Blue-ocean strategists shift focus from current competitors to alternative non-customers with new market space.
Apple Boston

2020-05-21 11:30:00 Thu ET

Most blue-ocean strategists shift fundamental focus from current competitors to alternative non-customers with new market space.

W. Chan Kim and Renee Mauborgne (2005)

Blue ocean strategy: how to create brand-new market space and make competition irrelevant

 

Kim and Mauborgne advocate the blue-ocean strategy that requires shifting focus from current competitors to alternative non-customers with new markets, products, and services. There can be essential needs for many companies to compete in the well-known and hyper-competitive red-ocean markets, whereas, the long-run core business growth opportunities land in the nascent and less competitive blue-ocean markets for new customer demands, products, services, and solutions. It is critical for each company to achieve fundamental changes in both its strategy canvas and strategic profile to shift focus from current competitors to alternative solutions, from original customers to non-customers, and from present consumer demands to new needs and wants. At the heart of each blue-ocean strategy is firm value innovation or the simultaneous pursuit of both product differentiation and cost leadership. With these competitive advantages, companies must look across alternative industries, primary customer groups, buyer segments, complementary products and services, and both functional and social and emotional elements of industry orientation over time. Blue-ocean strategists must focus on the big picture of both buyer value and market opportunity.

To maximize the potential size of less competitive blue-ocean markets, companies should try to reach beyond current consumer needs and demands. This approach challenges the status quo and conventional wisdom. In effect, this lateral strategic move prioritizes new prospective consumers and current non-customers over most current buyers. Effective blue-ocean strategies must be built in the right sequence of buyer utility, price, cost, and then ubiquitous adoption. To adapt successful blue-ocean strategies, key companies must identify new products, services, or solutions to unlock exponential value and client growth over time. Because most blue-ocean strategies typically represent a significant departure from the status quo, corporate leaders must better prepare for new and distinct challenges in terms of operational execution and implementation. These corporate leaders can overcome operational hurdles and obstacles by placing a primary emphasis on the core people, activities, and business operations. These corporate resources can exercise much influence on the functional, social, and emotional elements of product performance.

With a rare and valuable organizational culture of both team trust and commitment, most companies can motivate many middle managers and other team contributors to better execute blue-ocean strategies. It is important for these team members to stick with core values (such as faith, conviction, and perseverance etc) to put blue-ocean roll-out processes into practical uses. Blue-ocean strategists must focus on new consumer value creation with new profits and people in the hot pursuit of both product differentiation and cost leadership. Most lean business organizations must strive to dominate in nascent and profitable blue-ocean markets over the long term. When competitors make significant inroads, it is time for these lean enterprises to pivot again to develop new blue-ocean markets.

 

Business value innovation is the fundamental cornerstone of blue-ocean strategy.

Kim and Mauborgne suggest that the key successful business strategy is to make the competition irrelevant. Corporate value innovators can take advantage of both new niche segments and fresh blue-ocean markets to deliver powerful leaps in key products, services, and solutions for target customers. Red-ocean markets are the domain of all extant companies that compete against one another for larger market shares of known customer demands; whereas, blue-ocean markets make up lean enterprises that have yet to begin their new market power and dominance of niche consumer demands. Instead of trying to beat the competition, firm value innovators can make the competition irrelevant by opening up uncharted (blue-ocean) waters. Instead of having to evaluate conventional trade-offs between cost leadership and product differentiation, blue-ocean firm value innovators pursue both of these goals on a simultaneous basis.

In fresh blue-ocean markets, firm value creation emerges from unique benefits and standards in the industry. As a good example, Cirque du Soleil reinvents the major concept of a circus. Its unique entertainment experience combines thrills with both drama and artistry. Cirque du Soleil can now charge higher prices across the same industry spectrum because most audiences think of its shows more as theater than as circus. For this reason, Cirque du Soleil can achieve a delicate balance between cost leadership and product differentiation, whereas, most other competitors focus on animal shows, magicians, and other prime performers. This blue-ocean strategy discards the conventional view of both market structures and boundaries as time-invariant constraints. In effect, most blue-ocean strategists can reconstruct market conditions to break the cost-value trade-offs by tapping into novel non-contestable market space.

Many blue-ocean strategists can craft the strategy canvas of key factors that define the extant market space. With this strategy canvas as a backdrop, most firm value innovators can shift their fundamental focus from competitors to alternative product solutions, from customers to non-customers, and from present consumer demands to new needs and wants. Blue-ocean value creation is the key to business success.

To implement the strategy canvas, most blue-ocean value innovators need to mull over the key factors that either set or exceed the conventional industry standards. Also, these blue-ocean firm value innovators need to consider the key non-obvious factors that the same industry cannot offer in the meantime. Smart blue-ocean firm value innovators often ferret out these non-obvious factors by seeking to stimulate interactions among the lateral sides of the prevalent network platform ecosystem. The Apple iOS and Google Android mobile app systems are good examples of this blue-ocean strategy. The former extracts most economic rent from iOS app design and development in the form of both mobile app installations and in-app purchases, whereas, the latter receives revenue streams from online ad monetization. Overall, key non-obvious factors concern the specific demographic characteristics of niche segments (e.g. early technology adopters, frequent international travelers, specific ethnic affiliations, stock market investors, and self-help seekers etc).

An effective blue-ocean strategy should emphasize as few value points as possible. Most blue-ocean strategists must avoid the unnecessary but sometimes inevitable diffusion of team efforts. Also, successful firm value innovators tend to diverge from the main competitors. Most blue-ocean firm value innovators refrain from trying to beat competitors on their own terms. It is often important for these value innovators to learn from past failures and groupthink mistakes. In spite of the fact that birds of a feather flock together, key value innovators need to find their own niche business opportunities in fresh and less competitive blue-ocean markets. If a particular blue-ocean strategy is crystal-clear and simple, this strategy often manifests in the form of a brief, authentic, and memorable tagline, slogan, or catchphrase.

 

Senior corporate leaders must look systematically across most industry spectrums and boundaries to develop new blue-ocean markets.

To develop the broadest perspectives on blue-ocean business opportunities, most companies should consider not only substitutes for their products and services (i.e. these substitutes provide the same functions) but also alternatives to their products and services (i.e. these alternatives provide different functions but somehow serve the same purpose). For instance, a movie theater is a substitute for another, but a high-end French restaurant can be an alternative to a movie theater, shopping mall, or theme park because they serve the same purpose of giving people an enjoyable experience. Many companies can build blue-ocean markets by delivering the core advantages of both alternative products and services with few conventional points of competition. A good practical example is Home Depot. The home improvement chain complements hardware stores with the rare and valuable expertise of home contractors and so dramatically reduces the costs in both industries. This example demonstrates the dual competitive advantages of Home Depot on the basis of both cost leadership and product differentiation.

Strategic groups are key groups of companies that pursue similar strategies in an industry. Most people can evaluate these similar strategic groups on the core basis of both price and performance. In other words, each price increase often relates to some incremental improvement in both product and service performance. Within a strategic group, most companies try to outdo each other on the same dimensions. The key blue-ocean management thought helps identify core business dimensions that empower lean business organizations to tap into the uncharted territory of new and less competitive niche markets.

Social media can be a good example. Key social media network platforms such as Facebook, Instagram, Pinterest, Snapchat, Twitter, WhatsApp, and so on compete with one another by copying several similar functions, features, and other inventive social and emotional elements available out there. For instance, Facebook tries to curb competition by introducing the technical function of 24-hour video stories from Instagram and Snapchat; Facebook, Instagram, Snapchat, and WhatsApp launch the key technical functions of both top pins and hashtags from Pinterest and Twitter; and most social media platforms such as Facebook Messenger and WhatsApp etc now enable users to view the online status of both most messages and other users. In terms of a product-market fit between price and performance, most social media platforms boost their revenue and income streams by lifting the online ad bid prices for both CPC (cost per click) and CPM (cost per thousand impressions) over time.

In most industries, red-ocean competition often converges on a single buyer group: users, purchasers, or influencers. For instance, most retail stores and e-commerce sellers focus on household customers; office equipment vendors target corporate departments; and pharmaceutical firms typically tend to pursue doctors. However, blue-ocean market opportunities may lurk in questioning the conventional methods and approaches. Specifically, Microsoft introduces Bing as a fresh Internet search engine to better compete with Google; Apple launches at least 3 iPhone models to tap into many tiers of the global market for smart phones where the top tier targets Samsung and Huawei and the lower tiers include Google Pixel, Oppo, Vivo, Xiaomi, and Windows Mobile etc; and many U.S. pharmaceutical firms such as Johnson & Johnson, Merck, and Pfizer shift their fundamental focus from generic prescription medications to specialty alternatives to better compete with emergent e-commerce firms such as Alibaba, Amazon, and PillPack.

In addition to looking beyond the main chain of buyers, blue-ocean strategists can look across complementary products and services, both functional and social and emotional elements of products and services, and different time horizons and even geographic locations. Exponential business growth can arise from redefining novel products and services as fresh solutions to day-to-day consumer problems in the broader business context. Many new products and services exhibit dual functional and social and emotional elements that can attract many consumers in blue-ocean markets. Such new products and services can often be simple, reliable, convenient, and cost-effective with distinct brand recognition and little commoditization.

 

 

Senior executive managers must build practical execution and implementation into the blue-ocean strategy under current consideration.

Business value innovation helps maximize market demands by current customers and non-customers. There are at least 3 key tiers of non-customers. In the first tier, there are non-customers who buy current products and services but may switch to some other better alternatives due to long-term customer dissatisfaction. Although these non-customers may differ on some dimensions, blue-ocean strategists must understand the fact that what these non-customers have in common often reveals the key to converting these soon-to-be customers into frequent buyers. Specifically, Alibaba and Amazon e-commerce platforms serve the same purpose of providing simple, reliable, convenient, and cost-effective products on the Internet. This core value innovation brings benefits to the daily lives of many consumers worldwide.

In the second tier, there are non-customers who refuse to buy extant products and services because these consumers cannot afford to purchase subpar solutions to their day-to-day problems. Blue-ocean strategists can win the hearts of these non-customers by developing better solutions. For example, Kamakura designs and so offers feasible financial risk management software systems for multinational banks, insurance companies, and other financial institutions worldwide. Kamakura targets some specific niche segment, offers its unique specialty, and reaches a reasonably critical mass of institutional users around the world. This business value innovation creates and cultivates the new blue-ocean global market for financial risk software.

In the third tier, there are non-customers who know little about their essential future needs and wants. Blue-ocean strategists can choose to develop a new market for these unmet customer demands. Alibaba, Amazon, Google, Microsoft, and so forth can achieve disruptive technological advances in cloud software service provision. Many cloud software service providers first target small-to-medium enterprises and then shift their business focus toward bigger institutions. This dual transformation starts with some disruptive innovation, attracts early technology adopters, and then paces exponential user growth on a global scale when fresh business focus comes to fruition in time.

It is critical for blue-ocean strategists to pursue business success and profitability in the right sequence: buyer utility, price, cost, and then adoption. To deliver better buyer utility, blue-ocean companies can choose among 6 major buyer utility levers. These levers include customer productivity, simplicity, convenience, risk reduction, fun imagery, and environmental protection. It is important for new blue-ocean firms to apply these levers to remove the biggest blocks and obstacles to customer utility. Each stumbling block can become a major stepping stone, so each caterpillar has to break the cocoon to transform into a beautiful butterfly. Blue-ocean companies should assess team performance on the basis of merit. As a result, this meritocracy helps ensure the seamless integration of team efforts for better dual transformation.

Setting the right fair price is critical to helping boost exponential user growth in new blue-ocean markets. Many novel products, services, and solutions are knowledge-driven with most heavy upfront R&D costs, lab tests, capital investments, and trials and errors. It is hard for key competitors to imitate knowledge-driven products and services that cater to the functional, social, and emotional elements of most unmet consumer needs with highly inventive utility.

Blue-ocean innovators look beyond the extant industry spectrum to better assess what most buyers expect to pay for products and services that readily perform the same functional purpose in a different form. Once blue-ocean strategists figure out their strategic fair price, these value innovators can deduce the desirable net profit margin from the price to arrive at the target cost.

Key value innovators must educate their business partners, employees, customers, suppliers, debtors, shareholders, and other investors about their joint blue-ocean strategies to help attract early technology adopters. When these early technology adopters reach a critical mass, this critical mass helps ensure sustainable business success and profitability. On balance, this ubiquitous stakeholder communication focuses on the merits of blue-ocean strategies, sets clear stakeholder expectations, and helps address any consumer concerns and ramifications.

Blue-ocean strategists swim as far as possible, make their key value innovators a moving target, distance these value innovators from competitors, and then attempt to discourage such competitors in the fair process. Each fair process involves clear engagements, explanations, and expectations. Clear engagements require asking all team members for their views and opinions with fresh business opportunities to debate the merits of both different ideas and alternative methods and approaches. There are different ways to skin the cat, and all roads eventually lead to Rome.

Clear explanations lend credence to the core root causes of blue-ocean strategies. This stakeholder communication helps avoid confusion in the fair process. In light of clear explanations of merits, most team members can voluntarily choose to trust blue-ocean strategists and their managerial intentions even if these team members agree to disagree with specific fundamental changes. From time to time, corporate decision-makers need to strike a delicate balance between trust and disagreement.

Clear expectations are essential to sustainable business success and profitability. The motivational power of clear expectations emerges from intellectual recognition. This idea suggests that people should recognize each team member for his or her individual worth. When most team members both believe and understand that their intellectual value contributes to team success, they can better share organizational experiences, merits, ideas, and other fair processes. When these team members feel an emotional connection to their joint blue-ocean strategy, they can go beyond the call of duty to bring this joint strategy to fruition in time.

 

 

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