EMBA27 Gravity Payment and cognitive bias

Malobi Ogbechie Written by Malobi Ogbechie · 1 min read >

We recently did a case study on Gravity Payments, a payment processing company based in the USA,
during an ABP class. ABP stands for Analysing Business Problems and it is one of the four courses we are
taking for the first semester. Here is a quick run-down of the case. Gravity Payments was founded by
two brothers, Dan and Lucas Price. The company did well over the years selling financial services to
SMEs in the USA grew very quickly over the years. One day, a conversation between Dan Price
and one of his employees would change the future of the company forever.

The conversation Dan had with his employee was one that affected him emotionally. The employee said
that she would not be able to pay for her student loan because the salary she was receiving was not
enough. Not long after that Dan began to do research on the optimal salary an employee would need to
receive in order to live a fulfilled life. According to his research, he discovered that employees earning
about $75,000 per year tend to live a more fulfilled life. In addition, any amount above that number
would not necessarily improve the employee’s wellbeing.

After thinking it through for some time, Dan decided to offer a minimum $70,000 salary for all
employees and he significantly reduced his salary as the CEO to that amount. As one would imagine, the
feedback from both the press and other stakeholders was quite intense. Firstly his brother filed a lawsuit
against him – which he lost in the end. Some customers left because they expected an increase in
pricing. Dan tried to reassure these customers that this would not be the case but many of them had
already made up their minds. The media was very much on the side of his decision. They played up the
idea that he was on a mission to help alleviate a major issue of income inequality. This seemingly
altruistic move actually helped him to get a lot of customers, roughly 500. Finally, the response from his
employees was a mixed bag. A few left immediately due to feeling neglected, others had imposter’s
syndrome, whilst a lot of them were for the move.

One of the great things about this case is that it exposes your cognitive bias. Due to our pro-capitalist
programming, a lot of people would see this as a bad move. During the group discussions, some said it
would lead to anarchy, others said it was a communist move, and we were all in agreement that it was a
bad decision he had made. After analyzing the case in case, we saw that it wasn’t necessarily a bad idea.
Once we did the number crunching, we realized he wasn’t losing much money thanks to the decision
and in fact, he had gained a lot of customers.

At the end of it all, the company is still in existence to this day and survived the covid pandemic. In fact, many of their employees sacrificed their salaries when the company was in a dire situation.

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