Queue, Buyer’s Mindset and Goldman Sachs

“Goldman didn’t like the idea of its people waiting on long lines to get their lunch. People are capital to Goldman. It wants to use its capital efficiently. Standing on line waiting for dumplings or salad or a burger is not an efficient use of Goldman’s capital. …”

-CNBC report, 17 October 2013.

Gad Allon is professor of operations research specialising in area of game theory and queues.

He used optimisation models to study impact of length and time spent in queue on mindset of buyer. He found that for every additional time a buyer spent in queue, he was to pay few cents less. This decline in spending power of buyer has impact on business, solutions could be having more counters, outsourcing task of taking orders etc.

“An industry maxim suggests that a seven-second reduction in customers’ waiting time increases a chain’s market share by 1 percent… each extra second of waiting time at the drive-thru window reduces the amount that customers are prepared to pay for their meals by at least four cents.”

-A study by Gad Allon, an associate professor of managerial economics and decision sciences at the Kellogg School of Management

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Company cafeteria too face problem of long queues during peak hours, this means loss of revenue for employer i.e. had employee done some productive work, instead of spending time standing  in queue, it would have earned revenue for organisation. Many organisations introduce staggered timings for different functions to cope with crowding of cafeteria. Administration head in one of the organisations I worked for ended losing his job when he could not handle mess created by crowding of cafeteria.

Both the price and waiting time parameters have a significant impact on the consumer’s decision… in the fast-food drive-thru industry customers trade off price and waiting time. In particular, to overcome an additional second of waiting time, an outlet will need to compensate an average customer by as much as $0.05 in a meal whose typical price ranges from $2.25 to $6.”

-Gad Allon

Goldman Sachs came up with innovative solution to tackle cafeteria problem. Those who come to canteen before or after peak hours were given 25% discount on food. Most of the financial professionals take pride in saving money, so this policy became popular as employee took pride in telling others how much money he saved.

 

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“The cafeteria has a set of timed discounts. If you show up in the cafeteria before 11:30 or after 1:30, you get a 25 percent discount on your food. Goldman incentivizes employees to avoid the rush hour.”

-CNBC report.

 

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