Blue Ocean Strategy (Part 2)

*Last week, I promised to show examples of companies who used the 6 paths to reconstruct market boundaries successfully. So here they are.

The first path to reconstruct traditional market boundaries is to look across alternative industries instead of focusing on competing within an over-saturated industry. Companies using this path have to ask themselves: why do buyers trade across?

NTT DoCoMo

Here's a question: there is a cellphone in the market with which you could only call 4 people, which only 15 people may call you, and which does not offer you any Wi-Fi, apps, games, video, camera, or music. Would you buy it?

The answer will surely be: no. In today's world, the smartphone is ubiquitous, and people will expect to get as many different functions as possible from their phones. However, the telecom company NTT DoCoMo did exactly what people would not expect. They manufactured a phone that is exactly like the example above. They have managed to look across alternative industries and found a new target market: schoolchildren.

Most smartphone makers (Samsung, Apple, Nokia, HTC, etc.) chose to focus on a specific target market to which they try to sell their products. That market is the modern, connected, white-collar urbanites. As such, the smartphone market is currently a Red Ocean market, with all manufacturers offering roughly the same products. Was there really such a big difference between the iPhone 5 and the Galaxy S4?

On the other hand, NTT DoCoMo has found a market which would prefer a simple phone with which to contact others over an advanced gadget that can perform multiple tasks. In Malaysia as well as many other countries, schoolchildren are forbidden to bring their own phones to school for obvious reasons. The phones will be a major distraction to their school life. However, it cannot be denied that schoolchildren do need to have an avenue with which to contact other people. Something other than public payphones that never, ever work.

NTT DoCoMo's phone made for schoolchildren solved the above problem. There were 4 buttons on the phone, representing the 4 people which the schoolchildren may call using their mobile phone. Their parents have the choice to control whom their child may call by setting the buttons on NTT DoCoMo's website. For example, the first button may correspond to the mother, the second to the father, and so on.

Parents may also control who may call in to their child through their child's phone. There are a maximum of 15 people who may call in to the phone, and the list of people can be managed by the parents through NTT's website. Don't want their child to have contacts with that gambler of an uncle? The parents can simply choose to exclude him from the list of 15 people.

Lastly, there are no extra features of any kind on NTT DoCoMo's phone for schoolchildren. No music, no games, no texting, no nothing except for calling others. As such, it will not be a source of distraction to the children's studies. Now, with the phone, schoolchildren have an avenue with which to inform their parents about any changes in the time their classes end, and their parents and teachers do not have to worry about them misusing the phone.

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The second path to reconstruct market boundaries is to look across strategic groups within industries instead of confining oneself to established strategic groups. Companies following this path have to ask themselves: why do buyers trade up or down?

Curves International

Imagine that you are a woman determined to lose some weight, or to make your body fitter. What are your choices? The standard choice is to pay the fees and attend a gym. Still, not everyone can afford to go to gym on a regular basis. Another obstacle to going to gym is the traffic. Gyms are normally located downtown, which mean that people living in suburban areas have to travel a long way just to reach the gym.

Picture this: you have spent an entire evening taking care of your children, and in order to work out, you have to drive for more than an hour through the traffic congestion just to reach the gym with which you applied for membership. You exercise there for a short while (since you are short of time), and then it's back to suffering through the traffic jam again. In no time, you will be throwing away your gym membership card into the trash can.

What other choices do you have? You may choose to trade down and work out in the local neighbourhood park instead. Yet, there are few equipments and facilities in the park, and you may not feel to comfortable exercising in public. What to do then? You may choose to give up on getting fitter after all.

Curves International, the fitness franchise chain, realised the dilemma facing those customers and came up with a whole new concept. Their gyms cater only to women, and are located throughout the United States. There are many advantages for a woman to go to Curves International fitness centers than to go to a traditional gym.

1. The distance. As mentioned above, the distance between a gym and a home is often great, since gyms are mostly located in city centers. Curves fitness centers, on the other hand, are located very near neighbourhoods. They managed to do this by having many smaller centers scattered throughout the land rather than having one big gym in only one location.

2. The environment. Gyms are usually the domains of very fit people looking to show off their physique. It is simply no place for ordinary, fat people to work out in. The stares alone will be enough to discourage people to go to gyms. Curves fitness centers does not pose such problems as all its members are women looking to become fitter. Another notable thing about Curves is the arrangement of their equipments: in a circle. That way, women may chat with each other as they work out.

3. The time factor. Going to gyms require a lot of time. You have to change in and out of your gym clothing. In Curves fitness centers, though, there are no changing rooms, so all you need do is walk in and start exercising without wasting time.

4. The equipment. Curves fitness centers are well equipped with all the usual gym equipments (treadmills and the like). Since Curves design their centers based on the circuit training concept, you will never have to wait because a certain equipment was being used by others. This is because everyone only have a certain amount of time to use an equipment before moving on to the next. Another advantage of circuit training is that you get to have a complete workout on different equipments in a short space of time.

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The third path in reconstructing old market boundaries is looking across the chain of buyers instead of focusing on the same buyer group as the rest of the industry. Who are the purchasers, users, and influencers of your product?

Xerox,Canon

In the past, photocopiers were big, bulky, and expensive items. A company has at most one photocopier per department. The users and influencers of the decision to buy them were one and the same: the secretaries. The purchasers were different though: they were the head of the company.

In order to make a purchase, the secretaries have to inform their heads of departments, who in turn have to inform their bosses, who inturn have to inform their superiors, all the way up to the board of directors. All this to purchase a simple photocopier, an expensive investment at the time. After the purchase was approved, it could take anywhere from 2 to 3 months for the photocopier to be delivered.

Once the photocopier was delivered, it belongs to the company. In other words, if anything goes wrong with it, the cost of repairing it have to be paid for by the company. For the expenses to be approved, it would take a long time as well. Meanwhile, the primary users of the photocopier, the secretaries, have no choice but to wait and wait.

Realising this problem and opportunity, Xerox introduced a new type of photocopier that is less bulky and less expensive. Effectively, this means that the secretaries do not have to gain the the approval of the leadership of the company to get a photocopier. They needed only the approval of their immediate superiors. Another advantage of the Xerox photocopier is that it does not belong to the company, but to Xerox. This is because Xerox do not completely sell the photocopiers to companies. Instead, they lease it to them and charge them according to the number of copies printed in a month. In the case of a malfunction, Xerox will pay for the repairing fees.

Later, Canon will make the lives of secretaries even easier by producing small all-in-one printers. Employees can print, fax, photocopy, and scan their documents using the same machine. Nowadays, it is not uncommon to find an all-in-one printer on every desk in a company, since the machine has reduced in size a lot since the olden days.

By focusing on the needs of the user of their products, Xerox and Canon has made their products sell well. All the same, this does not mean that the purchaser of the products should be ignored. They are still important since they are the ones actually buying the products.

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The fourth path towards reconstructing market boundaries is to look across product and services offering. Companies using this path have to identify the pain points of using their products and find solutions to mitigate the pain of using them.

Borders,IKEA

Borders is a chain of stores selling books. Everybody knows that. So why is there a Starbucks in every Borders store anyway? Do Borders sell coffee or books?

The reasoning behind the existence of a Starbucks in every Borders is that customers seldom have the time to read the books they bought. Customers who have bought a book often have a hard time finding free moments to read the books. What with working all day, customers will be too tired to read the book by the time they are at home. Most likely, the book will eventually be left on a shelf, forgotten by its owner.

Knowing this issue, Borders arranged with Starbucks to set up a small coffee shop inside its stores. This way, customers who bought books may easily spend time in the store drinking coffee and relaxing, giving them time to browse the books they had purchased. As such, they were rather successful at finding and retaining customers. (Of course, all of this was in the past. Borders went bankrupt in the United States some time ago.)

Another company using the fourth path is IKEA. IKEA, as everyone should know, is in the furniture industry. It is most definitely not in the child care industry. Nor the restaurant industry. Neither is it in the delivery services industry. Yet, it offers all three services that it was not supposed to offer. There is a reason why IKEA was so successful in selling furniture compared to other furniture stores.

Put yourself in the shoes of a young couple with small children. When you are out buying furniture, you chose to go to IKEA. Now, IKEA is a huge place to explore fully. Walking for 3 hours with your children in tow is not possible. They do not have the stamina to walk continuously for a long period of time. Hence, the playrooms in IKEA offering supervised care for children.

After walking for so long, naturally you will start to feel hungry. You will now have to leave IKEA and find a restaurant outside. Most likely, once you leave IKEA, you won't be coming all the way back again. To overcome this problem, IKEA set up a restaurant inside all of its stores selling delicious Swedish meatballs.

Afterwards, you have finally bought a bed and a cabinet. IKEA furniture are built such that you may assemble them yourself. Be that as it may, it is still a bother to carry the furniture home in your tiny little car. That's why IKEA provides delivery services to those who prefer it.

By looking its products and services offering, IKEA managed to attract many customers to its doors. It may be primarily a furniture company, but it is also involved in several other industries that combine to make a whole new shopping experience that is comfortable.

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The fifth path to break free of market boundaries is looking across functional or emotional appeal to buyers instead of accepting the industry's original functional or emotional orientation. If a company is competing on emotional appeal, it might try to remove some of those emotional aspects to make the products more functional. If a company is competing in an industry that focuses on functional appeal, the company could add in some emotional components to the products to make it more appealing.

Lumix,The Body Shop,Ford,Hewlett-Packard (HP)

Lumix is a company competing in an industry orientated towards emotional appeal to buyers. Cameras are tools that captures the important moments in one's life, so the camera manufacturers will naturally advertise their products from an emotional point of view. Example: slogans such as "I am Nikon".

Anyhow, Lumix decided to try a different tact. In one of its advertisement, it did not show happy families gathering together and taking pictures. Instead, that particular advert showed a man taking pictures alone in an outdoor environment. He wanted to take a photo of himself but had difficulties, until another man came along. The both of them were standing on opposite banks of a river. The first man threw the camera towards the river, making it skip like a stone towards the other man.

What the advertisement was trying to show was that the camera Lumix made was tough and water-resistant. Therefore, it was able to safely bounce in water and was not damaged when it hit the ground. In the advert, Lumix tried to show the funtional side of its camera, instead of the usual emotional aspects.

Another company choosing to inject some functional aspects into its products is The Body Shop. Most companies selling beauty products will promote their products with heavy emphasis on the emotional aspect. That's why we often encounter bizarre advertisements from cosmetics companies showing a person jumping from a cliff, somebody singing in a stormy rain, or a white person putting on black-face.

The Body Shop, on the other hand, chose to feature the functional appeal of its products more prominently. If you step into any of its shop outlets, you will find all kinds of beauty products on its shelves. On the bottles of those products, every single ingredient used to produce it would be listed. This is a huge contrast with nearly all other cosmetics companies. After all, when was the last Christian Dior told you the ingredients of its perfume on the bottle?

For companies competing in an industry that focuses on the functional aspects of the products, the opposite approach is needed. They have to use a more emotional way to present their products. One such company is Ford. A few years ago, Ford decided to change the philosophy of the company. Rather than making cars that carry a person from point A to point B, they decided that they want to design cars that evoke strong emotional responses from its customers. When they see a car made by Ford, the customers should immediately wish to buy it. When driving the cars produced by Ford, the customers should feel very happy. All this from a company whose founder once declared that "any customer can have a car painted any colour that he wants so long as it is black".(This means that Henry Ford cares little about the emotional experience of driving a car, only the functional aspects of the car.)

Ford's new approach was also very different from others in the car industry. Car companies will always boast about the practical aspects of their cars: how much horsepower the car has, how fast they can go, how fuel-efficient their car is, how quick the car can go from 0 to 60 m.p.h., etc. In its recent adverts, Ford has decided not to focus on all those aspects, instead deciding to show people driving their cars and their emotional experiences.

Similarly, HP came out with the tagline "The Computer Is Personal Again" in 2006. This was to show that the computer (inherently a cold,hard machine) can be viewed as a personal experience to be enjoyed. The marketing campaign employed many celebrities to star in its ads and was generally successful in promoting HP's products in a different light.

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The sixth and final path to reconstruct market boundaries is to look across time rather than focusing on the same point in time as the rest of the industry. This means a company have to try to predict the trends that have a high probability of impacting the industry it is in. The trend should also be irreversible and be evolving in a clear trajectory.

Apple 

In the days before the digital distribution of music was the norm, there was a company named Napster. (The co-founder of Napster was Sean Parker, the first president of Facebook.) When Napster started distributing music through digital means, it was considered a company advocating piracy as Napster never paid any royalties to the record companies who produced the labels. Due to the fact that it was infringing copyright laws, it was used by all the major record companies and music distribution companies in the world. In the end, Napster had to be closed down. (The new incarnation of Napster was an online music store, later acquired by Rhapsody in 2011.)

At the same time that Napster was being brought down by lawsuits, another company saw the potential of online distribution of music. They correctly predicted the trend of music moving to the online sphere. They correctly predicted that people will no longer want to buy CD's or music in any other physical form of storage. That company was Apple, who introduced the iTunes store.

Rather than going against all the recording studios in the world, Apple decided to sign contracts with them for the rights to distribute music digitally. In return, Apple will pay the appropriate royalties for the music. Thus, a partnership was formed that still exists today. The iTunes store is now one of the most popular music store in existence.

Besides that, Apple also has a whole range of products that are well integrated with one another. At first, you could only listen to music on the iPod. Later, the iTunes store will also be available on the iPhone and the iPad. Together with the iMac, these products helped retain customer loyalty since purchasing something from the Apple store on the iPhone means you do not have to buy the same thing again on the iPod touch or the iPad.

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Next week, I will show more examples of companies or institutions who succeeded or failed in implementing the Blue Ocean strategy. They are: Kodak, Polaroid, Fujifilm, P&G, Nintendo, Samsung, Air Asia, Casella Wines, Cirque du Soleil, as well as the Singaporean and the Malaysian governments.