By the book, blue ocean strategy is the simultaneous pursuit of differentiation and low cost? But what does that really mean?
What Isn’t Blue Ocean Strategy
First, let’s look at some conceptions of what blue ocean strategy is not.
Redefine Market Boundaries
Above all else, blue ocean strategy is not about accepting the status quo and competing within it. There’s nothing wrong with buying a McDonald’s franchise then another and another until you’ve built an empire. A person might grow really wealthy doing this but it’s not blue ocean strategy. Redefining fast-food, which Chipolte did with fresh high-quality food that doesn’t compete with any other quick-serve restaurants, is a blue ocean. Opening convenience stores might be profitable but redefining convenience stores, as Wawa did by focusing on food and atmosphere rather than products and fuel, is a blue ocean strategy.
Blue ocean strategy is not a strategic framework to study your existing customers and look for “single hits” — marginal improvements in existing products or services. Why? Because core to blue ocean strategy is the pursuit of noncustomers, people who are not your customers. “Day in the life” studies of your current customers may be useful in marketing but it is definitively not blue ocean strategy. Small product improvements might qualify as a six sigma NPI but they’re definitely not a blue ocean strategic move.
Focus on Value, Not Technology Invention
Blue ocean strategy is not technology invention. Many blue ocean strategy cases rely on technology yet the technology is catalytic to providing incremental buyer value; the tech itself is never the value. A good example is the Nintendo Wiimote, the handheld controller for the Wii. Inside the Wiimote is an accelerometer, a device the measures movement. Without the accelerometer, there is no Wiimote. But Nintendo never marketed and virtually no buyers knew about the accelerometer or even what the technology is; they just knew the game system was intuitive and easy to use. Intuitive and easy to use are valuable to buyers of game systems; they are key factors of competition. Accelerometers are not valuable even though they enable the key factor.
Line Extensions Aren’t Blue Oceans
Blue ocean strategy is not launching a new product or service into an existing large market, a “blue ocean.” In blue ocean strategy, we create new markets by redefining market boundaries. The movie industry made lots of money for lots of people, and a single movie or even a string of hit movies could do really well. But Marvel redefined how a movie studio works, using their comic book characters rather than known actors, refusing to buy into traditional expensive Hollywood practices that didn’t add value, and even financing their movie studio entirely differently. That’s why Marvel movies cost significantly less to make but earn significantly more than other superhero movies.
Think Value, Not Volume
Finally, blue ocean strategy is not about adding more stuff to an offering under the assumption more stuff means more value. In fact, the opposite is often true. More stuff adds more cost to a product but can also add complexity, lowering value for the bulk of customers, especially noncustomers who aren’t interested in an as-is product or service. Tesla created a blue ocean in electric cars with the realization that electric cars have far fewer parts that are easier to control than internal combustion engines. They redefined the electric car from a hippie mobile into a fast, slick, fun to drive automobile opening a whole market that happens to be more environmentally friendly though that is not their main focus.
What is Blue Ocean Strategy?
Break the Value/Cost Trade-Off
Blue ocean businesses reject the value/cost trade-off to offer higher value at lower cost by eliminating and reducing key factors of an offering where the cost is not commensurate with the value. Let’s check out one of my favorite examples: Costco. For those who aren’t familiar, Costco offers high-quality products in a warehouse environment. Whereas most retailers try any gimmick imaginable to get customers in the door, Costco customers must pay an annual membership fee to shop. Why? Because anything you buy at Costco is guaranteed to be high-quality at a low price compared to other stores. There are no clerks to hassle, no need to maniacally comparison shop; just roam around and pick up goods you want without worrying about a better deal elsewhere. That’s the reason despite no fancy displays Costco shoppers are, on average, significantly wealthier than other big-box retail shoppers. Costco broke the value/cost trade-off delivering higher value at lower cost by eliminating and reducing the normal retail accouterments.
Focus on Noncustomers
Blue ocean businesses focus on noncustomers. When Casella Family Brands sought to create a mass-market wine in the US, they partnered with W.J. Deutsch & Sons, a US wine marketing company, to create a wine that appeals to non-wine drinkers. Realizing the subtle differences in wines was a turnoff to the American market — which was more used to standardized soft drinks and beer — Casella focused on manufacturing a wine that’s more like beer, where every bottle is the same. This eliminated and reduced variability and their product, Yellowtail, became the bestselling wine in the US by far. Americans who would ordinarily not touch wine out of fear of buying a bad bottle, or not even knowing a good from a bad bottle, knew they could purchase a bottle of Yellowtail and it’d taste good to the American palette.
Create Genuine Incremental Value
The Segway personal transporter was supposed to revolutionize transportation. Super venture capitalist John Doerr proclaimed it to be bigger than the internet. The two-wheel device balanced itself and allowed people to move without walking, the former attribute being cool but not especially useful and the latter being important but not worth the $5,000 pricetag a Segway commanded. The device was a mega-flop, failing not only in the market but instead being cited as one of the stupidest inventions in history. Later came the hoverboard – transportation flambé – and, not long after that, the e-scooter. Like the Segway, the e-scooter enabled people to move without walking. Unlike the Segway, it was cheap, small enough to carry, and did not self-balance though anybody who couldn’t balance on a scooter probably shouldn’t be riding a Segway. Whereas Segways were the ultimate flop, e-scooter remain the ultimate hit, popular throughout the world.
Interested in Blue Ocean Strategy? Contact Michael.
Michael Olenick’s been applying blue ocean strategy for decades, working directly with the authors of the book W. Chan Kim and Renée Mauborgne. Write to him at olenick@valueinnovation.net for a complimentary 15-minute discussion about how blue ocean strategy can help your business.