Why You Need To Learn The Blue Ocean Strategy Before Starting A Business
When businesses begin, they start by looking at existing markets and finding out where there is room to compete. Most people look at the market as a game where one person wins and the other person loses.
According to W. Chan Kim and Renee Mauborgne, Authors of Blue Ocean Strategy, this is a totally wrong way of looking at things; because in reality new markets, new industries, and new product categories are being created all the time.
This is because all the time new ideas are being thought up, new discoveries are being made and new approaches to old industries are being invented.
Economies are always in a state of being remade because the new sweeps away the old.
So instead of taking on the mindset that you need to compete with others in your industry, focus on creating products and systems that would make them irrelevant.
Creating Uncontested Market Space And Making The Competition Irrelevant
The book starts with a study of the U.S. wine industry, until the 2000s the wine industry was seen by many people as elitist, sophisticated and hard to understand.
Wine companies didn’t mind because this allowed them to cater to a higher-income customer base, but the problem was that the market itself wasn’t growing very much.
This is because in the mind of the average consumer, all wines were the same and it didn’t really matter if they bought a premium wine or a low-cost wine. Brands didn’t matter either, to the common drinker there was no difference.
The authors point out that you won’t stand out much even if you offered a lower price than the competition. In order to stand out you’d have to provide value in a completely different way.
This can apply to your industry as well, stop looking at the customers that already exist and start imagining a completely new kind of customer who has never had a reason (until your new idea came along) to buy from your market.
This is exactly what happened in the U.S. wine industry, while American wine makers kept coming up with more and more complex ways of wine making to impress judges and snooty customers, an Australian wine company named Casella Wines saw that a non-complex wine with a party-going image could appeal to a wider market of beer-drinkers, cocktail drinkers and even wine traditionalists.
Within two short years, Casella’s Yellow Tail brand which didn’t require a special aging process and only came in two flavors (a red shiraz and a white chardonnay), swept the nation with little advertisement or marketing of any kind.
The lesson to be learned here is that Casella didn’t steal the market from competitors, they created an entirely new market of casual wine drinkers from non-wine drinkers. Though to be fair, they did convert quite a few premium wine drinkers who’d had enough of the pretentious wine industry.
To Be Affordable, To Be Higher-Quality, Or To Be Completely Different
Casella found that they could have much wider profit margins than other winemakers since they only had two flavors which meant their production rate was very efficient. They also didn’t need to use an aging process or complicated vinification methods.
All that mattered was that the wine tasted good and they could meet the demand.
The authors observed that when a company lacks focus, they tend to develop expensive business models that are overly complex to put into place and also to execute.
When a company doesn’t know how to set itself apart from the competition, it just does whatever works for their competition. The difference is that the competition has a following and the copycat doesn’t. There is no reason for consumers to choose the copycat over what they are already used to.
The Four Important Questions A Company Should Ask Itself
Business books are usually full of motivational sermons asking business owners to be brave and to take risks but the better way of going about things is to use data to inform the direction your company should take.
Analytics will show you where the blue oceans lie, you only need to know what to be looking for, the authors provide four questions to help you determine your next move:
- What factors does the industry consider important but in reality are not crucial and could be done away with?
- What factors could you reduce far below the industry standard and suffer no negative consequences?
- What new factors could be created and built into the product to add value that the industry doesn’t already implement?
- Which factors does the industry consider unimportant but could be raised far above the standard for a positive effect?
Sometimes a company adds bells and whistles to their products that the industry feels that they need to add also in order to compete, they never check whether or not the consumers actually appreciate such features.
Therefore a company that cuts away all the fluff could create a new market for a more affordable product with just the essential features. Casella knew this when they decided to make a wine that was nothing fancy and just tasted good.
Reduce complexity or eliminate it all together to reduce costs and still give consumers what they want.
OR go in completely the other direction and move up to a higher market. Cirque du Soleil did this in an old market that catered to children, suddenly adult audiences were paying top dollar to see their performances.
Customers Don’t Know What They Want
Carrying out long and detailed customer research trying to determine what customers would want is useless according to the authors because the customers don’t actually know what they would want until it’s placed in front of them.
For example, if you asked someone who would love apples — even though they’d never had one before — what their favorite fruit was they’d say “pear,” but if you had them try an apple it would be their new favorite.
So you can’t predict what new product or factors will be successful until they are tested simply because people think in terms of what already exists.
Blue oceans are created when leaders think about what already exists and ignore it completely to provide something that’s never been done before.
When companies compete in markets they are taking a slice of that market and refining it thinner and thinner until they have a foothold in a segmented niche.
To create a blue ocean of demand you have to do the opposite and go into de-segmention, When you have a broad picture of who the industry serves and how, you can see untapped markets and new ways to reach them.
The word non-customer is used by the authors to describe a person would would be a customer but there’s something keeping them away.
For example, when Callaway Golf notice that many potential golfers refused to keep learning because of how hard is was to drive a ball off the tee, they invented a larger headed driver called the “Big Bertha,” that made driving a lot easier. A lot more people started playing golf and Callaway made a lot more money.
British fast-food chain Pret a Manger found their non-customers when they began to serve high-quality food for city professionals in a third of the time that it took “proper” restaurants. These people didn’t know that they wanted this convenience or that it was possible until they stumbled across one of the restaurants and now Pret makes $800,000,000 in sales a year.
Once you identify the problems that people are having with the current products or services in your industry, that is where you will find the opportunity and provide an alternative to service this untapped demand.
“Giving people what they want is fundamentally and disastrously wrong. The people don’t know what they want… give them something better!”
The Blue Ocean Business
What is stopping others from copying your blue ocean strategy?
Like I mentioned earlier, consumers don’t like copycats and tend to stick to what they are already familiar with.
Since you will be the originator of the blue ocean product, you will have a massive branding advantage over the competition for decades to come.
Also, if another company wants to imitate your blue ocean product, there will be a lot of costly organizational restructuring involved, which will only deter them from copying you.
Because many blue ocean ideas are not patentable, you must price your product or service in such a way that it would be not worth while for other companies to imitate you.
Even if you can’t avoid competition, usefulness plus a reasonable price, will give you a significant head start once the competition sees the value in your idea.
Sadly, no blue ocean lasts forever and eventually you will need to keep coming up with ways to innovate and prove why your company exists.
Just look at Apple, they’ve made multiple blue oceans over the course of their company’s history: The Apple II, iMac, iPod, iTunes, iPhone all provided a new ways of servicing the technology market.
Whenever a product was being imitated they just moved on to a new product that integrated with the other ones, creating their own unique ecosystem.
Now look at Microsoft, they have become over dependent on the Windows operating system and the Microsoft office suite, they stopped working on innovation and are now vulnerable to other big tech companies.
The first principle in Sun Tzu’s the Art Of War is to “take the enemy where the enemy is not,” when you seize territory where there is no competition, you are completing a blue ocean strategy and being reminded that the principles in this book are timeless.
“If we attack the positions where our enemy has not defended we invariably take them.”
This strategy is not just for business. It is for everyone- the arts, nonprofits, the public sector, even countries.
Originally published at https://forgefinancialfreedom.com on August 2, 2019.