding has implications for small retailers worldwide. “I’m really excited about this project because it has the potential to actually change people’s lives for the better,” he says.
Modernizing the Corner Shop
The researchers partnered with Mexico’s Ministry of Finance and the World Bank to run a randomized field experiment with more than 1,100 retailers in 2017 and 2018. Two-thirds of the firms were selected to be “modernized” with external branding and internal practices routinely used by large retail stores and chains. The remainder served as a control group.
The retailers in the modernization group received an intervention in either brand management or product management. The branding intervention was more visible to customers and focused on “the shops’ signage, exterior and interior appearance, product display, consumer promotions, and other marketing activities, loyalty programs, et cetera,” Narayanan explains.
The product management intervention was less obvious to shoppers, as it was “about optimizing products, like making sure you have products consumers actually want, and avoiding stockouts [running out of a product] and product expirations, along with knowing your highest selling and most profitable products — the activities that happen behind the scenes.”
The researchers spent significant time in Mexico City setting up and monitoring the experiment. “We worked with large field teams, so it was like managing our own business,” Narayanan says. “We had to hire a large number of people and have weekly morning calls starting at 5 a.m.”
The study relied on an “army of university students” who volunteered as part of their national service requirement. “They went out in the field and rolled up their sleeves,” Narayanan says. “If the business needed to be painted, they would get some paint and start the work. They got out their computers and spreadsheets to calculate monthly sales. That really built an element of trust.”
The field agents provided 11 weekly sessions to each retailer, representing about 50 to 60 hours of work, including the time owners put in on their own. The researchers then collected outcome data including sales numbers at 12 and 24 months after the study began.
Small Improvements, Big Impact
It worked: Both sets of marketing and management improvements increased retailers’ average sales in the shorter and longer term.
Firms in both treatment groups enjoyed monthly sales that were significantly higher than those of their control group peers. At 24 months, firms in the brand management group had increased their monthly sales $518, or nearly 19%. Those in the product management group were up $430, or more than 15%. These represented significant increases given that the businesses’ average monthly revenues were around $2,800. The researchers also found that the investments in improved brand management and product management, on average, paid for themselves in approximately six months.
Narayanan points out why it was not obvious that the brand management improvements would have such a positive impact: “A more modern-looking store might signal to lower-income customers in these markets that the store is pricier and ‘not for me.’”
But the researchers found that these visible changes improved customers’ perceptions of brand equity. “We had field agents stand outside each store to interview customers about how they saw the brand,” Narayanan says. They also asked people recruited online to view and rate pictures of the stores.
It also was not obvious that back-office improvements not visible to shoppers would enhance sales, particularly if they came at the expense of more customer-focused activities. That these internal improvements led to greater sales was a surprising result, Narayanan says.
There was concern that improved sales at the participating stores might come at the expense of neighboring businesses. Fortunately, the researchers found no evidence for such a negative impact, suggesting the marketing improvements had an overall positive impact on the local small business economy.
Leveling the Playing Field
The researchers think their findings are relevant to the traditional retailers across the developing world, which, beyond their wares, provide critical services for local consumers. “In India, these businesses provide credit to customers who might not be able to get it from formal financial institutions,” Narayanan says. “And in markets where people don’t own cars, they provide fast local delivery services that big players find hard to replicate. Plus, there’s the idea of getting product recommendations from the shopkeeper, someone you know.”
These small businesses often have not modernized due to a lack of information about the services available to them and uncertainty about the costs of upgrading. Marketing improvements like the ones in the study could position the less organized small retail sector to compete more effectively with big retailers, which has direct implications for local jobs and livelihoods.
“A challenge in the developing world,” Narayanan says, “is that smaller retailers get replaced by large global rivals and there’s not one-to-one replacement of employment. That’s why countries like India have imposed pretty severe restrictions of entry on big global retailers. But if these smaller businesses can compete more strongly, the economies can modernize, allow more competition, and yet not suffer big losses in employment.”
The impact of marketing improvements could extend to small retailers in more established markets like the U.S. “Small businesses provide a large proportion of the GDP of even the most developed countries,” Narayanan says. “There may be specific things that work better in a given market, but the broad ideas here would still apply.”
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