Blue Ocean Strategy
When beating competitors simply means making them irrelevant
April 16, 2006
When big corporations as diverse as Nintendo and Cirque du Soleil are adopting ‘Blue Ocean Strategy’ in their marketing campaigns, you better watch out. Smart CEOs around the world are having a new book for their bedtime reading.
The book is titled: ‘BLUE OCEAN STRATEGY: How to Create Uncontested Market Space and Make the Competition Irrelevant’ co-authored by W. Chan Kim and Renée Mauborgne (Harvard Business School Press, 2005). It deals with new approaches to tackle competition in the market place.
In the book, the authors use the ocean as a metaphor to describe the competitive space in which an organisation chooses to swim. Red oceans refer to the frequently accessed market spaces where the products are well-defined, competitors are known and competition is based on price, product quality and service. In other words, red oceans are an old paradigm that represents all the industries in existence today.
In contrast, the blue oceans denote an environment where products are not yet well-defined, competitors are not structured and the market is relatively unknown. Companies that sail in the blue oceans are those adept at beating the competition by focussing on developing compelling value innovations that create uncontested market space.
Kim and Mauborgne’s book is based on a study of 150 strategic moves that spanned more than a hundred years (1880 – 2000) and thirty industries. Ther authors argue that tomorrow’s leading companies will succeed not by battling competitors, but by making strategic moves which they call “value innovation”. It’s a grand design to create powerful leaps in value for both the firm and its buyers, unleashing new demand, thus rendering rivals obsolete.
Adopters of Blue Ocean Strategy believe that it’s no longer valid for companies to engage in head-to-head competition in search of sustained, profitable growth. If Michael Porter’s disciples have fought for competitive advantage, battled over market share, and struggled for differentiation, Blue Ocean strategists argue that cut-throat competition results in nothing but a bloody red ocean of rivals fighting over a shrinking profit pool.
Nintendo recently unveiled its new marketing strategies, as exemplified by its Brain Age DS titles. The new marketing strategies have been a huge success in Japan and the products are now being launched in the West. Interestingly, Nintendo’s new strategy is named 'Blue Ocean', signifying the attempt to create a market where there initially was none. It is also a theme that punctuated Nintendo chief Satoru Iwata's speech at the 2005 Tokyo Game Show.
Obviously, Nintendo’s new strategy is opposed to 'Red Ocean', which denotes the currently established but highly competitive games console market. With the changing landscape on web services driven by pervasive broadband connectivity, Nintendo is banking on virtual game console, the Revolution, which allows users to download and play games from any of the company’s previous home consoles. At the backbone, the Wi-Fi component will be used in a different way for each game, just like the DS series.
Meanwhile, Nintendo has also decided to avoid engaging in stiff competition in high-definition resolutions games, which is a cornerstone of the marketing campaign for Microsoft's Xbox 360. This is because current high-def games on a regular TV makes it near impossible to see the graphic details.
The same Blue Ocean strategy is being pursued by travelling circus group, Cirque du Soleil, which is regarded as one of Canada's largest cultural exports to America. Cirque du Soleil, was created in 1984 by a group of street performers. Its productions have been watched by almost 40 million people in 90 cities around the world. In terms of revenue, it took less than 20 years to achieve what took Ringling Brothers and Barnum & Bailey's Circus more than one hundred years to attain. But its position is not unassailable in this modern world of gadgetry where alternative forms of entertainment are abundant. Children cry out for Play Stations rather than a visit to the travelling circus.
Cirque du Soleil realised that it could not win by taking customers from the already shrinking demand for the circus industry, which historically catered to children. Instead, it created uncontested new market space that made the competition irrelevant. Its productions are positioned as ‘unprecedented entertainment experience’ that appeals to a whole new group of customers -- adults and corporate clients prepared to pay a price that is several times more expensive than traditional circuses. Seeing one Cirque du Soleil production in Vegas recently, I am convinced that the company has reinvented the circus in itself.
Meanwhile, LG Electronics has just announced the launch of its ‘Blue Ocean’ management campaign, and it planned to double its sales volume, profit and shareholder benefit by 2010, with 30% of its sales volume and 50% of its profit being derived through ‘Blue Ocean’ products. No details are available, but anticipation is mounting.
Besides corporations from the East, namely LG and Nintendo, American companies, too, have successfully plunged into the blue oceans and navigated soundly. They include Research in Motion (BlackBerry), Southwest Airlines, Apple, and Google. They can’t be too far wrong.