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CHAPTER THREE

Always Welcome Your Customers’ Scorn (Because You’ll Come Back Stronger)

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Chapter Overview

Every company goes through transitions. In the early years, the company’s concept is obvious to everyone. The point of differentiation is glaring. At every level, you can ask, “What do we do best?” and get an unambiguous answer.

But over time, almost every company experiences staleness and sometimes a loss of momentum. The original proposition is imitated. The blinding differences between the company and its rivals become subtle. High profits get competed away. Executives respond to Wall Street pressures for an investor thesis by creating business-speak—lots of words and many graphics, but little clarity about priorities, return on investment, growth commitments, and how current efforts will generate new value. The founders and their history become a corrupted myth or totally misunderstood.

The rise of the activist investor has made things much worse. Companies do not have the leisure to “bake” a new strategic initiative. As a result, untested and hypothetical ideas are often wheeled out as the next golden goose. Within months, the analysts are questioning and negating.

If you find yourself in this situation, what do you need to do?

Headline: Search for What Really Drives Consumer Choice

You need to find out not only what your customers really, really want, but also when and why they really want it. Conventional market definitions often put blinders on your company and you. As we noted in the Introduction, the demand-space approach opens your eyes and your imagination, expanding your definition of the market in which you compete. You can earn your growth by serving each demand space with power, precision, and direct response; establishing a two-way dialogue; and thus bringing new excitement to the category.

In this chapter, we profile two companies that have come to understand consumer needs in a powerful new way. One is Frito-Lay, the salty snack business owned by PepsiCo. The other is Hilton Worldwide, one of the world’s most iconic hotel brands. From their experience, you will learn how to think about consumers in terms of need and occasion. You will learn how they overturned decades of history, erasing their marketing rules of thumb and reinventing themselves.

Frito-Lay

What do you do when you become the division CEO of a business that used to be the jewel of the parent company but has not grown volume in three years? How do you energize an organization that has $14 billion in revenues and is making the highest profit of virtually any major food and snack company in the world? How do you take a market share of more than 60 percent and try to squeeze it higher?

That was exactly the dilemma facing Tom Greco when he was made head of Frito-Lay, the salty snacks business owned by PepsiCo, in 2011. Greco is an outgoing, gregarious Canadian. He gained valuable experience at P&G and built a blue-chip résumé at PepsiCo.

Frito-Lay’s North American business is one of the treasures in PepsiCo’s portfolio of businesses. Its iconic brands include Lay’s, Doritos, and Tostitos. Most children in America grew up on Frito-Lay’s Cheetos brand. Most of us can almost taste the cheesy orange flavor on our fingers when we say Cheetos. When PepsiCo first bought Herman Lay’s snack company in 1965, it was just a regional potato chip player competing with scores of other companies.

This is widely considered to have been one of the best food acquisitions of all time, masterminded by Don Kendall and Herman Lay in 1965. In the early 1990s, PepsiCo legend Roger Enrico took over. He invented the Pepsi Challenge, a highly advertised taste test that brought Pepsi Cola, the company’s flagship branded drink, to within a hair of Coca-Cola’s market share in the United States. Enrico was the marketing whiz kid who realized that a sweeter flavor would win the vast majority of the time in a single taste test. Under his leadership, Frito-Lay broadened distribution, built dozens of regional manufacturing centers, added thousands of route drivers, and heavily branded Lay’s, Tostitos, and Doritos. As a result, the company had a manufacturing cost advantage, brand price premiums, and a virtual hold on the most valuable retail real estate in stores. It made a fortune selling single-serving snacks in convenience stores.

The company’s store-distribution system remains a formidable competitive advantage. It has the world’s largest fleet of trucks, with 18,000 route drivers¹ who make up the most aggressively managed driver army in the world. Every day at 3 a.m., they go to hundreds of Frito-Lay depots and begin their routes. They follow a well-engineered route map, dropping off cases of snacks at thousands of outlets. This army promotes Frito-Lay’s face to consumers. It puts products within arm’s reach of anyone who wants a snack. It gives Frito-Lay a freshness advantage over competitors. And because of its scale, it delivers this benefit at a lower cost than other salty snack companies.

Headline: Create a Highly Advantaged Business by Focusing on Cost, Visibility, and Scale

With its size, brand power, and cost advantage, Frito-Lay earns more space on retailers’ shelves and concentrates its efforts on growing the highly profitable single-serving snack products. In stores, Frito-Lay’s reps give the bags an identity. If you walk into a 7-Eleven, the Frito-Lay rep has probably just been in the store. Bags of the salty snacks are neatly lined up—“snapped, popped, and laced,” as they say. Throughout grocery stores, a great Frito-Lay rep will introduce as many as 20 points of interruption—displays that consumers and their children can’t miss as they do their shopping. The chances are that if you don’t buy a Frito-Lay product on a shopping trip, it is because you are determined to avoid temptation.

As Frito-Lay discovered, good things can run out of steam. It needed to find an encore. The company had consistently driven growth in pounds per capita. At some point, however, incremental pounds get to be impossible. There are only so many salty snacks that one person can consume.

Also, Frito-Lay was facing a new competitive environment. In the past five years, consumers have increasingly been looking for a wider variety of snacks. This is what industry specialists call the fragmentation of taste. Many big food companies have been shanghaied by this trend. Many new companies have been launching “better for you,” “all natural,” and specialty snacks. That clawing sound in the market is entrepreneurs targeting Frito-Lay’s volume.

Companies such as Chobani, Monster, Wonderful, KIND, and Amy’s Kitchen have launched innovative “new to the world” snacks and beverages. They have avoided traditional scale disadvantages by using food brokers, contract manufacturers, rental merchandising forces, and agency brand intelligence. They have been successful thanks to their zeal, focus, unambiguous positioning, and relentless drive for growth.

Most often, the founder is on site and holding up the new company’s truth for all employees. He has the belief set of a zealot and is personally involved in every decision. For instance, during the early years, Hamdi Ulukaya, the Turkish American founder of Chobani, the top-selling Greek yogurt brand in the United States, slept in his beloved factory. He was obsessive about teaching Americans about the benefits of Greek yogurt—high protein, better for you. Ulukaya and others in this new breed of founder-entrepreneurs have a visceral sense of their markets. Their backs are figuratively to the wall; they have their life investment on the line and no sources of cash for subsidies. There is no rich parent company that can bail them out if they don’t make their weekly sales targets.

In the face of such competition, almost all the major food and beverage companies have experienced share loss and loss of momentum in the past half decade. This is because they have lost three things: their position in the minds of consumers, their share of eating occasions, and consumer preference. According to BCG analysis, the small-company universe (under $500 million in sales) is growing four times as fast as the large-company universe ($5 billion or more).² Part of the loss comes from the tendency of big companies to be internally focused, do poor market research, and rely on traditional television media for vibrancy. Too often, in these big companies, PowerPoint presentations rule. The CEO sits at the back of the room, listens to one anxious brand manager after another, and asks questions. Only rarely are fresh perspectives—“new truth”—brought to the table.

Also, the hurdles for innovators in larger companies are much higher than for those in smaller companies. In effect, the big companies become victims of their own success. They use profit margins on historically created businesses to judge start-up businesses. They have narrow windows for measuring launch success. And the “owner” of an idea may stay in her job for only 18 months—an inadequate amount of time to achieve enduring success. If they stayed any longer, they would no longer be on the company fast track. So, since everyone is always trying to impress others in the shortest possible time, there is little continuity.

In such a corporate environment, long-term business building is a back-burner activity. The winners are those who do promotions. They introduce value packs in order to increase volume, even if this reduces price realization. They drop coupons even though redemption rates are low. They add a new flavor, even if this cannibalizes 90 percent of current volume.

Headline: Want to Know How to Respond to Your Consumers’ Scorn? Look at Their Demands, Not Just Their Age or Sex

Frito-Lay was suffering from this same malaise when Tom Greco stepped up to the challenge of recapturing the glory days of Roger Enrico. “Our job was to help find new pockets of growth,” Greco tells us. “They are not staring you in the face.” In mature markets like the United States, if one food company is to win, another company has to lose. So food companies have to battle to take a bigger share of that calorie intake. As Greco explains: “Food is a zero-sum game. Calories are flat. In order for someone to eat more of what we make, we need them to eat less of what someone else makes.”

To discover growth, Frito-Lay took a very different path from the one taken by other packaged-food companies. Al Carey, Greco’s predecessor, had already turned to sophisticated new market research to redefine the boundaries of Frito-Lay’s business and brands. He used BCG’s pioneering approach, which we call demand-centric growth transformation, to understand what really, really drives consumer choice. Upon taking over from Carey, Greco endorsed the power of this approach to unlock growth, and so did his full leadership team.

Everyone knows that consumers use products in different ways, depending on when they consume them and whether they are by themselves, with their friends, or with their family. Depending on whom they’re with and what they’re doing—and what time of day it is—they give priority to different products with different features.

The conventional view is that consumers are fickle and inconsistent, hard to understand and predict, and therefore unmanageable.

We disagree. We think they are perfectly consistent, perfectly understandable, and quite predictable.

The secret is to do the right kind of research. The secret is to ask the right kinds of questions: Whom were they with when they last used the product? What was the occasion? What were the benefits they sought? What were the trade-offs they made? Did the product make them feel satisfied or good about themselves? Or did it make them feel upset, guilty, or angry?

Ask these questions, and you will start to understand what really drives consumer choice. You will be like Zeus on the top of the mountain, with a lightning bolt in your hand, able to aim your products at consumers like these:

Mary, the 18-year-old schoolgirl who comes home at 3 p.m. and wants something to eat

Joe, the 45-year-old office worker who looks at the clock as it strikes 3 p.m. and reaches into his desk drawer for something to mindlessly chew

Eleanor, the stressed mother of two whose kids have just walked through the door and who wants a snack for the babysitter to give them

Across the country, 3 p.m. is the witching hour. Viewed properly, it is made up of many different eating occasions. If you understand this, you can begin to understand what really drives consumer choice. You can start to fashion products and services that satisfy consumers’ hopes and dreams. You can deliver what’s really on their wish list.

Too often, companies do not understand this. They commission the wrong kind of research. They ask the wrong questions. They base their conclusions on syndicated data—the historical purchases by category reported by Nielsen and IRI.

Our approach focuses on consumer needs and wants and what we call demand spaces. If you ask the right questions, you can create a map of different kinds of demands, or different demand spaces. A “space” is an occasion or an emotional moment, and each unique space has a unique demand.

Greco used this approach because he wished to establish not only what customers really want, but also when and why they really, really want it. He wanted to understand snack “occasions”: how different customers consume snacks in various situations—alone, with friends, on the go, in the morning, at lunch, in the afternoon, or after dinner.

With the demand-centric approach, Frito-Lay could do three things. First, it could get a clear view of the various demand spaces in the snacking market. The tool enabled the company to do the following:

Look at the customer’s last consumption choice in the defined category and compare it with the choices of thousands of respondents to provide statistical accuracy and forecasting ability.

Establish the emotional and functional drivers of choice. (Most research today focuses on functional drivers—the engineering attributes of products—and assumes that customers do not make an emotional choice.)

Cluster similar responses to find common need bundles—a demand space.

Compile a set of distinct spaces, each defined by a clear-cut (emotional and functional) need bundle. Spaces should not overlap.

Identify the reason for the choice. For instance, is it primarily because the customer is a thirtysomething woman or a first-generation Hispanic, or is it because it’s morning?

Second, Greco and his team could discover which of the Frito-Lay brands had a “right to win” in each of the different spaces. Each space has a unique set of demands. These can be described prescriptively. He found out where his competitors were strong and where they were weak.

Third, they could establish the commercial opportunity for each demand space. They could know the size of the prize.

When put together, these three elements constitute a killer application. The demand-centric approach “closes the loop” by demonstrating that the brands that own the relevant emotional attributes (element two) of a demand space (element one) can win a differential share of a properly sized market (element three). In other words, this is a consumer-grounded model that can predict share and growth in the category. You can create a bull’s-eye product to match exact needs in the space and predict—if you make the product available and consumers aware of it—how much you will grow the business.

That is the “wow” of demand spaces.

Headline: Frito-Lay’s Search for Demand Spaces

A company with a clear map of demand can expect to be able to clean up. But, as we’ve seen, success requires the right research. As Greco says: “Analytics are where you can find growth. Most consumer products companies are superficial about their research and their understanding of their markets. We have gone through an absolute dentist drill to understand the drivers of demand at a deep and profound level.”

Demand-centric research puts into management’s hands the answers to five key questions:

1. What fundamentally drives choice in different consumer categories? And, more important, what does not?

2. What are the consumer needs that are shaping market demand, and what is the relative size of these needs?

3. What categories and products do consumers use? When, where, with whom, and how do they use them?

4. What is the company’s right to win, and for which needs? Where is it vulnerable to competitive attack? Where is the white space or unfilled universe of demand for the company?

5. What needs are competitors satisfying, and how? Where are they sourcing share today, and why?

Frito-Lay commissioned a survey of consumers in different regions across the United States. For the first time, the company had a clear view of the American snacking market and Frito-Lay’s room for growth.

Until then, the company had conceptually thought of itself as competing in salty snacks. The new model has it competing fully in a macro snack market that includes biscuits, nuts, chocolate, candy, ice cream, yogurt, and adjacent categories.

“For us, demand spaces is about reframing categories,” Greco states. “We no longer think of ourselves as a mid-sixties-share player in salty snacks. We are a mid-teens-share player in macro snacks. This includes crackers, nuts, candy, and chocolate. We define our market as macro snacks, not just salty snacks. That opens up many more growth opportunities.”

The research divided the snacking market into 10 different demand spaces and attached a value to each of them.³ The largest was “Fun Times Together.” The next largest was “Enjoy & Indulge.” Other big spaces were “Young & Hungry,” “Couples Unwind,” and “Family Fun.” Each of these has distinct emotional needs. In “Fun Times Together,” where snacks are enjoyed among friends, the emotions include “Flavors everyone will enjoy,” “I enjoy eating with others,” and “This helps to enhance the moment.”

But Greco also found that he wasn’t just competing against other salty snack providers. He learned that salty snacks were not a category: consumers buy a variety of products to deal with their snacking needs at any given moment. So the issue is not salty snack versus salty snack, but instead the time of day, who else is eating, and where the consumer happens to be. Consumers in the “Fun Times Together” space ate not only Lay’s potato chips, but also yogurt, Hot Pockets, food from McDonald’s or the local pizza shop, cookies, and Snickers bars.

Above all, Greco learned that his three big brands—Lay’s, Doritos, and Tostitos—were overlapping each other in the market. They were cannibalizing each other. He needed to make each one distinctive and focused on a particular set of customer needs—a demand space.

Headline: A New Map and a New Battle Plan: Don’t Waste the Insight, Make Sure You Implement It

The team concluded that Frito-Lay, a $13 billion business at the time, could grow its volume and units much faster. It also concluded that the company had to reinvent itself. Greco and the leadership team needed to completely overhaul the company’s rule book. With the findings from the demand-space work, Frito-Lay had a bible for innovation, for guiding what was spent on marketing, for establishing point-of-sale merchandising, for consumer targeting, and for helping to set growth objectives. Instead of doing the same old thing again and again, the company would have a new map and a new battle plan.

Demand spaces turned Frito-Lay’s marketing paradigm upside down. This technique separated the positioning of the various Frito-Lay brands—in particular Tostitos, Doritos, and Lay’s—and pushed consumers to choose one product or another for a particular occasion. This provided a road map for the company’s massive sales force.

As Greco explains: “We have been targeting a space we call ‘Fun Times Together.’ It’s about what you eat when you bring people together. You need to understand the occasion. This one is about fun, youth, and energy. For higher incomes, it is about premium products.”

Frito-Lay introduced Tostitos Cantina for this situation. Cantina is actually four products—chips and dips combined for parties. They are marketed and activated together. Frito-Lay gained volume from parties at home and group get-togethers. “We sold more than $100 million, and Cantina was an IRI Pacesetter for new products in 2013. It was a very big first year,” says Greco. “Demand spaces defined the technical specs needed to win along with the emotional benefits important to consumers. We gained share in the relevant demand space for Cantina. It was exciting, restaurant-inspired, and fresh.”

Another brand that Frito-Lay reviewed was Doritos. “Doritos is in the ‘Young & Hungry’ demand space. It competes against many products, including heated snacks,” Greco explains. “When a teenage boy comes home from school, he is hungry. He wants immediate satisfaction. So we formed a relationship with McCain’s [a Canadian frozen-food manufacturer] to create Doritos Loaded, a heated cheese-filled triangle. McCain is a great partner. They make it and move it. We sell and market it. It is a great new product for an on-the-go occasion.” During the launch period, Doritos Loaded was the number two stock-keeping unit at 7-Eleven convenience stores. It is totally new-to-the-world volume for Frito-Lay.

The biggest brand transformation has been Lay’s potato chips, a 75-year-old baby. It had been stagnant for five years when Greco and his team applied the demand-centric approach to growing the business. The goal was to get consumers thinking about Lay’s differently. They call it the Do Us a Flavor contest.⁴

“Lay’s was boring,” Greco admits. “We needed to make it topical. We engaged the Facebook Leadership Team. We knew we could import a successful program from the UK and sharpen it with the specifics from our U.S. demand insights. We invited America to name their favorite flavor, and consumers voted. In the first year, 4 million consumers submitted flavor ideas. In the second year, 14 million took the time to figure out a new flavor for Lay’s. They designed a package, shared it with friends. The four products launched in 2014 were cappuccino, wasabi kettle, salsa, and bacon Mac and cheese. America votes for the winner, who gets $1 million.”

In 2013, the finalists were chicken and waffles, sriracha, and cheesy garlic bread. They were produced and distributed, and Facebook changed its “Like” button to “I’d Eat That” just for Frito-Lay. The products became collector’s items and were sold on eBay for $45 for one bag of each flavor. The garlic bread entry ultimately won. For old-time Lay’s consumers, garlic bread Lay’s were an anathema. But garlic bread turned millennials into fans who voted in the millions that “I’d Eat That.”

New business. New consumers. New tastes. A new vision for the brand. A potential five-year play. Frito-Lay’s brand transformation of Lay’s has been big and expensive, requiring scale to master. Its success has been almost impossible for competitors to respond to. The effort has ignited Lay’s. This 75-year-old brand grew 6 percent in measured U.S. channels from 2012 to 2014.

Greco says that after three years of very hard work, Frito-Lay is delving deeper and deeper into what drives choice and going outside the bounds of convention to meet consumer needs. The company can recount the snacking habits of very tightly defined demographics.

Frito-Lay’s goal is to take demand-space thinking from the product all the way to the shelf. The company has boosted spending on digital media from 9 percent in 2011 to 32 percent in 2015.⁵ It has invested heavily in point-of-sale advertising. In prior years, when Frito-Lay launched a product, it provided money for first-year advertising, but saved only limited funds for in-store activation—that is, getting the consumer to buy. Now, Greco says it must be all in or nothing: advertising and point-of-sale promotion, not just advertising.

This is a massive departure for a big food company. The normal math in a packaged-goods company is to lose money in the first year, withdraw support in the second year, and make money in the third year. The thinking is this: overall, the net present value is positive, so if you need to skimp on one element of the marketing mix, that’s all right. But Greco is saying “No!” to this approach. It’s all or nothing.

The demand-space tool has provided the entire organization with a common language to align its activities. When planning for capital investments in manufacturing, the supply and finance organizations will identify which demand spaces are growing fastest and which offer new opportunities for growth. The sales organization has translated the consumer insights into retailer opportunities, designing customized programs by retailer and by region. For example, Frito-Lay is using decentralized print programs to come alive in local markets. It’s Frito-Lay promoting Bears’ football in Chicago and Jets’ football in New York to drive share in the “Fun Times Together” demand space. “This hasn’t replaced Frito’s advantage in-store, it has strengthened it,” says PepsiCo Global Snacks president Ann Mukherjee.

Tom Greco is boldly targeting mid-single-digit growth, and he sees Frito-Lay doubling in the next 10 years. He says that demand science has helped the company unlock growth by (1) providing the facts about demand spaces, (2) identifying the growth terrain, and (3) driving media to shelf execution and excitement. The next part is about shaping the future of demand.

He says that demand spaces have opened and expanded people’s minds. “We went from losing market share to gaining share and, importantly, growing volume and units. We’ve now reached capacity on several platforms and are putting in new lines. That’s a good problem to have.” But Frito-Lay is not declaring victory. It is too busy working on the next generation of innovative products, programs, and capabilities. “We are now focused on sustaining and, in fact, accelerating growth.”

REFLECTIONS ON FRITO-LAY’S USE OF DEMAND SPACES: AN INTERVIEW WITH ANN MUKHERJEE, PRESIDENT OF THE GLOBAL SNACKS GROUP AT PEPSICO

Ann Mukherjee is considered the original champion of demand-space analytics within PepsiCo. Now the president of the Global Snacks Group and PepsiCo Global Insights, she is a double graduate of the University of Chicago, with an economics degree and an MBA. Her job is to drive accelerated growth in PepsiCo’s brands, 22 of which generate more than $1 billion in sales. She lives by the slogan “Transform tomorrow today.”

“We [took] a very efficient operating supply-driven company and made them converts,” Mukherjee states. “They are now leaders who are passionate about demand-driven, consumer-brand-oriented growth. At Frito-Lay, we had lost our way. We had gotten too comfortable. And the world around us was changing. We were the best sales company, but we had lost the war with consumers. They were no longer willing to accept limited choice.

“Frito-Lay had to play a different game. The market had fragmented; the cost of entry had fallen. We had priced business up and had created a price umbrella. It created an opportunity for people to compete with us. They were smaller, nimbler players. They figured out a niche business that would give them enough scale to be a viable business. We were losing share.

“We had to do fundamental work on the business. That was the birth of demand spaces. We needed to understand the strength of our portfolio of brands. We had operated in a silo fashion. Brands and functions did not operate in an integrated way.

“The first step was to quantitatively understand what drives choice. In categories like macro snacks, the context was the driver of choice. You snack differently by yourself [than you do] with others. We wanted to find spaces that were mutually exclusive.

“Strategy is about choice. The demand-space framework gives choices. I could position brands depending on their incremental growth opportunity. It’s a broad range of choices: How do we position brands, how do we communicate them; how do we innovate brands; how do we decide on pack size; where in the store do we put them?

“For Tostitos, our demand-spaces work identified the space when it was most relevant—when young consumers are having fun together. We wanted to bring restaurant fun to the home. We created Tostitos Cantina. In the year of launch, it was the largest innovation in food—nothing bigger.

“We then went about the task of organizing to unlock the growth. We had the seal of approval at the top. We focused on the top 300 people across functions to make it real. We educated them on demand spaces by giving them an assignment. We had a video of a consumer named Suzy who was organizing a party. We sent them shopping. And when they came back, they met the real-life Suzy. They learned that she is on a budget but does not want to skimp. As she said, ‘I want my guests to come to my next party.’ It was eye-opening how she configured the snacks. That defined our arena. It was an [aha] moment for the organization. We compete in a bigger ocean. The experience showed that everyone in the organization needs to be lined up together to meet the needs of our consumer. And that’s what we did. The true power of demand spaces has been its ability to galvanize our powerful business system.”

Headline: Insights Accelerate Growth

“We accelerated Frito-Lay’s growth,” she says. “We did it based on rigorous analytics and science. We changed the way we do innovation. Now, supply chain [and] finance are talking demand spaces. We have continued the journey and made the demand spaces longitudinal (capturing the data annually and updating the size and growth of each space). We linked it to shopper data. We united the marketing, sales, and operations sides of the business and now work ‘media to shelf.’ The longitudinal data was the coup de grâce. As a result, we united operations and sales on the future needs of the business.

“What’s a good example of the success? We were very keen to pursue the ‘Young & Hungry’ demand space. We knew they wanted brands with badge value. That led us to Taco Bell and the Doritos taco at the restaurant chain. We’ve just sold our billionth taco! Wow. We made the taco better. It had the Doritos crunch and the intense, bold flavoring of Doritos. It delivered the gorgeous cheesy-flavor dust on your lips and took the taco experience to a whole new level. Taco Bell charges a 30-cent-per-unit premium—$1.29 versus 99 cents. It makes their profitability sing. It’s great for Taco Bell and for Frito-Lay.”

“As a result of demand spaces,” Mukherjee continues, “we took up the work-school-break underserved space. We configured a full convenience-store format. This is aimed at adults. It’s all ‘ready to go’—Sun Chips, Kettle Cooked chips, a line of munchy crackers, Grandma’s Soft Baked Cookies.

“[The concept of] demand spaces is not a magic bullet. But it adds comprehensive data. If you get sponsorship from the top, you can mobilize an organization. You need to keep it simple. It is pervasive and comprehensive. You give people a stake in the game. It creates a mentality of evangelism and inspiration. You can rally a core group who are zealots and evangelists. Don’t try to do everything overnight; get quick wins and build momentum. It has turned out to be the most rewarding thing in my career.”

Headline: View from the Top: What Indra Nooyi, PepsiCo’s CEO, Thinks About Demand Spaces

“Demand spaces is the perfect tool for managing a portfolio of brands,” says Indra Nooyi, CEO of PepsiCo. “In the normal course of business, brands drift together. You end up with overlapping positions and new products that deliver little incrementally. All advertising looks alike.

“But demand spaces opens up your eyes to new opportunities. You begin to look at new competitive spaces. You understand the implications of consumer behavior. You can imagine differently,” she says.

Nooyi points to the snacking space “Fun Times Together.” She says that this space is a rich mine of opportunity for her snack-and-beverage behemoth. “It’s a space that is different for young males, Latinos, [people of] lower income, all the demographics. If you target with users in mind and [specific] occasions, you create solutions to real needs.

“We are at the beginning of our growth cycle based on this tool. We have found there are big vacant spaces. It will drive our innovation. It allows us to think differently about our markets. And because we are both a snack and a beverage [business], we can think about pairings. This is a distinct competitive advantage. We have been [using the tool] for three years, and we are just beginning to scratch the surface and commercialize to the opportunities.”

Headline: Lessons from Frito-Lay

After many successful years, Frito-Lay’s brands had started to lose ground to smaller competitors. Customers were unhappy with the limited offerings from this great company. Rather than ignore its customers, Frito-Lay listened to them. It welcomed its customers’ scorn. It turned to an original approach—demand spaces—to understand what really drives customer choice.

The company conducted a survey that led to the development of a demand map containing a range of demand spaces. This is the first lesson.

The second lesson is this: the company ensured that it integrated the findings from this survey across its portfolio of brands.

Third, it did not do this just once, but made it an annual or biannual exercise. Customers’ needs change, so you have to keep up with their every move.

Fourth, the company used demand-space thinking in an expansive way. Use it not just for product innovation, but for a root-and-branch review of your organization. Make sure you are demand-centric, not just consumer-centric.

Hilton Worldwide

Stunning growth is possible in most consumer categories. There are few businesses that cannot discover the points of light that consumers crave. But most organizations have an immunity to new ways of going to market. They protect instead of attacking.

Hilton Worldwide was one such company.

When Chris Nassetta, a 30-year veteran of the lodging business, was picked to run Hilton Worldwide by Blackstone, the private-equity business that had acquired the company in a $26 billion leveraged buyout in 2007,⁶ he knew that he had a job on his hands. The venerable lodging business—the world’s most recognizable hotel brand—was a shadow of its former self.

It was started in 1919 by Conrad Hilton. The son of a Norwegian immigrant, Hilton established a high-rise hotel in Dallas, Texas. Before long, he owned a string of premium hotels. They were frequented by the famous and the fashionable. They were the place to be seen. They came to define how hotels delivered services and created a luxury experience.

In the roaring 1940s, Hilton became the first coast-to-coast hotel group in the United States when it acquired the Roosevelt and Plaza Hotels in New York. In 1947, the Roosevelt claimed a memorable record, becoming the first hotel in the world to install TVs in every guest room.⁷ By the end of the decade, Hilton had sealed its reputation as the world’s most luxurious hotel group, buying the Waldorf Astoria in New York and opening the Caribe Hilton in Puerto Rico, its first international hotel.

Through the 1950s, Hilton continued to be a magnet for the glamorous. It defined the Mad Men era. It opened the first modern hotel built from the ground up in post–World War II Europe in Istanbul, hosted a dinner for Queen Elizabeth II in Chicago, and attracted film stars such as Marilyn Monroe. It was at the Hilton in Puerto Rico that Ramon “Monchito” Marrero, a legendary barman, created the Piña Colada, the cocktail of choice among high society and the Hollywood set.⁸

But by the 1960s, Hilton was starting to lose its Jazz Age luster, even though the fashionable still chose to stay at the most famous Hiltons. John Lennon and Yoko Ono staged their “bed-in for peace” protest against the Vietnam War at Hilton Amsterdam. Elvis stayed at Hilton Hawaii Village on Waikiki, where Michael Jackson would stay some 20 years later.

In September 1999, Hilton acquired the Promus Hotel Corporation for $3.1 billion, creating one of the largest hotel companies in the world at the time. It was a significant move that added Promus’s DoubleTree Hotels, Embassy Suites, and Hampton Inns. This gave Hilton additional winning and differentiated brands in new territories within different market segments.

Yet, as a whole, the Hilton brand itself was becoming tired and worn. It looked as if its best days were behind it. As the Washington Post observed: “The company had become a byword for poor, Balkanized management.” For too long, the executives at its grand Beverly Hills headquarters had taken things for granted. “There was no culture of innovation,” recalled Nassetta. “It was more a culture of ‘do it at a relatively slow pace’ and ‘do it the way we’ve always done it.’”⁹

For the inventor of the original modern premium hotel, this was a sad decline.

To get back on track, Nassetta and his team focused on three main brand-related issues: repositioning the flagship Hilton brand, which was widely seen as ailing; reviving the full-service portfolio, including DoubleTree by Hilton; and recasting the loyalty program, Hilton HHonors, as a brand on a par with the hotels.

They knew that the Hilton brand had to reconnect with customers in an emotional way. It had to recapture its zest. It had to rediscover the essence of its success when it was the place to stay for royalty, rock stars, and the cream of high society.

Headline: Reshaping the Brand Portfolio: Get to the Heart of What Really Drives Consumer Choice

When Tom Greco looked at Frito-Lay, he realized that he had a bunch of brands that overlapped each other. This was not good. It meant that they were competing with one another for the same customers. Nassetta realized the same thing at Hilton Worldwide. When Blackstone bought the company, there were nine different hotel brands. The most luxurious were Waldorf Astoria and Conrad. Then came the “full-service” hotels: Hilton itself, DoubleTree, and Embassy Suites. After these were the “focused-service” hotels: Hilton Garden Inn, Hampton Inn, and Homewood Suites. In addition, there was the timeshare brand Hilton Grand Vacations.

Some of these were undisputed champions and category killers: Hampton Inn was one; Embassy Suites was another. Four times between 2011 and 2015, Hampton Inn topped the Franchise 500 list published by Entrepreneur magazine. Embassy Suites has won the J.D. Power customer service awards nine times.¹⁰ But many of the full-service brands—not just Hilton—were underperforming. They were starting to lose out to the focused-service hotels, which offered fewer—but always the most essential—products and services at the right price levels.

Two of Hilton’s full-service hotel brands were struggling to deliver all the many and varied service and quality features on a consistent basis. This was reflected in their quality assurance and customer satisfaction scores, which were all trending downward when Nassetta looked at them—DoubleTree’s by 3 percent in the course of one year, Hilton’s by 2 percent. Also, it was clear that the hotels were not sufficiently distinctive or different from one another. As at Frito-Lay, the brands were all targeting a similar demographic.

As Jim Holthouser, global head of Hilton brands, explained to us: “In 2008, we were still struggling with how to think about DoubleTree relative to Hilton. It needed to be a stand-alone brand with its own swim lane, but we hadn’t defined it yet.” So Nassetta turned to a team of Hilton’s dedicated data-driven brand and commercial-products executives, including Holthouser. Like Greco at Frito-Lay, he asked them to experiment with new market research techniques that placed great emphasis on emotional connection. As we saw earlier in this chapter, conventional market research is based on syndicated data and industrial segmentation, which group people broadly by age, income, and occasions, such as “leisure versus business” or “long-stay versus short-stay.” The new approach, however, is much more granular and indicates what different people want on different occasions and at different times of the day. It tries to get to the heart of what really drives consumer choice.

To get answers, Hilton conducted hundreds of interviews and surveyed thousands of consumers in the United States, Canada, the United Kingdom, Germany, China, Japan, Brazil, and Egypt. People were asked to describe what they wanted and—this was especially crucial—when they wanted it. The results were startling. For the first time, Hilton had a map of what really mattered to consumers. It could separate the hospitality market into a rainbow of different categories—demand spaces—based on what consumers really, really wanted when they stepped over the threshold of a hotel.

The categories are expressed in common language. One demand space was “feel at ease,” from customers who want to have a “worry-free experience.” Another was “rewarded,” from customers who want to “feel on vacation even when they’re on business because they work so hard.” In all, Hilton’s branding team identified 12 demand spaces. It then allocated each of the brands to one or more of the demand spaces.

The consumer work led to distinct positioning for each brand. Hilton was allocated the “recharge and refresh” space, and DoubleTree was given the “personal connection” or “personalized” space. This allocation was reinforced by rules about what the hotels could and couldn’t offer, to stop one hotel from drifting into the so-called swim lane of another hotel.

As we show in greater detail later in this chapter, Hilton and DoubleTree were targeting very similar consumers. By bringing clarity to their positioning, the company was able to unlock growth and customer opportunities. The “recharge and refresh” space was very large. It was a perfect complement for the Hilton brand, with its diverse property portfolio ranging from meeting and convention hotels to resort destinations. It has a wide range of business and leisure customers. It needs a big space to grow.

Likewise, the “personal connection” or “personalized” space was perfect for DoubleTree. The brand is skewed toward business travelers who are looking for decent service but don’t need consistently top-quality accommodation.

Headline: Resurrecting the Hiltons: Search for a Distinctive and Differentiating Brand Position

Anyone staying at a Hilton brand hotel before 2007, when Blackstone bought the company, would have been shocked at just how far the great brand had fallen. Take Hilton McLean, in the suburbs of Washington, DC. It was the epitome of the Hilton brand gone wrong: old, shabby, and out-of-date.

But Nassetta knew what he had to do to resurrect an iconic American brand. He needed to make it more consumer-focused, just as it had been in the 1940s and 1950s. He asked his branding team to rethink the way Hilton engaged with the customer. His team’s recommendation, reflecting the conventional wisdom, was to make Hilton “cool and hip” again. In one sense, this was perfectly logical. In its heyday, Hilton had been cool and hip. If Hilton were to recapture its earlier success, why not go back to this great heritage?

But Nassetta was unconvinced by this pitch. He instinctively realized that the cool and hip market was no longer right for Hilton, given its size and its global reach. Following this instinct, the branding team used the detailed data-driven demand-space research, which had elicited information that was very different from the kind typically produced by market research. The researchers asked customers about their real choices. What are the must-haves of your experience? How do hotels in general and Hilton in particular make you feel today? How would you like a hotel to make you feel tomorrow? Look at evocative pictures: which best describes the Hilton brand?

One typical customer was John.

John is an account executive for an IT services company. He is married, with two teenage boys. He spends 22 nights a year on the road. Typically he stays at full-service hotels. He likes the “extras”—the high-touch service and room service. He characterizes himself as a “somewhat loyal” Hilton customer.¹¹

When we first started talking with him, we asked him about his must-haves. “Number one, I have to have a clean room,” he said. “It sounds so simple, but you’d be surprised how hotels screw this up. I can walk into a room and instantly know if I’m going to have problems. First, I’ll look at the air vents. If I see black dust on the vents, I know there’ll be problems, and I instantly start to smell mold, whether it’s there or not. Then, in the morning, when I use the bathroom, I look for how quickly the water drains. If slowly, then I know there’s hair in the drain. Hilton usually doesn’t have those problems, but I have seen a few that have. When you miss here, it’s hard to recover.”

John then spoke more about the brand as a whole. “I’d say Hilton’s a fairly reliable business-hotel chain. Now, I will say they are a bit out-of-date. The buildings are not up-to-date anymore. The old stuff has to go! This may sound bad, but it’s like an old woman wearing a lot of makeup. It’s so obvious that she is not able to afford the plastic surgery that she desperately needs. When I walk into the room, I go straight to the bed and strip off Grandma’s bed cover that has all those dated colors. It’s like it’s trying to hide something.”

So, if he didn’t like the antiquated look, what did he want? How did he want to feel after a night in a Hilton? “Ultimately, I want to wake up the next morning and feel recharged and ready for the day ahead. I want to know I’m going to nail my meeting. I want to know I won’t have bags under my eyes because I had a great night’s sleep. I want to know I had something reasonably healthy to eat when I checked in at 10.30 p.m. That’s what I want to feel like when I go to a Hilton.”

As we talked more, John started to open up more. He soon became quite opinionated. “The more I think about it, Hilton really has lost its way. You may not know this, but in the old days, Hilton was quite luxurious. Twenty years ago, it was brilliant to say that you were staying at a Hilton. Now you need to differentiate between the nice ones and the horrible ones. Hilton is a big name, but it does not stand for quality anymore. It is not living up to its image.”

Hilton talked to many other people like John. It conducted a survey of more than 10,000 consumers to size up the opportunities, framed around “travel solutions.” As Holthouser explained: “Traditional segmentation approaches, like those around demographics—I threw them out the window. Demographics tell you little about lodging customers, who all look relatively similar. What I can get my head around is thinking about these brands that target specific trip occasions, emotional needs, and price points. I can get my head around that all day long. When you start looking at our particular portfolio and you start thinking about travel solutions, it starts to make a heck of a lot more sense than demographics.”

First, the results confirmed Nassetta’s hunch that creating a cool and hip Hilton was the wrong thing to do. The analysis showed, in a very data-driven way, that the emotional space of “cool and hip” was small. It accounted for just 2 percent of the market. This was far too small for a global brand such as Hilton, which has more than 550 properties and is fast approaching its centenary.

If the team had taken the advice of the advertising agencies, it would have had to make Hilton look and feel more like W, the trendy cosmopolitan boutique brand owned by Starwood, one of Hilton’s competitors. But even if Hilton could have delivered this perfectly, it would have been impossible for the brand to grow and connect with customers.

Second, and most important, the results revealed an emotional space that Hilton should target—namely, the “recharge and refresh” space. This was perfect for the brand because it embraced both leisure and business travelers. From its earliest days, Hilton had sought to be the hotel of choice, whatever the traveler’s purpose. For instance, in 1959 it had pioneered the airport hotel concept by opening the 380-room San Francisco Airport Hilton for the business and leisure traveler.

From the detailed consumer feedback, the Hilton team established that the “recharge and refresh” space was large and growing, accounting for 25 percent of the market. It reflected the second most popular emotion that was tested, after “worry free.” Also, the team established that the company had a “right to win” in this space. But it did not have a “fair share” of the market.

Armed with this information, Hilton set about repositioning its flagship brand. As a start, it brought back the founder’s motto for the overall company, “To fill the earth with the light and warmth of hospitality.” This became the “vision” in a carefully crafted “brand architecture.” The centerpiece of this work was the development of a brand “personality” for Hilton. This included five “personality traits,” the things that customers say they see when they check into a Hilton. These were “authentic,” “worldly,” “generous,” “refreshing,” and “competent.” It also included a set of values adopted for the company: “hospitality,” “integrity,” “leadership,” “teamwork,” “ownership,” and—significantly—“now.” Hilton had once defined an era, but that era had long gone. Now, it wanted to reflect a new age.¹²

After defining Hilton’s personality and values, the branding team developed some functional and technical features. It introduced what the team members referred to as sacred cows. These are features that are unique to the Hilton flagship brand. No other brand in the company’s portfolio of full-service hotels is allowed to offer them. One is high-quality food and beverage on a 24/7 basis. Another is a connectivity station, located in the lobby, allowing complimentary high-speed Internet access to conduct meetings or simply print boarding passes.

Second, Hilton unveiled some “unique delighters.” Customers were provided with an executive lounge, a bar in the lobby, and updated rooms that were spotlessly clean and featured large, white, comfortable beds and new flat-screen TVs. Also, they were offered “fair pricing.” Until then, Hilton had often been accused of nickel-and-diming its customers. Now, it needed to be seen as “generous.” In this spirit, it made strenuous efforts to answer complaints and resolve problems as quickly and painlessly as possible.

At the McLean Hilton, the difference is stark. You enter the lobby and see the technology lounge, with a video wall and computers that have complimentary Wi-Fi and printing. If you attend a meeting, you may find yourself in a 67-seat amphitheater or a ballroom that holds 1,300 people. In your room, you have a high-definition flat-screen TV. To eat, you can walk downstairs to the härth restaurant, which serves farm-to-table American cuisine, cooked in a wood-burning oven as you sit by the fireside.

As one customer commented: “The McLean Hilton is a first-class hotel. The staff are great from the front door on the way in to when you check out. The accommodations are very comfortable—very nice and completely updated. The public space, bar, and restaurant are beautiful. It’s a great place to hang out and relax. If you need a place to stay, this is it!”¹³

Headline: Reviving DoubleTree: Deliver the Emotional Promise with the Right Functional Features

When you enter a DoubleTree at Hilton, you will be greeted by a friendly face at the reception desk and offered a warm chocolate chip cookie. It’s an established tradition. Say “DoubleTree” to an American, and he will probably think “cookie.” The two just go together.

Every year, DoubleTree gives out more than 28 million of these snacks as a “welcome” gift to guests. “In the early 1980s, most hotels reserved treats like these for VIPs,” says its marketing literature. “We started handing them out to everyone because we think every guest is a VIP.”¹⁴

No other hotel in the Hilton chain offers this little touch: it is one of DoubleTree’s icons. It has come to symbolize the hotel’s unique place as the Hilton Worldwide brand that targets the “personal connection” or “personalized” space: rewarding hotel experiences where the little things mean everything. DoubleTree became part of the Hilton portfolio in 1999, with Hilton’s acquisition of Promus Hotel Corporation. But, like the Hilton brand, it lacked a clear identity. Founded in 1969, it was a “me too” brand that was one notch below the flagship Hilton brand.

In the course of the demand-space research, the members of the Hilton team realized that they could not forge a clear identity for the brand on the basis of the actual hotels. Every one was different. What they found, however, was that DoubleTree was perfectly placed to meet the needs of people who say, “I want to feel like I’m being treated in a personal and individualized manner after what has been a long, tiring, and rather impersonal travel day.” In this space, it had a clear “right to win.”

As it had done with its flagship brand, Hilton set about crafting DoubleTree’s brand identity. Its promise was to “restore the human touch to the travel experience by really understanding the individual preferences of its guests.” This meant that it would have to “provide the special comforts and personalized acts of kindness that treat the traveler like a valued individual.”

With its signature cookie, DoubleTree had a perfect “act of kindness” that was deeply rooted in its culture. But this was not sufficient to guarantee its success. Yes, the insight into what drives consumer choice is essential. But the effective implementation of the functional and technical features is equally important.

This is where DoubleTree tripped up. Its targeted customers were willing to trade down on some of the hotel’s physical features, so long as the quality of the service remained high. But when the service fell below an expected threshold, they rebelled.

Hilton’s branding team discovered this after comparing the quality assurance scores of its DoubleTree hotels. The team members asked customers a very straightforward question: “Did you get a cookie when you checked in?” For some hotels, the answer was yes just 75 percent of the time.

This concerned the executives at headquarters. It also puzzled the managers of the hotels, who claimed that they always handed out the signature cookie. What was really happening? To find out, Hilton sent a team of researchers to all the hotels with very low or very high scores. It turned out that the managers of the low-scoring hotels were telling the truth: every customer was handed a cookie at the reception. But there was a telling difference in the way the receptionists handed out the cookie.

At the low-scoring hotels, the receptionists typically kept a bag of cookies under the counter and distributed them when customers checked into the hotel. It wasn’t an act of kindness. It wasn’t a genuine gesture of hospitality. It was an administrative duty: “another thing to do,” and a box to be checked. By contrast, the high-scoring hotels transformed the cookie into a piece of theater. The receptionists put on their white gloves, walked over to the warming tray, selected a cookie with a pair of tongs, and presented it to the customer before the check-in took place. It was part of the welcoming experience, as opposed to a transactional act. It was a memorable occasion. There was a sense of drama. There was an emotional connection with the guest.

“What I have learned from brands like DoubleTree,” says Jim Holthouser, “is that consistency doesn’t have to mean having the same identical product. Consistency ultimately means delivering a promise. So with DoubleTree, we have entrenched a culture of CARE. CARE stands for Create A Rewarding Experience, which helps bring consistent and unique acts of kindness to the brand.”

Headline: The Loyalty Factor: Rewarding Converts with Experiences Worth Sharing

The Hilton team used the customer-demand-space approach to create a portfolio of very distinctive brands. No longer was there a fuzzy line between Hilton and DoubleTree. But the team members also saw the potential of the approach to revitalize something else: Hilton’s loyalty program, Hilton HHonors. They realized that if they took care of Hilton’s “apostles”—the guests who returned time and time again—the converts would take care of Hilton by being loyal and telling their friends and family about the chain.

The program, launched in 1987, boasts 44 million members.¹⁵ This represents 50 percent of global occupancy, generating $13 billion in hotel revenue in 2014. The Hilton team commissioned a new round of demand-space market research. What really drives the members’ choice? Why would they stay with one hotel group—and get the benefits of loyalty—rather than another hotel group?

To find answers, Hilton spoke to thousands of consumers. One of these was Bob, who by any measure is an “elite” business traveler, a true road warrior. He spends 170 nights a year away from home: away from his wife and away from his two teenage kids. Traveling for business has taken its toll on Bob and his family. Over the years, he’s missed many parent–teacher conferences and kids’ sporting events. His wife is very understanding. She knows the demands of the job. Even so, on many occasions, she has taken her frustration out on him for not being there. He tries to be a dutiful husband. He calls home every night he’s away. But that’s not always enough.

Most of those nights are spent in one of the Hilton brand portfolio hotels, mainly Hampton. This is why Bob joined the HHonors program. “If you travel for a living, you might as well take advantage,” he said. “It’s nice to be treated special. Of course, all the hotel companies talk about points. But honestly, I have no idea which one has a better deal.”

So why does he stay loyal to Hilton and use the HHonors program? “I guess the points are important to me. It’s about what I can do for my family, to make up for all the stuff I miss at home, to do something special for them. I thank HHonors for that. I couldn’t have done this without the program.”

Bob spoke volubly about the program, not least because a fantastic trip was fresh in his memory. “My points balance is pretty low right now because we’ve just got back from Hawaii and stayed at the Grand Wailea,” he said. “My wife was so grateful. It was the nicest hotel we’ve ever stayed at. Staying in an $800 room for free was cool. It kind of makes up for being gone five nights a week.”

After gathering Bob’s testimony and the testimony of thousands of other consumers, Hilton discovered a glaring fact: the loyalty program should really be a brand and not a program. It should connect emotionally with the customer. In this way, it could differentiate itself from other loyalty programs, in which the goal seems to be simply to collect as many loyalty points as possible.

As Hilton’s branding team searched for what drives choice, it soon found a large emotional space that the team members decided to call “experiences worth sharing.” Here, customers wanted to earn loyalty points so that they could take their loved ones on an aspirational trip—the trip of a lifetime, a trip they might not otherwise be able to afford. It wasn’t about the points; it was about the experience. It was about the connections they made with their families and, in turn, the connection they felt to Hilton.

Without knowing it, this is exactly the demand space that Bob had been talking about. And eventually, by having HHonors cater to people who wanted experiences worth sharing, Hilton was able to develop an emotional connection with consumers, create some functional products, and get out of the points arms race.

Headline: Demand Spaces, Real Results

The strategy of focusing on the needs or “demands” of the customer has delivered strong results for Hilton Worldwide. Its brands have been rejuvenated. There are real distinctions.

Jim Holthouser said: “For DoubleTree, you can look at it now, and you know it’s differentiated. We’ve identified swim lanes. There are clear physical, service, rate, and consumer differences between the two brands.” The results testify to the transformation. In 2012, DoubleTree became the fastest-growing brand in the portfolio, with the number of hotels rising by 60 percent, from 184 in 2008 to more than 400 today—plus 150 in the pipeline. It has become one of Hilton’s most significant growth engines.¹⁶

On Hilton, he said that the brand “continues to be the leading growth vehicle, with a pipeline of 160-plus hotels around the world.” He added: “The brand remains a revered name around the world. And, it has made enormous progress in improving its service culture. We’ve also made a lot of progress converting Hiltons to DoubleTrees in some cases, which has benefited both brands. Going forward, given the scale, history, and global reach of the Hilton brand, we’ve needed to be deliberate about change in order to reach our goals. And I feel very confident in our longer-term plan to get us there.”

The real sign of the success of the brand strategy was Hilton’s return to the public markets. In 2013, Blackstone sold $2.7 billion of stock, valuing the company at $33 billion.¹⁷ This was a 27 percent premium over the purchase price in 2007. It was the world’s largest IPO for a hotel operator. When companies buy high, they are usually forced to sell low. But Blackstone defied the odds. It was able to buy at the peak of the market, suffer through the Great Recession, and come out with a higher value.

The price, though high, made sense. Hilton Worldwide has been the fastest-growing global hotel company since 2007. Today it has more than 4,300 hotels, spread across 12 brands. It has 715,000 rooms in 94 countries—a 37 percent increase since 2007, when Blackstone started the transformation.¹⁸

Nassetta forecasts considerable growth over the next 20 years. “The outlook for our industry is as good as I’ve ever seen,” he said, in his letter to shareholders in 2014.¹⁹ His optimism is founded on the growth of global tourism and the rise of the middle class in underserved markets. Hilton is well positioned to capitalize on these trends. It has 230,000 rooms in the pipeline—the largest number in the hospitality industry and a 68 percent increase since 2007. Also, it has more than 120,000 rooms under construction—a 144 percent increase since 2007. This places it in the number one spot in rooms that are in supply, under construction, and in the development pipeline.

“Our goal is simple,” said Nassetta. “To serve any customer, anywhere in the world, for any lodging need they have. By doing so, we drive customer loyalty, higher market share premiums, and better returns for our hotel owners, which in turn drives faster net unit growth and premium returns for our stockholders.”²⁰

Hilton Worldwide’s success so far is testimony to the power of a strategy that puts customer choice at the heart of the business.

Headline: Lessons from Hilton

There are three lessons to take away from the Hilton story. One is that you should trust the data from research about what really drives consumer choice. If you do this, you can expect to find large, or at least appropriately sized, demand spaces. As Hilton found, there was no point targeting the “cool and hip” space when its large corps of road warriors were searching for a place to “recharge.”

The second lesson is that the technical cues, the little details, matter. Personal connection was the home run space for DoubleTree; it was the “what.” But you’ve got to focus on the “how” as well. You can’t hit the ball out of the park if you don’t execute the details. Offering a cookie in the right way and at the right time was one of those details. Yet not every hotel did this. It was intended as an act of kindness, a show of hospitality. But some hotels treated it as just another thing to do. In other words, it lost its meaning and its connection with the guest. You have to deliver on the “right” technical cues to make the connection and win the space.

The third lesson is that every key element of your business can be a brand, with the potential to develop an emotional connection with your consumer. Who’d have thought that a loyalty program would thrive as a distinct brand, as important as a hotel brand? Hilton’s loyalty program, HHonors, became a brand in its own right. Hilton listened to its consumers and turned the program into a real source of competitive advantage. It realized that the more connections it has with its consumers, the stronger it will be as a business.

*****

One Conclusion

If you have more than one brand, you need to make sure the brands are distinctive and distinct from one another. Hilton and Frito-Lay found that they had overlapping brands that were cannibalizing one another.

Once they stepped back and realized what really drove consumer choice, they were able to target clearly delineated demand spaces.

In the case of Frito-Lay, it was able to target the major macro snacks market rather than just the narrower salty snacks market. In the case of Hilton, it was able to separate the Hilton and DoubleTree brands and allow them to create valuable businesses in quite different markets.

Three Takeaways

1. Know your demand spaces. There’s no such thing as a mature business. There is such a thing as a management team that has run out of energy and ideas. If you think you’re losing momentum, invest in the demand-space tool. It allows you to breathe new life into your business. Frito-Lay and Hilton used the tool and achieved fantastic results. It allowed them to find new consumers. It allowed them to target new consumer needs. It was the difference between having no ideas and having dozens of ideas.

2. Implement, implement, implement. The demand-space tool itself does not give you growth. Growth requires creativity, experimentation, investment, and years of diligence. Frito-Lay and Hilton believe that the tool sparked their imagination, and they are on a path of growth. It’s about recognizing the power of responding to distinct consumer needs. It’s about marketing with precision and conviction. It’s about creating a bundle of benefits that deliver to the demand space. And it is about separating your various offerings so that you do not doom your new efforts by sourcing volume from yourself.

3. Make choices and prioritize. The demand-space tool helps you prioritize your opportunities and decide how you can best allocate your investment budget across your portfolio of businesses. Feed your high-return, high-growth businesses. Starve your low-return, low-growth businesses. Frito-Lay invested in Lay’s, Doritos, and Tostitos as well as in new marketing channels. Hilton invested in its flagship brand and DoubleTree. Decisive portfolio allocation leads to greater overall returns. Combine market insight with the power of incremental returns on incremental volume.