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A Cheap Employee Is … a Cheap Employee (Ep. 79)


(Photo: Alan Cleaver)

Our latest Freakonomics Radio on Marketplace podcast is called “A Cheap Employee Is … a Cheap Employee.”
(You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript here.)
It’s about the question of whether low-paid employees are indeed a good deal for a retailer’s bottom line as the conventional wisdom states.
The piece begins with a couple of stories from blog readers, Eric M. Jones and Jamie Crouthamel, which were solicited earlier here. (One of the true pleasures of operating this blog is having a channel by which to turn readers into radio guests — thanks!)
We then hear from Zeynep Ton, who teaches management at MIT’s Sloan School. Ton did a study (related blog post here) which looked at successful low-cost retailers including Costco, Trader Joe’s and the QuikTrip convenience stores. She found that while these companies spent more on labor than their competitors – higher wages and more training – they were in fact more profitable:

“When a retailer doesn’t invest in his people then execution at the stores suffers.  You often find products in the wrong locations, sometimes in the back rooms as opposed to the selling floor. promotions not carried out on time, or at all, or mistakes at the checkout. So these operational problems — what was surprising to me was how frequent these problems and how expensive these problems were.”

We also touch on another retailing study which found that customers don’t really care about all those in-your-face niceties that some retailers seem to think are important. As co-author Nicholas Toman tells us:

“It was not the pleases, the thank yous, the flowery language … that didn’t matter so much. Making things simply easier for customers, getting a question answered, returning an item, making the burden as low as we can on the customer results in the greatest initial economic benefit for the company itself.”

In the podcast, you’ll also hear Kai Ryssdal deal with some pretty bad Freakonomics Radio customer service.
Have a nice day!