Red Ocean? Or…?
Blue Ocean, Red Ocean. Why all the fuss? And how do we look at strategy development from a Blue Ocean perspective? And why do we even want to?
This may be old news for some, but I recently had a “who’s on first?” type conversation with a CEO on this very subject. We had been talking about scuba diving and some of the interesting places we’d been. We had Seychelles, Maldives, Truk and other Micronesia islands in common and were discussing the torpedo bottles we had each found, when the comedy began.
The CEO asked how often I had worked in a “red ocean”. Thinking he was talking about the Red Sea, I started to tell him about taking students to Jeddah for their open water checkouts when teaching in Saudi Arabia. The confusion was compounded by the interjections of a young man who had heard of neither the Red Sea, nor “red ocean” strategy. Long story, and more than a few misunderstandings later, it turned out that he did indeed mean “red ocean”, but in the context of Blue Ocean Strategy. The young man’s bewilderment helped prompt today’s post topic.
Bad news: There’s nothing new to report here in terms of the concept itself – just as the concept wasn’t new when it made the news, when Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant was published in 2005. There are interesting things to say about how the concept is being used today in new sectors, but that will have to be the subject of another post (after all, you don’t want to be sitting here all day). If, however, you’re interested, please check out my Blue Ocean SlideShare presentation.
W. Chan Kim and Renée Mauborgn, authors of the above book, articulated something that good marketers have always known: An excellent way for companies to realize strong growth and achieve above average profits is to carve out a new niche for themselves and create demand in what may, for a while, be uncontested market space.
Kim and Mauborgn dubbed this Blue Ocean Strategy. “Red Ocean” is the term they associated, somewhat disparagingly, with the more traditional approach of competing head-to-head with direct and indirect competitors for a larger share of a fixed size pie (i.e. known customers in an existing industry). This traditional approach should not, however, be dismissed out of hand because many organizations achieve excellent results the Red Ocean way by offering a product or service that has a higher perceived value than other market options, and marketing it creatively. Don’t ever underestimate the value of creative marketing!
Red Ocean Strategy is viewed as a zero-sum game where one company’s gain reflects another company’s loss. “Stealing market share” is a key element of this approach – and in some cases it is the right way to approach the problem at hand.
There are times, however, when it’s tough to steal share and to realize sufficient gains to achieve double digit increases. This is especially tough when…
• the market is saturated,
• consumers are bombarded with too many choices,
• new technologies have rendered your product almost obsolete,
• supply exceeds demand and prices plummet, etc.
In these circumstances, the only way to leap ahead of the pack is to challenge the underlying assumptions in the industry – and for senior executives to question the way their company competes in their vertical… and how it conducts business in general. Unfortunately, this happens all too infrequently.
In this kind of tough market situation I advise clients to….
• Look beyond their current market boundaries – to see if there are complementary industries that could use their products or services (perhaps with a little tweaking).
• To focus on ways their products can solve myriad consumer problems (retail or corporate) – not just the ones of their current customer base and target audience/ client.
• Determine if there are easily-incorporated changes to the product that could stimulate demand in the existing market segments.
• Pursue a reasonable cost strategy (it’s necessary to offer the perceived value – it is not necessary to be the lowest cost provider).
For many companies this will highlight new ways of doing business and identify previously ignored markets. Creating strategies to successfully sell to these segments will often represent a paradigm shift… and this is really what the Blue Ocean approach is all about. (Again, you’ll find more on this on SlideShare.)
Over the past 100 years or so (as I said, the concept is not new), it was this kind of thinking that led to…
• Ford introducing the Model T in 1908
• Sunflight Holidays (a client of our many years ago), giving Canadians cheap Caribbean holidays with chartered flights in the 1970s
• Fred Smith founding FedEx in 1971 and bringing the world overnight delivery 2 years later
• CNN bringing us 24/7 news in 1980
• Starbucks giving us coffee bars and the $5/$6/$7 cup of joe to go
• Cirque de Soleil with its sold out, yet lion-less, circus acts
• Notepads taking over from laptops
Not to mention mutual funds, home “video”, cell phones, discount retail, minivans, snow boards, and more. Much more. And with everything going mobile, who knows what’s next?
There are multiple benefits to having this “new mover advantage” (a.k.a. “first to market” advantage). Among them:
• Higher margins in the early days;
• An opportunity to become the dominant player; and
• The opportunity to set the standard (think iPod, iPhones, iPads, etc.).
The principle of looking for the sweet spot where your company’s products and/ or services are truly differentiated from those of anyone else doing business in the sector, is simply one of the key pillars for developing good business strategy.
What are the other ones? From my perspective, there are 15 Business Strategy Pillars:
1. Being consistent in what the brand represents – or making one major change to the brand’s positioning, and being prepared to stick with the new image (i.e. don’t destroy your brand by repeatedly changing what it represents).
2. Acting with integrity and in keeping with a set of established core values.
3. Developing a long range vision based on a combination of customer input, internal and macro-environment assessment and trend analysis.
4. Being brutally honest about your company’s strengths and weaknesses.
5. Actively formulating and exploring options that break with industry tradition. (The Blue Ocean part.)
6. Finding the sweet spot where your company’s products and/ or services are truly differentiated from those of anyone else doing business in the sector. (More Blue Ocean.)
7. Being willing to take calculated risks and go out on a limb. (Even more Blue Ocean.)
8. Being open to the tried and true (sounds like a contradiction, but both approaches are needed to develop effective strategies).
9. Getting input from experts outside your company and industry who have faced similar challenges (different industries tend to solve problems in different ways, and can provide valuable insight).
10. Getting input (and buy-in) from all key functional areas of the company as the strategy is developed.
11. Ensuring that the methods/ path chosen to achieve the vision are sustainable over the long term.
12. Modelling the ‘best’, ‘worst’ and ‘most likely’ scenarios – and making sure that each assumption in the model is based on research, not pure gut (though the gut should not be ignored, either).
13. Testing the bold idea before bringing it to market.
14. Making sure all company personnel are brought up to speed on what is happening (good internal communications and training are essential here).
15. Promoting the change(s) creatively in ways that have impact (strategic messaging and marketing vehicle choices are key here).
Going back to the original question, I would have to say that Blue Ocean strategy is not a new concept, but the authors of the book labelled what has always been a sound business practice, making it easier to a) explain the concept and b) get corporate buy-in.
How you go about finding your Blue Ocean/ Sweet Spot will be the subject of another post.
In the meantime, if you would like clarification on anything, please feel free to contact me: jmc@GlobalBrandLeaders.com.