Opportunities for Action

C O N S U M E R

Looking for Patterns

Some business leaders seek inspiration outside

their own companies. They look to analogous
market situations and broadly defined competitors for better, more innovative pricing schemes,
product designs, trade practices, and technologies. They also pick up useful insights from
other industries: more efficient ways to manage
interactions with consumers, for example, or
new approaches to dealing with suppliers. We
call this practice competitive patterning.
Patterning has little to do with the tools of traditional market researchsuch as polling, focus
groups, and interviewsor with gathering conventional competitive intelligence. Rather than
trying to improve the business as it exists, patterning looks for insights into what the business
could become. It involves collecting lots of data
qualitative and quantitativeabout the relevant
products on the market, how they are used, how
they might be used, and who is using them and
why. It also entails asking such fundamental
questions as, Why do we do it this way and they
do it that way? How do our practices and theirs
align with our customers needs and desires?
What combination of practices would deliver a
higher level of satisfaction and loyalty?
The most successful patterning can come from
discovering how businesses in other markets
respond to trends that are similar to those in
your own. For instance, trading up and the hunt
for treasure that characterizes trading down
are part of a trend that is redefining the consumer landscape in nearly every category and
sector. Many companies are learning from one
another to profit from this trend.

M A R K E T S

In this article, we present four ideas for patterning in a range of environments. The first is to
offer a needed product or service at an extremely low price. The second is to attract a new customer segment that is primed to trade up in an
array of categories. The third is to serve both
trading-up and trading-down customers without
losing either group. The final idea is to broaden
the customer base for certain high-priced offerings by substituting operating expense for capital
expense. All four offer inspiration for ambitious
managers.
Extreme Value in Hotels
The European hotel chain Formule 1 is a perfect
example of what trading down is all about. Its
hotels deliver the essentials of an overnight stay
easy check-in, a clean room, and a showerfor
as little as 27 (about $34). When you consider
that a Formule 1 room can accommodate up to
three people and that the petit djeuner costs only
3.40 ($4.25) for all the bread, pastry, coffee,
and orange juice you can consume, its a bargain
hunters dream.
Formule 1 was created in 1985 by Accor, the
hospitality giant that operates some 4,000 properties worldwide with such well-known brand
names as Sofitel, Novotel, Mercure, Red Roof
Inn, and Motel 6. At the time, there was an
enormous unfilled need for a hotel that offered
both economy and quality. You could certainly
find a cheap room, but there was no guarantee
that it would have a decent bed, a TV, or access
to an acceptable bathroom.
Accor decided to change all that by establishing
strict criteria that every Formule 1 room had to
meet. It had to cost less than 100 French francs
per night (the equivalent of about $13 today),
meet a high standard of cleanliness, and offer a

Opportunities for Action

C O N S U M E R
L O O K I N G

F O R

M A R K E T S

P A T T E R N S

comfortable bed and color TV (in 1985!). Today

there are 380 Formule 1 hotels in 12 countries
around the world.

only childrenthe new generation of princes

and princesses. The category these parents
refuse to scrimp on? Baby gear.

To deliver both economy and quality, Accor

set out to reduce the cost of development, construction, and management. It located its
hotels on the outskirts of cities, where property is cheaper. It built them with prefabricated
components. It specified a standard design for
every room, so architects fees were minimal.
Each room in a Formule 1 hotel has a double
bed with a bunk aboveto accommodate three
peoplewith shared showers and toilets (which
are expensive to install) just down the hall.
And Accor staffs the reception desk only six
hours a day; at other times, guests can check
in or out using a credit card.

Most of these parents are two-income couples

who delayed having children until relatively late
in life in order to concentrate on building successful careers. Unlike younger parents, who
might plan on having two or three children,
many older couples expect their firstborn to be
their only child. So they spend a disproportionate amount of their income (which can be substantial) on Bugaboo strollers, wardrobes by
Ralph Lauren and Christian Dior, and technically sophisticated educational toys. Why shouldnt
Junior have the best of everything if Mom and
Dad can afford it?

A room at a Formule 1 may not measure up to a

suite at Le Bristol in Paris, but for a lot of travelers, a good nights sleep and breakfast are all
they want. With the money they save on twostar lodging, they can afford to buy the entire
family a three-star meal in town.
Can you imagine a Formule 1 in your business? Picture the blueprint: lowest cost, reliable service, consistent quality, and breakthrough price point.
The Little Prince and Princess
Consumers are trading down in virtually every
category, from coffee to cars. Most of the time,
no matter what their income, they go for the
best product at the lowest possible price. But for
a particular segment of consumers in one very
important category, trading up is the only way to
go. We are talking about the older parents of

Consumer spending on all categories of upscale

baby goods has reached about $45 billion per
year worldwide, with the largest amounts coming from households that rank in the top 10 percent of income. That is where the explosive
growth is occurring.
Parents have always wanted the best for their
children. But todays two-income, single-child
couples are spending as if their progeny were
royalty. What other categories might capture the
imagination and emotional energy of these highincome couples as their princes and princesses
get older?
The Whole Price Range at Whole Foods
Some companies really understand the tradingup and trading-down habits of consumers and
offer products in a range of prices from high to
low. Whole Foods Market, which has long been
known for specializing in premium, health-ori-

Opportunities for Action

C O N S U M E R
L O O K I N G

F O R

M A R K E T S

P A T T E R N S

ented groceries, is now experimenting with

priceas a way to better serve its customers and
as a competitive weapon.

any of the new players in the organic- and

health-food market, including the mass-merchant suppliers.

Whole Foods knows that many of its customers

spend only a portion of their total supermarket
budget at its stores. In fact, like all retailers,
Whole Foods analyzes its share of category
requirements by each customer segment. Whole
Foods zealots spend most of their grocery dollars at the store. But peripheral customers
shop for most of their commodities elsewhere,
spending only about 15 to 20 percent of their
grocery budget at Whole Foods.

Could you apply the share-of-category model to

your business? Could you cut price and gain
share?

About 200 grocery and food-related items

have high price visibility, according to our
research. Consumers know the price range for
these items, brand by brand and store by
store. Such savvy is part of their strategy to
get the best for less.

The reason people take a fractional interest in an

expensive capital asset is not that they cant otherwise afford to buy it. They do it because they
dont want to buy. As consumers, they recognize
that the most serious constraint in their lives is
time. If they purchase a million-dollar vacation
home and stay in it only 14 days a year, thats a
mighty expensive proposition. If they can have
the use of a similar houseor one that is even
more luxuriousfor an $80,000 membership fee
and a $5,000-per-week charge, they see it as a
bargain.

At Whole Foods, the plan is to start selling

some items with high price visibility at much
more competitive, market-leading prices on
the theory that doing so will enable its stores
to capture a larger percentage of their customers spending. And once customers are in
the stores more regularly, they will start to
buy more premium goods. Our pricing on
items with high price visibility should be competitive in whatever market we operate, a
company spokesperson says. The winning formula is premium quality, a wide range of private-label products, visually stimulating stores,
and strategic pricing on key items.
Of course, serving customers is only part
the goal of the spanning-the-poles strategy
Whole Foods. The company is also seeking
keep customers from shifting their business

of
at
to
to

The Joys of Fractional Ownership

Consumers have become very sophisticated, and
the growing popularity of fractional ownership
paying for a share of a vacation home, plane, or
boat, for exampleproves that.

Fractional owners dont pretend they are owners. They are glad that they dont have to deal
with the hassles of maintenance, improvement,
and fluctuating value. They like to use the house
or the boat as if it were a costume rented for a
special occasion.
Who goes in for fractional ownership? Its not
the superrich, whose individual net worth may
exceed $100 million: the superrich are hardly
aware that fractional ownership exists. In the
United States, moderately wealthy householdsthose with a net worth of at least

Opportunities for Action

C O N S U M E R
L O O K I N G

F O R

M A R K E T S

P A T T E R N S

$1 millionare driving the phenomenon.

These affluent consumers are wise in their
spending habits. They carefully pick how,
where, and when they want to invest. They
own their primary homes and their cars, and
they pay full freight for their vacations. But
whats the point of tying up assets in a house
they visit only once a year? They know there
are much better ways to spend their hardearned money.
Fractional ownership doesnt have to be limited
to houses, boats, and planes. With a little creative application, it could be employed to make a
range of products and services affordable to a
large group of consumers who want to use them
only infrequently.

panies doing thats working? How could you

leverage some or all of their ideas for your
customers?
Michael J. Silverstein
Franois Dalens
Michael J. Silverstein is a senior vice president and director in the Chicago office of The Boston Consulting Group.
He is the author of Treasure Hunt: Inside the Mind of
the New Consumer, published by Portfolio, an imprint
of Penguin Group (USA). Treasure Hunt is the followup to Trading Up: Why Consumers Want New
Luxury Goodsand How Companies Create Them
(Portfolio, 2005). Franois Dalens is a vice president and
director in the firms Paris office.
You may contact the authors by e-mail at:
silverstein.michael@bcg.com
dalens.francois@bcg.com

Competitive patterning means looking beyond

the nearest competitor to the entire market,
including high-end providers, niche brands,
companies in other countries, and start-ups. It
entails finding the key elements in a marketing
phenomenon and understanding how they
connect with each other and how that pattern
of connections might be applicable to other
industries and markets. What are other com-

This article is adapted from Michaels Monday Consumer Column on

the Treasure Hunt Web site. For more ideas like those presented here, go
to www.bcg.com/publications/treasurehunt.
To receive future publications in electronic form about this topic or
others, please visit our subscription Web site at www.bcg.com/subscribe.
The Boston Consulting Group, Inc. 2006. All rights reserved. 11/06