Adopt the Blue Ocean Strategy: it ultimately makes competition irrelevant
Today, let us recap what we have reviewed during the past few weeks. We know that turbulent times have hit worldwide economies. The competition for a share of the consumer’s wallet is becoming more severe. In Chan Kim and Renee Mauborgne’s parlance, the Red Ocean is becoming more and bloodier.
Companies can only further extend or stretch their markers in many product fields through the creative application of Blue Ocean strategies.
What does Blue Ocean look like? Any industry or market where multiple suppliers or products are competing is Red Ocean. Competition is high and there is blood in the water as a result of the ongoing war between competitors. Strategies in Red Ocean usually consist of lowering price or adding value to justify increasing price – both with the aim of increasing market share. After a while all the competitors start to look the same because all you can see is the churn.
A good example of this is the bombardment of consumer product ads you see on television. They all offer the same thing. They throw around prices, payment plans, methods, promises that seem to get more and more ridiculous. The result being it’s hard to believe any of them and the reputation of the entire industry plummets. By contrast Blue Ocean is calm and peaceful. Nobody is there yet; the waters haven’t been disturbed. Sounds like a pretty good place to be, and it is. Of course, once Blue Ocean exists, others will be drawn to it and try to emulate. But there is no competing against first place in a new market. So, if Blue Ocean hasn’t been discovered yet, how are we supposed to find it? You don’t find it. You create it.
Start looking for non-customers This is the first level of upside-down thinking that Kim and Mauborgne ask of you. They maintain that in any category there are people who buy that product or service and then there are three types of non-customer:
(1). Buys the product or service very rarely and resentfully.
(2). Has purchased the product or service once and had a bad experience so will never buy it again,
(3). Has never bought the product or service before and has little interest
Now before you start thinking up all kinds of strategies to win over Non-Customer 1 and Non-Customer 2 – forget about it! If you start with them you’re already swimming in the Red Ocean, trying to outsmart what very smart competitors have already tried to achieve. The goal and success of Blue Ocean comes with attracting Non-Customer 3. This is largely due to the element of surprise. This type of customer never expected to like or want your product so when they do – they feel like they have discovered it themselves. They become immediate brand advocates. And what happens after you have attracted Non-Customer 3 and become a hit, is that types 2 and 1 will slowly move over as well, and finally you will even attract the customer of the old product or service. 2. Don’t aim to out-perform the competition This one can make marketers tear their hair out with anxiety when they first read it. After all the job of marketing is to analyze the competition, find the weaknesses and offer a superior product or service, isn’t it? That can certainly be the result of Blue Ocean Strategy but according to Kim and Mauborgne, it doesn’t work as a starting place. The same goes for pricing. Don’t set your price against the competition, set your price against substitutes and alternatives. There is a great quote on the Blue Ocean Strategy website: Stop benchmarking the competition. The more you benchmark your competitors, the more you tend to look like them.
Traits In Blue Ocean Strategy, they describe the red ocean as where most companies compete, seeking customers from the same market as their competitors, Kim and Mauborgne suggest that companies break out of the red ocean of bloody competition by creating uncontested market space in the blue ocean that makes the competition irrelevant. Red Ocean Strategy focuses on existing customers, and has the following traits: Blue oceans are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. In Blue oceans, competition is irrelevant because the rules of the game are waiting to be set. In increasing numbers of industries, supply exceeds demand. The business environment in which most strategy and management approaches of the twentieth century evolved is increasingly disappearing. As red oceans become increasingly bloody, management will need to be more concerned with blue oceans than the current cohort of managers is accustomed to. Much of the success attributed to some of the model companies in Built to last was the result of industry sector performance rather than the companies themselves. The approach to strategy in creating blue oceans was consistent across time regardless of industry. Every great strategy has focus, and a company’s strategic profile, or value curve, should clearly show it. When a company’s strategy is formed reactively as it tries to keep up with the competition, it loses its uniqueness.
Challenging an industry’s conventional wisdom about which buyer group to target can lead to the discovery of new Blue Ocean. Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers seek when they choose a product or service. A simple way to do so is to think about what happens before, during, and after your product is used. The process of discovering and creating blue oceans is not about predicting or preempting industry trends. Nor is it a trial-and-error process of implementing wild new business ideas that happen to come across managers’ minds or intuition. Rather, managers are engaged in a structured process of reordering market realities in a fundamentally new way. A company should never outsource its eyes. There is no substitute for seeing for itself. Great artists don’t paint from other people’s descriptions of even from photographs; they like to see the subject for themselves. The same is true for great strategists.
Reverse Course To maximize the size of their blue oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look at noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers’ value. The starting point is buyer utility. Does your offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it? Absent this, there is no blue ocean potential to begin with. The strategic price you set for your offering must not only attract buyers in large numbers, but also help you to retain them. Given the high potential for free riding, an offering’s reputation must be earned on day one, because brand building increasingly relies heavily on word-of-mouth recommendations spreading rapidly through our networked society.
Before plowing forward and investing in the new idea, the company must first overcome such fears by educating the fearful. Compared with red ocean strategy, blue ocean strategy represents a significant departure from the status quo. It hinges on a shift from convergence to divergence in value curves at lower costs. That raises the execution bar. Conventional wisdom asserts that the greater the change, the greater the resources and time you will need to bring about results. Instead, you need to flip conventional wisdom on its head using what we call tipping point leadership. As we all know, figures can be manipulated… Even when the numbers are not manipulated, they can mislead. Salespeople on commission, for example, are seldom sensitive to the costs of the sales they produce. Tipping point leaders zoom in on the act of disproportionate influence: making people see and experience harsh reality firsthand… People remember and respond most effectively to what they see and experience: “Seeing is believing.”
To tip the knowledge hurdle, not only must you get your managers out of the office to see operational horror, but also you must get them to listen to their most disgruntled customers firsthand. Don’t rely on market surveys. To what extent does your top team actively observe the market firsthand and meet with your most disgruntled customers to hear your concerns… Simply put, there is no substitute for meeting and listening to dissatisfied customers directly.
When you want to wake up your organization to the need for a strategic shift and a break from the status quo, do you make your case with numbers? Or do you get your managers, employees, and superiors (and yourself) face-to-face with your worst operational problems? Do you get your managers to meet the market and listen to disenchanted customers holler? Or do you outsource your eyes and send out market research questionnaires?
Are you allocating resources based on old assumptions, or do you seek out and concentrate resources on hot spots? What activities have the greatest performance impact but are resource starved? What activities are resource oversupplied but have scant performance impact? In the coming weeks, we are going to study few ideas from “The Leadership Challenge” written by Kouzes and Posner. The book is quoted as one of the most trusted source on becoming a better leader for the new generation of young leaders living and working in fast moving global environment. (Lionel Wijesiri is a retired company director with over 30 years’ experience in senior business management. Presently he is a freelance journalist and could be contacted on firstname.lastname@example.org)Share