Co-Opetition - Adam M. Brandenburger [65]
Directing activities inside the compound also helps brand the product. The overriding feeling that people get on a Club Med vacation is one of having gone to Club Med, not of having visited Martinique or Paradise Island. The Club Med experience revolves around Club Med, not the island on which it’s located.
The facilities at Club Med are simple. Accommodations are perfectly functional—some might say spartan, no one would say lavish. There are no phones, clocks, televisions, newspapers, not even writing paper. The low-cost quarters are designed to get people out of bed and into the common outdoor spaces. That promotes the group experience. Once again, Club Med reduces its costs and increases its appeal at the same time.
Club Med leases most of its properties. But its strong brand and simple facilities mean that it isn’t vulnerable when the lease comes up for renewal. Club Med could always move to a different part of the island without losing its customers or having to write off a large investment. The added value is with Club Med and not the landlord.
Club Med is a case of less is more. Its low-cost strategy leads to happier customers. Keeping things simple has made a better product.
What about creating trade-ons the other way round? Can making customers happier lead to cost savings? Absolutely. Here’s the inside story.
Captive Market The Tennessee legislature has concluded that the prisons run by a private enterprise, Corrections Corporation of America (CCA), are both better and cheaper than the ones it runs itself through the state department of corrections.21
The fact that it’s possible to run a prison for less money comes as no surprise. As Norval Morris, emeritus professor of law and criminology at the University of Chicago, puts it: “Obviously, you can build a dungeon and throw people in it and throw food down to them very cheaply. The question is what services you provide them.”22
The interesting point is that CCA has managed to save costs while at the same time running a better prison. CCA charges Tennessee a daily rate of $35.18 per inmate, while comparable state-run prisons cost $35.76. That might not look like a big cost savings, but bear in mind that CCA makes money at the price it charges. In 1994 CCA’s profit margin was 7.3 percent, averaged across the forty-five prisons it runs. As for quality, a special committee of the Tennessee state legislature gave the CCA prison a higher score than comparable state-run prisons. CCA’s prisons had fewer escapes and inmate assaults and offered better medical care and more job and education programs.
The view from the inside is equally positive. Phillip Phillips, a twenty-five-year-old serving a ten-year term for armed robbery, judges the CCA prison the best of the six he’s been in. “It’s cleaner, you get more choice of food, and the staff is more patient and willing to take time.” “I should never have left,” laments Samuel Mitchell, a twenty-one-year-old convicted robber who transferred to one of the state-run prisons to be near his brother.23
How does CCA do it? The biggest expense in running a prison is the guards’ salaries. In a state-run prison, up to 25 percent of the entire budget can go to overtime pay. Doctor Crants, founder and chairman of CCA, figured out why. If a prison is unsafe and depressing, the guards don’t want to come to work, and they call in sick. Other guards have to work overtime, and up go labor costs. According to Crants: “What this is all about is to make the corrections officer think he is coming to work in a