Balking Loss

Recently I've spent a lot of time 'standing behind the yellow line' in immigration queues waiting to have my passport stamped to be let into a country. I've also stood waiting behind people to check out at the supermarket, get money from an ATM, board buses, and buy movie tickets.

I looked at the queues to get into the World Expo country pavilions and decided that it wasn't worth my time for the pay-off. Instead I enjoyed my Expo experience of walking through the landscaped gardens there, watching the people, and seeing the pavilions from the outside.

Now I've just read an article on 'balking behavior'. Business management professor Pen-Yuan Liao of the National United University in Miaoli, Taiwan makes the point that:

No one enjoys queuing, so even small reductions in waiting time will result in better quality of service and lead to enhancing customer loyalty and so increased sales

He goes on to report that:

"The profit loss from business resulting from inefficient queuing systems is quite difficult to estimate, but there is a creative and effective way to formulate the costs of waiting and so improve customer satisfaction and sales."

The article reports that:

Liao has devised a scientific formula he refers to as the "balking index," which is referred to by the Greek letter theta. Ironically, this symbol is used elsewhere in science as shorthand for temperature, a parameter that often rises among people standing in ineffective queues. Liao has encapsulated theta as relating the expected queue length and the mean arrival rate in a given time period. Multiplying the balking index, the queue length, and the mean arrival rate gives you the number of frustrated customers who will leave their position in the queue in that time period.

Estimating balking loss enables a store manager or other person in charge of staffing levels to determine the optimal number of servers by minimizing total cost, including service cost and balking loss," says Liao. He has successfully tested the formula in advising a fast food manager on how many staff to have serving at any given time depending on the balking index.

By using this formula, approach, restaurants and other services that have queues can cut costs and improve customer loyalty," he says, "Customers benefit from much reduced queuing times."

The source article goes into a lot more detail which I found intriguing. For example,

Although the importance of waiting time as a form of price has been recognized, it is difficult to account for this effect in making managerial decisions. Ittig (1994) mentioned two difficulties for estimating the opportunity cost of the waiting time. The one is that the waiting time may vary with each different customer, while the price is fixed. The other is that the monetary value of per unit of the waiting time during a shopping trip may vary widely from one customer to another, and may have difficulty to estimate. Therefore, it is more practical to consider using the concept of the waiting time as a form of the price to estimate the lost profit from lost business.

It led me to think back over the various queues I'd recently stood in and wonder about my own balking time calculus. Beyond that, the article provides good information for people working on the staffing aspects of organization design, and market research departments could do useful work on customers balking and work with managers to come up designs that mitigate the risks of balking.

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