In our previous instalments we explained that Blue Ocean Strategyis a systematic way to challenge the conventional logic of competition in a given industry. The strategy guides you to expand the market by attracting ‘non-customers’, often large market segments that have been ignored by the industry and that are off the manager’s radar screen.
Blue Ocean Strategy, we also said, challenges conventional competitive strategy wisdom by engaging in the simultaneous pursuit of low cost and differentiation, unlike traditional strategy that demands managers must make a choice by focusing on either a low cost-driven strategy or one rooted in differentiation. A large number of executives and companies from around the world have benefited from espousing BOS ideas and principles.
Misconceptions
Now we’ll address the three most frequently mentioned wrong misconceptions about Blue Ocean Strategy.
Misconception 1: Blue Ocean Strategy is a quick fix.
Some believe that all you have to do is draw a few PowerPoint slides and, voila, here comes your Blue Ocean! It is true that the BOS process is a systematic way to think creatively about strategic innovation: at its core lies a sequence of practical analytical tools that executives can use to re-think the value proposition of their products or services, to eliminate a variety of obstacles and legacy processes in their offerings and to discover new groups of customers that their industry has ignored. That said, it takes time – months or even a year or two.
Misconception 2: You can arrive at the Blue Ocean ideas using your existing bases of information and current understanding of their customers’ behaviour.
Nothing could be further from the truth. The generating truly great ideas that challenge entrenched ways of doing business usually involves extensive fieldwork, e.g., retail executives spending time in their stores and observing why customers leave their stores empty handed or why other consumers pass by their stores without as much as giving it a look. Bankers could benefit greatly from spending time in their retail branches or in their corporate clients’ back offices as would insurance agents observing their customers in their own settings.
We call this kind of fieldwork understanding the “Buyer’s Experience Cycle,” a way to uncover what we have termed as the “Pain Points” that stand in the way of customers and non-customers adopting your products/services. This fieldwork provides the raw material and insights that executives can process in combination with the Blue Ocean Strategy tools to challenge long held assumptions about how business is done, a process that then yields the most compelling creative ideas; the large Blue Oceans.
Misconception 3: You expect to pursue Blue Oceans on your own because you assume that you possess all the necessary resources and capabilities to put strategy into action.
Regretfully, that’s not always the case. The real truth is that forming strategic alliances with others can often help companies to expand the size of their market opportunity and attract more non-customers faster and cheaper. It is important to understand what resources, skills and capabilities are needed to implement Blue Ocean ideas, which ones are available within an organization and which ones can be acquired from alliance partners.
Let us look through 3case studies.
Case No -01: Air Asia
Air Asia is one example of Blue Ocean strategy success. One of the significant changes that airline industry has changed is the involvement of budget airline industry. The good example in Malaysia is Air Asia.
Air Asia is a Malaysian low-cost airline headquartered in Kuala Lumpur. It is Asia's largest low-fare, no-frills airline and a pioneer of low-cost travel in Asia. Air Asia group operates scheduled domestic and international flights to over 400 destinations spanning 25 countries. Its main hub is the Low-Cost Carrier Terminal at Kuala Lumpur International Airport. Its affiliate airlines Thai Air Asia, Indonesia Air Asia, Air Asia Philippines and Air Asia Japan have hubs in number of Asian countries.
Air Asia have managed to avoid the red ocean and compete with major airlines as Malaysia Airline and regional airlines by looking into the factors that industry take for granted and also factors that important to customers.
Four actions framework
With the Four Actions Framework proposed by Blue Ocean Strategy authors, Air Asia have implemented many strategic moves to ensure they are making Malaysia Airline and regional airline company irrelevant.
Eliminate
* Over the counter booking system
* Free Food/Beverage on the plane
* Seating Class booking system
Reduce
* “luxury” facilities provided by Airport Lounge
* No of attendance service on the plane
* Seat Quality
Raise
* Focus on several key destinations
* Increase frequency of flight
Create
* Online Booking system
* Point to point travel system
With these strategic moves, Air Asia was able to focus on factors that really bring value to the customers such as point-to-point travel system, easy booking system etc. This helped Air Asia to reduce cost and at the same time increase the value to the customers - Value Innovation.
Besides that, Air Asia was able to look at current non-customers as explained in the Blue Ocean strategy. They understood that there is a wide segment of customer base – presently classified as non-customers; for example - Government Staff and those that cannot afford to buy expensive ticket such as who are in rural areas, students or fresh graduates.
However, Asia still has the potential markets with Air Asia when the number of Asian urban residents have been growing, Asian is young population, the use of cheap goods has become mainstream in Asia.
Case study No -02: Canon
Canon’s strategic move, which created the personal desktop copier industry, is a classic example of blue ocean strategy. Traditional copy machine manufacturers targeted office purchasing managers, who wanted machines that were large, durable, fast, and required minimal maintenance.
Defying the industry logic, the Japanese company Canon created a blue ocean of new market space by shifting the target customer of the copier industry from corporate purchasers to users. With their small, easy-to-use desktop copiers and printers Canon created new market space by focusing on the key competitive factors that the mass of noncustomers – the secretaries that used copiers – wanted.
By questioning conventional definitions of who can and should be the target buyer, companies can often see fundamentally new ways to unlock value. Path three of blue ocean strategy’s six paths framework pushes companies to look across the chain of buyers in their industry. By shifting focus to a previously overlooked set of buyers, companies can unlock new value and create uncontested market space.
Case No 03: Yellow Tail
Yellow Tail is the fastest-growing foreign wine label in U.S. history. In less than three years, it became the No. 1 imported wine in the U.S., selling more than 11.2 million cases.
Casella Wines began its meteoric rise by taking a different perspective on the wine market. It looked across the alternatives to wine: Beer, spirits and ready-to-drink cocktails, which capture more than three times as much in consumer sales as wine. Casella also discovered that most Americans actually found wine a turnoff. Wine was intimidating and pretentious, a highly acquired taste. While the wine industry long competed on how to make a sophisticated wine for special occasions, Casella redefined the market and made wine an everyday enjoyable experience.
Gone were the intimidating labels, the discussions on tannins and oak. Endless choice was clipped to two varieties, one red and one white. The labels were simple and colourful, the taste sweet and fruity. With no promotional campaign, Yellow Tail rendered its competition irrelevant. It didn’t simply steal market share; it grew the market, bringing in 6 million new wine drinkers. Novice wine drinkers began to drink more wine, jug-wine drinkers moved up market and expensive-wine drinkers moved down to Yellow Tail.
Imitation
After reading this series of articles, some readers have written to us. Some were giving their comments and others were raising queries. One writer had a pertinent question. “What if competitors jump into the blue ocean soon after it is created and make it a red ocean again?”
In fact, this question was once raised by a corporate interviewer to Professor Kim. This was his reply: Formulating and executing a blue ocean strategy in the right sequence will by itself build a rather strong barrier to imitation. The principle of strategic pricing, in particular, allows a value innovator to capture the mass of the target buyers fast, thereby achieving economy of scale, as well as earning brand buzz and creating a loyal following in the market space, which raises the cost of imitation significantly.
For example, sometimes value innovation simply does not make sense to a potential imitator’s conventional logic. But most importantly, as Blue Ocean Strategy requires the alignment of the three strategy propositions - value, profit, and people, once it is successfully implemented, it is hard to be copied as many times an imitator could get one or two propositions right, but not all the three of them.
As a matter of fact, eventually any strategy is imitable and a blue ocean may also turn red. This is exactly why Blue Ocean Strategy never intends to offer a one-time solution to companies. Rather, it calls for companies to monitor their value curves conscientiously and renew their blue ocean offerings by taking new blue ocean strategic moves at the proper time.
(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 [email protected])
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