Increased productivity and usability, simpleness, convenience or – say, being environmentally friendly. Those are the usual competitive edges for a product or service that bring success, instead of low production cost and product price.
These are the teachings in Blue Ocean Strategy, a bookbased on a study of 150 strategic moves spanning more than a hundred years and thirty industries. According to the Economist, it is the most successful book on business master-planning.
As the book’s subtitle suggests, its core message is how to create uncontested market space and make competition irrelevant. Companies are better off searching for ways to gain uncontested market space over competing with similar companies. The authors, W. Chan Kim and Renée Mauborgne, name these new spaces as Blue Oceans. The struggle for survival in a shark tank kind of bloody Red Oceans are the comparison, swarming with vicious competition.
So, how does one know that the market has become a Red Ocean, where it’s really hard to grow or to make profits? In Red Oceans, the industry boundaries are known and accepted. Also, the competitive rules of the game are known.
It’s a zero sum game. Companies juts try to outperform their rivals to grab a greater share of existing demand instead of growing the market. This fierce battle cuts profits – and the ocean water become red from blood.
The Blue Ocean Strategy suggest that making competition irrelevant is achieved by simultaneously pursuing for high product differentiation and low cost.
Amazon is one of the prime (pun intended) examples of companies, that have thrived by following the Blue Ocean strategy. Initially, it differentiated by offering of the largest selection of books in the world with decent prices, automatic confirmation of buyers’ orders, its useful selection on people who bought this book also bought, and firsthand reviews on what readers found useful or not in a book. But even Amazon, which is now entering the Nordic online business, hasn’t always been successful. The three most noteworthy failures have been against Apple, eBay and Zappos. All these three companies had already created a Blue Ocean of their own. Amazon tried to copycat them, and failed. Still, after starting with just books, Amazon has shifted from an online retailer to a digital platform that sells almost anything. COVID-19 has only accelerated this process, where corner shops and stores whither away while retail business moves to online.
There are a few questions that you should ask yourself, if your company ever wants to differentiate and create its own market.
- Which of the factors that the industry take for granted should be eliminated?
- Which factors should be reduced well below industries standard?
- Which factors should raise above industries standard?
- Which factors should be created that has never been offered? What is something that no one else in your market is doing?
Just find right answers to these questions and are already swimming towards your own Blue Ocean.
Blue Ocean Strategy – How to Create Uncontested Market Space and Make Competition Irrelevant
By W. Chan Kim & Renée Mauborgne (Harvard Business Review Press, 2005)
Review by Jan Erola