analysis Archives - Kevin Low

Thinking Strategically

As I was mentioning a couple of weeks back, I have been reading Thinking Strategically by Avinash Dixitt and Barry Nalebuff. This is a pretty old book, being first published in 1991 and the version I was reading is the 1993 paperback re-issue – there was no more revisits to this book by the authors since then but it’s been in print until now. I believe it’s largely used as readings for undergraduate economics students as well as students of business or management schools.

The 2 authors are great teachers of Game Theory in Princeton and Yale and have often adapted the principles this somewhat mathematical subject to the less mathematical real world. Thinking Strategically is a great attempt at discussing strategic thinking that follows from game theoretical analysis for the layman.

The good thing about ideas on strategic thinking is that their principles hold even when the examples they are attached to often become obsolete or arcane – that is not to say that Thinking Strategically features arcane examples. Most of the examples used to bring ideas across in the book are simple, often bordering trivia but they illustrate the essence of the concepts and can be used to explain the principles for similar but more complex issues. One of the case studies brought up that I particularly love is the one about a three-way duel where we have 3 shooters of varying abilities.

Each shooter fires at someone (or something) each round; there’s is fixed order as to who gets to shoot first. The one who’s allowed to shoot first is a poor shooter with an accuracy of only 30%, the second has an accuracy of 80% and the last is a sharp shooter who shoots with an accuracy of 100%. The question is that if you’re the first shooter and allowed to go first, who would you choose to shoot?

An analysis of this “game” gives us a surprising but convincing result. If you choose to shoot the average shooter, and succeed, you will definitely lose because the next in line would be the sharp shooter and he would shoot you. If you choose to shoot the sharp shooter and hit, the average shooter will shoot you, leaving you with a 20% chance of survival. And even if you survive, you only have 30% chance of hitting him later. You might say, this mediocre shooter is so lousy, he’ll probably have to lose anyways. But you can actually raise your chances of winning by choosing a more intelligent strategy: To fire into the air.

This way, the average shooter will get his turn and attempt to shoot the sharp shooter since shooting you and succeeding mean he’ll have to die when the sharp shooter’s turn comes. If he succeeds, the mediocre shooter gets to try his hands at killing the average shooter. If he fails, the sharp shooter will immediately kill him and that once again, leaves the mediocre shooter with a chance of 30% to kill the sharp shooter. The somewhat counter-intuitive strategy of shooting at no one raise the chances of the mediocre shooter winning substantially.

The principle alluded by this example is that if you’re a weak player; it is wise to allow the stronger players to make their moves and get rid of all each other before making a move and fire your best shot at the one left standing. Now that we surface the principle, the logic of such a choice becomes more intuitive.

Thinking Strategically is a great read for students who likes to think and don’t mind re-reading some of the statements in the book a couple of times to understand the explanation behind some strategic moves. It teaches an important skill of looking forward and reasoning backwards and shows you the power of its application in all sorts of “games”. The book might make you feel like you’ll become smarter but trust me, it’s not that easy to apply strategic thinking that quickly in real life and often, we need a degree of foresight that we would almost definitely lack.

Design & Business

A while back, I was writing about LVMH because they were featured in a briefing on The Economist. One of the strategies that were highlighted in the article was Louis Vuitton’s effort in researching customer flows in malls:

In 2005, when Maurizio Borletti, owner of several prominent department stores in Italy and France, was preparing for the opening of a refurbished La Rinascente department store in Milan, he recalls, the Vuitton people built a scale model of the building in their offices to understand customer flows and get the best positioning. “In this they’re the most professional in the industry,” he says.

I didn’t think too highly of it then but recently I was forced to think about this issue when I wonder why a crowd in the mall refuse to go to the cafe I was at.

The design of Iluma is definitely pretty interesting; with all the glittery looking stuff on the building surface, some kind of balcony on the middle floors and fancy looking glass doors that looks as though they weigh a ton but opens automatically (at least some of them). The outside main entrance area, there are 2 escalators; one leading from and another leading to the second level of the building. The interior of the building is big, and the ground floor is capable of holding lots of people in the middle, perfect for events and normally used for cart-stalls giving it a bazaar feel.

There’s another pair of escalators there, leading to the fourth floor directly. Wait a minute, fourth floor? Yes, it leads you directly to the fourth floor, by-passing the second and the third, which totally explains why it’s hard to get crowds within the building to go to the shops on the second floor. The pair of escalators inside the building that leads to the second floor is absolutely hidden from the crowd standing in the middle of the interior of the building. Some pictures of the interior will help you see why. Even when it takes about 40 seconds or so to reach the end of that long escalator, it’s fun enough to attract people to hit that level where a bunch of other cafes awaits.

The Coffee Bean will largely have to rely on people entering from the escalators at the front main entrance for business (come on, who takes the lifts these days?). On 13 December when 8-Days Magazine was having their 1001 issue exhibition, people who are naturally drawn to the ground floor interior of the building will probably not take that escalator and so the crowd they anticipate at their cafe will probably not manifest. The only people who might patronize them are those who came over to Iluma via the newly built link bridge from Parcos Bugis Junction and unable to find the escalator that will lead them down to the center of activity at the ground floor…

The customer flows in malls are pretty important in this sense, the location of the escalators, the entrance/exits, the link bridges and the placements of your signboard. That will all be before your staff’s attitude. Studying these flows before you rent out a space in a mall is going to make a whole load of difference to the destiny of that shop/unit.

Cafe Ironies

In an entry with the same title on my blog, I detailed my experience at The Coffee Bean recently that didn’t quite start nicely but ended off pretty intellectually. I’m quoting the gist here:

I approached the counter with a maths worksheet in my hand (I was planning to work out some problems there while I sipped on the tea since I had some spare time on my hand and needed to exercise my mind) and made my order. The young man serving me immediately asked if I intended to sit around to study.

I commented that I’ll probably be around for half an hour and asked if it’ll be a problem. He replied that there’s an event downstairs and they anticipate a crowd so they discourage people from studying at the cafe. I kept quiet and took my receipt. I thought that the Large Chai Latte should at least buy me 30 minutes of time at the cafe.

This post is a discussion seeks to answer the question: “If a cafe wants to maximize their profits from a crowd and yet is limited by their available seats, how do they discourage people from studying there besides using attitude (which I assume is something I experienced)?” So before answering that question, we list out the factors that would encourage one to study at the cafe and see if there’s anything we can do to manipulate them:

Things that encourage one to study at a cafe

Good lighting; makes reading comfortable

Extremely hot or cold drink; takes you longer to drink and the taste of the drink don’t change that rapidly over time which means more excuse to stay at the cafe longer

Quality drinks; makes for nice beverage while you study and you probably won’t mind ordering one more and staying longer

Comfortable seats; allows you to study comfortably and sit at the cafe for longer time without feeling discomfort physically.

Technically speaking, removing any of these would help to reduce the time people stay around the cafe and also discourage studying. On the other hand, attitude (on part of the service staff) won’t help to reduce the determination of people studying at the cafe. In fact, it turns off people who genuinely just want to chill at the cafe for a while without discouraging the studying students. When one plans to stay at the cafe for a long time to study and sip on drinks, service at the counter makes up only a small part of the experience, whereas for customers who are interested to get a good drink and sit for a while, the service at the counter makes up half of the experience. In other words, giving people attitude is the worst possible solution compared to removing any of the above.

I strongly recommend the dimming of lighting, which doesn’t harm people out to relax but makes studying tedious and difficult. But this is not always possible since The Coffee Bean that I went to utilizes the in-building lighting that they probably have no control over. It’s not wise to compromise the quality of the drinks since it sends out the wrong messages and is disastrously difficult to control. That leaves us with modifying the seats.

I got this idea when I was at Saizeriya Restaurant at Liang Court; they feature a drinks bar where you pay about $6 bucks or so and get to drink lots of different drinks and it’s free flow – literally a drinks buffet. At first, I wondered why the seats there were so narrow and small; the cushion were thin and not exactly comfortable with prolonged sitting. Later I rationalized it as a means to get people out of the restaurant as soon as they’re done with the food. Of course it’s not going to put off people determined to try all the drinks, but at least they’ll finish with their affair and get out fast.

So here’s some prescription for cafes who hopes to attract people there for a drink and to sit around for a while (after all, if the cafe was empty you might think the drinks suck) but discourage students from spending their entire day studying there, the best move would be to adjust lighting according to your needs to adjust demand. Where this is not possible, modify the seats to make prolonged sitting uncomfortable.