What I learned about strategy in North America

I’m back now from a few weeks in Mexico (Oaxaca) via the USA (LA and Arizona) and here are three things of a strategic nature that amazed, frustrated and startled me.

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Packaging a spectacle

Our son, Jasper, is almost 15 and, like many boys his age, is basketball-obsessed. He plays in two teams, practices every day, buys player jerseys and team merchandise, and plays the video game (2K).

So, passing through Los Angeles meant seeing games played by both local teams: the Lakers and the Clippers (Jasper’s favourite team). What stunned me is how well America does large-scale entertainment. The indoor stadium holds 20,000 people, and it was packed (with people paying $200+ for a seat each - so do the maths on that).

That money (well, half of it) goes to some of the highest paid entertainers in the world - the players. Some are household names — like Lebron James and Steph Curry — who take home $50m a year. Jasper was awe-struck at seeing his heroes up close, in the flesh, and at the game itself. It’s fast, it’s virtuosic, and it’s unpredictable — all adrenalin-inducing features.

And, it got me thinking about how spectacularly the NBA has strategised on building this, as a spectacle.

They built the game, with is noise and lights, into an energetic and emotion-laden roller-coaster over two hours. And, it worked. The first game left me wanting to see a second. And a third. And, yes, even a fourth. And I’m not even a sports fan.

Question: What can you do to create a complete package that ‘wows’ your highest value customers?

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How to annoy your customers

Have you heard of drip pricing? Neither had I, but Americans are good at it. Here’s how it works.

Our hotel in LA advertised a room rate, like all hotels do. It’s a nice place, so it was about $400 a night. But, on arrival, we’re notified of a ‘resort fee’. It’s $50 a night. Yes, we can redeem it for meals in one of the restaurants (not both), but it’s charged whether we do that or not. Oh, and another $50 a night, sir, to park your hire car.

But, that’s not all.

On top of what you’d expect to pay for (meals, drinks, laundry), there are surcharges. Room service is 18% extra. If you miss the 9am deadline for laundry, there’s a 50% ‘rush fee’. Then there are the tips. 20% on top of everything consumed. And, $5 notes handed to the valet every time he gets our car, to the porter when he shuffles bags on arrival and departure, and to the maids for cleaning the room each day.

I haven’t finished.

Taxes. There’s a hotel tax of 12% (which is more than the state’s sales tax). And, a separate tax (1.5%) that pays for the health insurance of the staff. And, then, convert ALL of the above to Australian dollars, so add another 50% to the lot.

Drip pricing effectively doubled our stay costs.

I’ve researched this phenomena and it’s widespread in the States. Now, to be fair, not all of the charges end up with the hotel (taxes, gratuities), but many do. They do it for three reasons:

a) Heighten attraction: They can advertise a price that looks competitive, but is not the price the customer ends up paying.

b) Avoid commissions: The advertised room rate that appears on a travel aggregator site (like booking.com) is what is used to calculate the aggregator’s percentage, not the ‘real’ room rate.

c) Ignore loyalty factors: Hotels that are most likely to use drip pricing are in areas with high volumes of transient tourists, not regular visitors. They don’t care if we’re peeved, because they know we’re not coming back anytime soon.

But, what does the customer think?

Unsurprisingly, there are NO studies that show that customers LIKE drip pricing. They prefer upfront information about the full price. They also don’t like being charged in bits during their stay, having to reach into their pocket constantly. So, the phenomenon is entirely assymetrical - in the interests of the seller only.

Question: How can you use appropriate versions of drip pricing without alienating your customers?

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Claiming your origins

Even as a 20-something backpacker, I was a food tourist. And a fairly adventurous one. I’d eaten locusts in Thailand, dog in Indonesia, and cheese with mites wriggling in it in France. (Each of those, I ate just once, in context — not out of choice!)

But in Mexico, I did eat something remarkable - out of choice.

Oaxaca (pronounced Wa-Ha-Ka) is a stunning small city south of Mexico City, renowned for its food culture. And, for us, the highlight was Cocina de Humo (“Smoke Kitchen”).

Their techniques have survived millennia — all dishes are cooked on fire, or with smoke. The combinations are remarkable - they serve sauces that take four days to make. Everything was learned by the chef, Thalía Barrios, from her grandmother, using mortars and pestles, clay ovens, and terra cotta dishes.  

And, the food was sensational.

The textures, the complexity of flavour, and the simplicity were all remarkable. The restaurant’s model, too, is lovely. You pay online in advance when you book. On arrival, you sit at a counter, get fed whatever they’re making, drink what they give you (no alcohol - and none needed!) and then ask for more of anything you like. Then, you leave. No money changes hands, and by the end it feels like you’ve had a family cook for you in the way they’ve cooked for generations.

Our emphasis today on innovation and disruption ignores the fact that much value is to be found in preserving and propagating the past. Cocina de Humo does this beautifully, in a way entirely suited to modern tastes.

Question: How do you package your past to turn it into a feature, or differentiator?

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It’s great to be back with you with strategic insights for 2024, so please do let me know you’re enjoying reading with a quick click of the ‘heart’ below.

Enjoy some spectacle — and some tradition — this week, and I’ll be back with you again next Friday.

Andrew