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Smartphone Apps Can Give Startups a Big Boost
Research analyzed their impact in an emerging market.
- By
- October 15, 2024
- CBR - Marketing
Apps on your smartphone can be distracting time wasters and lead to information overload. But marketing analytics apps can improve small business’s sales and profits and even improve entrepreneurs’ mental performance, suggests research by Texas A&M’s Stephen J. Anderson, Chicago Booth’s Pradeep K. Chintagunta, INSEAD’s Rupali Kaul, and London School of Economics’ Naufel J. Vilcassim.
The findings could encourage executives, managers, and entrepreneurs to use such apps and platforms because the payoff in higher profits far outweighs the costs, according to the researchers. In addition, the findings “are relevant to policymakers and impact investors [emphasis theirs] aiming to support small firms and promote financial inclusion, particularly in developing economies,” they write.
They conducted the study in Rwanda, highlighting its relevance to emerging markets teeming with entrepreneurial activity. They assert that the findings hold significant promise for these markets, suggesting that these entrepreneurs possess a unique capacity to leverage data and analytics applications for transformative growth.
Anderson, Chintagunta, Kaul, and Vilcassim designed a mobile-phone app called Market Manager to help track and analyze business data, and then distributed Android phones to 300 startups, while assuring access to a fast, stable internet connection.
For many participants, it was their first exposure to a smartphone. However, as phones have proliferated around the globe, policymakers and impact investors have homed in on them as a crucial tool for improving people’s livelihoods. “Despite this enthusiasm, there is little empirical evidence on the causal effects of such technology for stimulating changes at an individual entrepreneur level or at an overall business level,” the researchers write.
They split the entrepreneurs with phones into two groups: a “placebo” group of 50, who got no support and no app; and a treatment group of 250, who got the app and monthly visits from analysts who taught them how to enter data and interpret the analytics. An additional control group of 250 business leaders didn’t receive phones.
More brainpower
Starting in July 2019, the treatment group learned to enter data on sales, products, customers, and marketing into the app, which every month automatically produced a report including statistics and data visualizations. The analysts would go over the report with the business owners and explain what the statistics meant and how the various tables and graphs were generated. However, they did not offer guidance on what the entrepreneurs could do with the information they now had.
For the first few months of the study, the response was underwhelming. Only about 30 percent of the businesses in the treatment group used the app daily. But as participants began to understand the data better, their daily app use ramped up to 60 percent. Over the seven months of the study, the researchers find that the sales and profits for businesses in this group rose by 36 percent and 29 percent, respectively, compared with the control group.
Business owners also recorded a higher level of customer interaction and made more adjustments to product pricing on the basis of the data. They also began taking more care with their accounting, creating income statements and budgets, and more closely monitoring the cash flow of their business.
Running six psychological tests, the researchers find that the use of technology improved the participants’ abilities relating to reasoning, memory, logic, and calculations. Members of the treatment group scored higher than those in the placebo and control groups.
In a cost-benefit analysis, the researchers find that using the app would lead to a variable cost of about $4–$6 a month. They estimate an up-front fixed cost of $170–$210 for each business (when not subsidized by the study). Their projections suggest that businesses could break even in about 7–10 months and start generating higher earnings after that.
The main study ended as the COVID-19 pandemic broke out, but follow-up contact by the researchers indicates that the app also helped businesses survive the pandemic. In March 2021, the researchers contacted 14 randomly selected participants in the initial treatment group. Thirteen reported keeping some sort of data records, eleven said they analyzed the data and used it to make business decisions, and nine said the analytics helped them develop resilience to COVID-related shocks. The entrepreneurs cited the ability to identify and stock popular products, target loyal customers, and quickly cut costs in response to lockdowns.
Stephen J. Anderson, Pradeep K. Chintagunta, Rupali Kaul, and Naufel Vilcassim, “Is (Smart) Technology Really Making Us Dumber? Marketing Analytics Improves the Mental, Managerial and Financial Performance of Entrepreneurs,” Working paper, November 2023.
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