USING BEHAVIORAL SCIENCE TO DESIGN A CUSTOMER-CENTRIC FINANCIAL MANAGEMENT TRAINING FOR MICROENTREPRENEURS customer credit issues in the Philippines context (for the Financial Heuristics lessons on Customer Credit, see Appendix A). 4.1.6. Clients Use the Variety Principle to Buy Stock for Their Business Similar to what we observed for the microentrepreneurs in the Dominical Republic and India, the NWTF’s retail business clients we interviewed did not stock their stores based on what items sell the most and what do not. Instead, these clients used “the variety principle” to manage their inventory. Stocking items by keeping track of what sells most and what does not allows business owners to make more informed decisions about which items to buy and in what quantity to optimize business profits. Without proper inventory management, low turnover items may sit on the shelf for long periods of time while the store might be running out of its most popular selling items because they sell so fast. Indeed, we found out that it is quite difficult for business owners in the Philippines to prioritize what to buy for their store based on the demand and customer needs. We uncovered that clients tend to stock their businesses using the “maintain variety” principle (Box 3). Variety-based purchasing resulted in two negative consequences for the inventory of the business: (1) many businesses ran out of their most popular items too soon, incurring extra costs in trips to their suppliers or buying these items at more expensive local shops, to satisfy the demand for these items, or going without stock of their fastest moving items and (2) many businesses overstocked their stores with slow-moving items that remain on their shelves longer than they would have liked. For example, one client who bought inventory for her store on a weekly basis reported running out of coffee, her bestselling item, in two to three days after the weekly stocking purchase, and going without coffee in her store for the remaining four to five days of the week. This meant that for the majority of each week her store was out of stock for her most popular item. Not only did this make her lose her coffee customers but she also lost sales from other items these customers might have bought in addition to coffee. Another client reported that she bought her stock from Silay City once a week. If certain items ran out before her next visit to the city, she made emergency inventory replenishment from the community store that was more expensive. Unfortunately, our interviews suggest that, even though business owners knew which of their fast moving items they ran out of most often and sometimes were also aware of the adverse costs associated with understocking these items, they found it difficult to adapt their stock purchasing behavior accordingly. Our interviews in the Philippines helped confirm the need for effective inventory management training. The inventory management heuristics we developed in India could be very useful for the Filipino entrepreneur population as well. Our simple heuristics could help clients select the right product mix for their store while efficiently catering to the needs of their customers (for the Financial Heuristics lessons on Inventory Management, see Appendix A). Box 3: The “Maintain Variety” Heuristic for Inventory Management To implement the “maintain variety” heuristic, business owners used a simple rule-of-thumb to figure out how much to buy of each good—namely, “get 12 of everything.” Many clients reported buying in packs of 12, regardless of the demand for each item. For example, one of the women reported buying in packs of 12 “because they look pretty on display.” With such suboptimal inventory management practices, clients reported often running out of their most popular items in the store, while slow-moving items that were not particularly popular remained on the shelf for a long time—locking business owners’ capital for further inventory purchases. 15