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17 Aug

It's time we stopped blindly copying the west.

I was on Twitter recently and came across this brilliant thread by Russ Roberts (@EconTalker) that I found both insightful and serving as a great example of the various cultural differences between the east and the west, and how these differences can lead to different product and service design along with economics. Sharing it with you all today with my thoughts towards the end.

"This is one of my favorite insights of economics but it may take a bit to get to the punchline. So buckle up.

When I first arrived in Israel as an immigrant, a couple of things struck me about the restaurants.

First, they seemed pretty expensive.

And second, the service was not very good.

Eventually, I realized two things. First, there is a 17% VAT in Israel. That is going to push up prices in the restaurant. But that's not the interesting part. The interesting part is the service.

How does the "bad" service manifest itself?

The server takes your order and comes back later with your food. Then they disappear. They almost never come back to ask if you need anything else. They don't come back to ask you if you're happy with the food. And when you finish eating, they never bring the check. Clearing the table takes a while and often the table doesn't get cleared unless you manage to get their attention and ask for dessert.

Americans (or at least this American) can find this maddening, at least on first arriving. "The service is terrible. The waiter disappeared on me. I couldn't get anyone to clear my table/bring me a drink/check on me/pay me any attention!"

But then I discovered something after being here for a year. Israelis (including this new Israeli) linger over their meals. They like to sit and talk. Dinner is leisurely. Nobody eats in a rush to get somewhere.

Meals, especially dinner, are about hanging out and talking and schmoozing and talking and laughing. The waiter doesn't come back because there's no reason to. We're here for a while. Yes, eventually, we will ask for a check. But not right this minute. I'm enjoying dinner. Why would I be ready to pay. I'm still "eating." Or at least enjoying the place where I ate.

And in coffee shops, it's even stronger. People will sit and sit with one cup of coffee. Nobody bothers them. The culture says it's OK, just like it's OK at dinner not to eat and run. So the service is actually wonderful. Nobody is hurrying you along trying to get the next group to your table. It just isn't done.

In all the meals I've eaten out here, that's happened to me exactly one time and it was shocking. It just isn't done here. And it turns out, this cultural norm of slow eating with lots of drinks and conversation also helps explain the high prices. The tables in a restaurant don't turn over as many times in an Israeli restaurant as they do in an American one.

A restaurant in America open from 6 pm to 11 pm might have between 3 and 5 groups at any one table over the course of the night, depending on the kind of food and how much people drink. In Israel, it's more like 2-3 groups. That means the markup on the food has to be higher to cover the fixed costs of rent, electricity, the liquor license, and so on. There are just going to be fewer transactions so any one transaction has to cover a larger share of those fixed costs.

I learned this fundamental insight from the UCLA economist Earl Thompson. He pointed out to me one time that the price of the food on the menu has to cover the implicit rent of the table — using the space that the restaurant is renting. So, food that takes longer to cook or longer to eat will have a bigger markup. So coffee seems expensive in a restaurant. But that's because the raw materials (coffee grounds/hot water) are a small part of the full cost. The real cost of the coffee is the time it takes to drink it or nurse it which means the price on the menu has to include the implicit rent of the table. 

There is more to say on this, and I've talked about this in more detail once on an EconTalk episode, maybe with Robert Frank. But the point is that the cultural difference in Jerusalem vs. Boston say about how long you should sit at a meal helps explain why the menu price in Jerusalem seems high. It is high. But you're not being gouged. You're paying for the privilege of a leisurely meal and competition among restaurants keeps prices lower than they otherwise would be, but it's still the case that the markup in Jerusalem is going to be higher than in Boston because of the cultural difference in how long people expect to sit at the table while eating.

And it turns out, I really like sitting in a nice restaurant, often outside, and no one is hurrying me along. B'tayavon. 

And yes, they will bring you the check. But almost always, you have to signal to get their attention then ask for it. They will not bring it until you do."

Sometimes, simple and straightforward logic about how things should work doesn't do. Because there are so many behavioural and cultural insights underlying consumers, that dismissing those can lead to a completely broken product that fails to understand the needs of its customers.

With any activity or undertaking, there is a primary job-to-be-done (JTBD).

And then are other secondary jobs to be done. In case of eating out with friends, saying that the primary job-to-be-done for the customer is having food is quite debatable.

Think about it: Do you want to hang out with friends in a nice place and have a conversation and then decide that meeting over dinner is an easy, conventional, and customary thing to do for that JTBD? Or do you primarily want to go out to have dinner and then decide that getting some friends along wouldn't be a bad idea?

If you think the primary JTBD for the majority of your customers is the latter and not the former, you would actually focus on creating an ambience and service that facilitates good conversations as much as you focus on the food. Failing to do that would mean losing out on the core part of your offering.

Now, I'm not saying that this JTBD is set in stone for all restaurants, as all of us know that there are many great food joints that are famous for their food and nothing else. You wouldn't go there to sit and have long conversations with your friends. But you would still go there because the food is that good.

Ultimately, it all boils down to the clarity you have around what you're offering and who you're offering it to.

On a very superficial level, every restaurant can be trivially seen as a place where you can sit and have food. But to run a successful restaurant business would mean diving deep into all the cultural and behavioural insight that makes good restaurants tick. 

And this is true for any business. That's why blindly copying B2C business models from the west rarely works for India. As most books are written by western authors, you will not get these insights by simply reading books. To start a business that works for the country, you will have to do the hard work of going out and really understanding why people here do what they do, and what their core JTBD is.

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