Blue Ocean Strategy (Part 3)

This is the third and last post about Blue Ocean strategy in marketing.

Kodak,Polaroid,Fujifilm

As I mentioned in the first post about Blue Ocean strategy, it is essential for companies to continually innovate. They should never be complacent and think that the products they have today will still be relevant in tomorrow's market.  If they do not innovate, companies will eventually go "extinct".

One such company that went bankrupt was Kodak. Kodak was originally THE grandfather of photographic film. They practically invented the whole photography industry. At the beginning, the company was very innovative, introducing new products to the market. That was how they came to dominate the photographic film sales from mid-20th century all the way to the 90's.

However, they eventually forgot to adapt to changing trends, namely the emergence of digital photography. They failed to fully realise that everybody wanted to use digital cameras to take photos, rather than using the old and outdated film cameras. As such, Kodak was very slow in turning around their business to focus on digital photography. This was especially ironic as Kodak was actually the inventor of the core technology used in current digital cameras.

Kodak's financial struggles began at the turn of the century. A few years ago, they resorted to aggressive patent litigation instead of trying to invent new products. By the time they had finally built up a large but not profitable digital camera business, the age of smartphone cameras had arrived. In the end, they filed for bankruptcy protection in 2012. This result serves as a good reminder that no matter how big a company is, they can still fall if they do not bother to be creative and innovative. In January 2013, a court finally approved financing for Kodak to emerge from bankruptcy by mid-2013. (Around now.) Kodak had to sell many of its patents to the likes of Google, Microsoft, Apple, Samsung, Facebook,and Amazon.

Another company that followed in Kodak's footsteps to bankruptcy was one of its rivals, Polaroid. Polaroid was famous for one thing, its instant film camera. With the camera, users can instantly see the results of their snapshot, unlike Kodak's camera which required users to wait for the film to be developed before seeing the results. One major shortcoming of Polaroid's instant film camera was that it could only take one photo at a time. Nevertheless, the camera was a huge success when it came out in 1948. When Kodak tried to imitate them, Polaroid managed to defeat Kodak in a patent battle and Kodak had to leave the instant camera business in 1986.

With that single product, Polaroid managed to survive until very recently. Like Kodak, the company failed to recognise the shift in market trends. Now, users want instant imaging, not of one photo, but of many. Polaroid had stubbornly clung to their instant film camera, believing that it is actually preferable to the digital cameras. Needless to say, their strategy was a failure and the company filed for bankruptcy protection again in 2008.(They had actually already filed for bankruptcy earlier in 2001.) Nowadays, Polaroid is mainly an eyewear company, a return to its original roots.

There was one company that could have went the same way as its rivals but managed to avoid bankruptcy by changing their company policy in time. The company was Fujifilm. In doing so, they actually broke longstanding Japanese corporate traditions in terms of changing a company's directions drastically. By diversifying into digital technology in cameras, Fujifilm never had to file for bankruptcy protection.

The 3 examples above show how important it is for companies to continually innovate and adapt to changing market trends.

P&G

P&G (formerly Procter and Gamble) was a success story in using the Blue Ocean strategy. Many people would not know it, but P&G was the first ever company to produce the 2-in-1 shampoo. Before P&G's Rejoice, shampoos and conditioners for hair were produced and sold separately. With the launch of Rejoice, however, most hair shampoos today are 2-in-1 shampoos, 3-in-1 shampoos, even 4-in-1 shampoos. P&G showed that if a company is innovative, they will be successful.

Nintendo

Nintendo was another success story in utilising the Blue Ocean strategy. Specifically, the part about understanding customers' pain points and reaching out to new groups of customers.

First, some history. Nintendo was the pioneer in home gaming consoles. The company managed to dominate the console industry until the early 21st century. That was when a new generation of consoles were released by the big 3 of console manufacturers today. The consoles released at the time were the PS2 (by Sony), the Xbox (by Microsoft), and the Gamecube (by Nintendo itself). Compared to its rivals, the Gamecube sold comparatively few units. Nintendo now had to find a way to produce a new console for the next generation that is successful, or the company will probably face bankruptcy.

First, Nintendo identified the core market for their consoles: kids, teenagers and young adults. Then, they interviewed a select group of people from those categories to find out what they wanted for the new generation of consoles. The results were not very encouraging, as the interviewees demanded a new console with better graphics, better processing power, better DVD systems, better everything, except for a lower price. That was quite simply not feasible.

So, Nintendo tried to branch out to other target audiences. They identified two major non-customer groups: parents and grandparents. first, they interviewed the parents (who are the actual buyers of the consoles that their kids play video games on). The company asked the parents if they liked their kids playing video games all day long. The answer was obviously a no. Nintendo then asked the parents why they did not like their children playing on their consoles. The reasons given were: the children no longer exercised or played sports, and they also preferred to stare at the TV screen for long hours than to go out and socialise with their friends.

Next, Nintendo directed the same questions to a select group of grandparents. The grandparents did not like their grandchildren playing video games, either. In fact, some of them do not even know about the consoles very well, since they were born quite some years before game consoles even existed. The main reason given for their dislike of their grandchildren playing video games were that they no longer came to visit them frequently. the kids were just too busy playing on their consoles to bother with their grandparents.

When inquired why they did not join their grandchildren in playing the video games, the answer was similiar: the grandparents simply do not have the skills and reaction speed to cope with the video games played by their grandchildren. Even if they tried playing, their avatars will be dead in seconds because they could not even cope with the number of buttons on the game controller. Nintendo then asked the grandparents what they normally did in their free time. The activities they gave as examples include: fishing, gardening, cooking, playing golf, etc.

Looking at the data the obtained, Nintendo tried to identify which Key Competitive Factors they should improve on and which to give less focus to. In the end, the company decided that they will produce a game console that focuses less on its technical abilities, but focuses more on social gaming, interaction between family members,fitness and motion controls. They wanted the console to be used by every member of the family, including the parents and grandparents. Their new target audience would be casual gamers.

So, in 2006, Nintendo rolled out the Wii. Bundled together with the console was the game Wii Sports. The game was meant to showcase the motion control abilities of their new console. With it, even the grandparents can play golf and bowling with their grandchildren. Another game, Wii Fit, was also produced by Nintendo. The game was meant to be a fitness tool to promote physical activity and exercise among children as well as adults. The motion control features were not limited to sports and fitness, however. Games that incorporated the motion control abilities ranged from cooking games to fighting games, from party games to adventure games.

The reception towards Nintendo's new console were excellent. Despite having lower graphical qualities as well as processing power compared to its competitors' new consoles, the Wii actually managed to outsell both the PS3 produced by Sony and the Xbox 360 produced by Microsoft. The sales and profits made by Nintendo increased, a situation which lasted for 5 years. Over the 5 years, Sony and Microsoft also released controllers with motion sensing abilities, namely the PlayStation Move and the Kinect respectively. The Blue Ocean market created by Nintendo slowly turned into a Red Ocean market. Still, Nintendo managed to fend off the challenges provided by its rival.

However, in 2012, Nintendo began having financial troubles again. The reason for this was the rise of a whole new phenomenon over the past few years: mobile gaming. The whole gaming landscape has changed dramatically. Casual gamers switched form Nintendo's Wii console to their mobile phones and tablets. Despite this new threat, Nintendo refused to innovate again. The company's CEO, when asked about measures to counter this threat, replied that Nintendo would not have to compete with mobile gaming. Mobile gaming is just a fad that would soon pass, he said, and then gamers would return to their home console. There was no need for Nintendo to adjust their strategy.

Indeed, Nintendo introduced their newest console, the Wii U, in late 2012. The Wii U was not a huge departure from the original Wii. Sales were not really great. Yet, even till today, Nintendo had still not moved into the new mobile sphere. They staunchly believed that gamers would stick to their own dedicated handheld gaming set, rather than the mobile phones. For example, Nintendo had firmly refused to publish an app for its highly successful and popular Pokémon franchise. All this in spite of clear sales figures indicating that more and more people are downloading gaming apps on their phones and tablets.

Whether or not Nintendo can still continue to succeed without innovation remains to be seen. Chances are, Nintendo will go the way of Kodak if they do not innovate soon.

Samsung

Ten years ago, nobody in the world except those living in South Korea would have heard of Samsung. They were only a run-of-the-mill company producing mainly electronic products and other services back then. Today, of course, they are the number one mobile phone manufacturer in the world, having snatched away Nokia's throne.

One of the reasons for their success was their continued innovation. Have you noticed that for each of their products, there are always new, improved models released based on the first version? First, the Galaxy S would be released. Then, its updated versions would follow gradually: the S2, the S3, the S4, and so on. Ditto the Galaxy Note series.

The reason behind this was that for every product Samsung was planning to release, they already had at least four revisions ready in the pipeline. Thus, once the first edition of a product was released, a newer version would follow not much later. This way, the company can force itself to continually innovate. By doing this, the company has became one of the largest company by revenue and profits in the world today.

Air Asia

Air Asia is yet another example of a company using Blue ocean concepts to become successful. There was always a misconception that Dato' Tony Fernandes bought Air Asia to compete with the national carrier, Malaysia Airlines. The truth is, Air Asia was not meant to compete with MAS, but with other budget airliners in Asia and the world.

So how did Air Asia became a success? The answer is: by looking beyond traditional market boundaries of airliners and setting up new flight destinations. Did you know that Air Asia was the first ever to set up a flight form Kuala Lumpur straight to Bandung? Before this, Indonesian migrant workers wishing to return to their hometown in Bandung had to fly form KL to Jakarta, then take the train or the bus to Bandung, which takes a long time as Bandung is 180 km away form Jakarta. More likely, they even had to take a ship just to get to Jakarta. With Air Asia's (relatively) cheap flights, however, the migrants can easily fly straight to Bandung.

Direct flights to Bandung was not the only route Air Asia offered that MAS did not. In previous times, a Malaysian who wanted to visit the Angkor Wat had to fly into Cambodia's capital, Phnom Penh first. Then, they would take the local transport to Siem Reap province, where the Angkor Wat is located. Air Asia saw an opportunity and set up a direct flight from KL to Siem Reap province.

Not only that, Air Asia was the first to set up a direct flight from KL to Chiang Mai in Thailand as well. The company proved that with the Blue Ocean strategy, a company can be successful and profitable.

Casella Wines

Casella Wines was an Australian wine company. Several years ago, they were looking to penetrate the wine market of the U.S.A. This was not an easy task, however, as wine drinkers in the United States were mostly connoisseurs who preferred to consume wines from France and Italy. As a result, Casella Wines decided to look into a new target market, the second tier of non-customers (refusing customers). In other words, beer drinkers who know about the existence of wine, but refuse to drink them.

To get what influenced beer drinkers  to choose beer over wine, Casella Wines conducted a research to identify the non-customers' pain points. Their interviewees gave a litany of reasons as to why they do not buy and consume wine. Among the reasons given were: they do not know which wine to drink after their meal, wines are too expensive, wines are too exclusive and high-class, and so on.

To overcome these issues, Casella Wines decided to produce a new brand of wines under the label of [Yellow Tail]. The company spent 24 million dollars in its marketing campaign. on one of the advertisements, Godzilla was seen destroying some buildings. Then, the camera cuts to Godzilla's tail, which was yellow. The advert was meant to show people that wine can be associated with destruction and action, that wine is not exclusive to posh families.

[Yellow Tail] wines were priced reasonably and were much cheaper than traditional wines. It also featured a yellow-footed rock wallaby, an animal native to Australia, on its bottle. Casella Wines was one of the first wine companies to use animals as branding. The label on [Yellow Tail] wine bottle also contained instructions on how to drink the wine, as in which food would go well with the wine. Most of the food listed were food commonly associated with American culture: burgers, bacons, and such.

[Yellow Tail] wines became the most popular wine in the United States for a while. Sales of the wine jumped from 100,000 cases in 2001 to 7.5 million cases in 2005.

Cirque du Soleil

Cirque du Soleil, a Canadian company, runs the largest and most profitable circus business in the world now. In fact, its co-founder, Guy Laliberté, is now a billionaire. How did a circus company became so successful?

Cirque du Soleil followed the Blue Ocean strategy in creating a new approach in running a circus and a new target audience. The company wanted to be different from traditional circuses, most of which are failing to turn a profit in today's world. One such example of an old circus struggling to be relevant is the Royal London Circus. It is now in fact owned by a Malaysian and based in Johor, and is still struggling to make much of a profit.

Like Nintendo and Casella Wines, Cirque du Soleil first identified the pain points of people going to circuses. Specifically, they wanted to understand why adults who used to go to circuses as kids no longer went to circuses when they grew up. The answers given by the interviewed people: circuses are always hot and stuffy as they are held in tents, the tents are smelly due to animals, there are no relations between the various acts performed in a circus, there is a lack of storyline in circus performances, circuses are boring for adults, and so on and so forth.

To overcome the above pain points, Cirque du Soleil used the ERRC grid to craft a new strategy in running a circus. They pinpointed elements to Eliminate, Reduce, Raise, and Create in their circus business.

Eliminate: Animals,tents
Reduce: Clowns
Raise: Sounds and lightings
Create: Stories

First, they decided to eliminate animals in an effort to reduce the cost of running a circus. One of the largest parts of expenditure was on the animals, and Cirque du Soleil aimed to eliminate that costly part. Cirque du Soleil also decided to eliminate tents as venues for their circus performances. Instead, they will always perform in an air-conditioned venue or theatre. This move would actually help reduce the cost as well, despite the rental fees of the venues. The truth is, most of the rental fees at the venues at which Cirque du Soleil perform are waived by the owners of the place or paid for by other companies. For example, there are nightly performances held by Cirque du Soleil in Las Vegas. The hotel fees are paid for by the hotels in Las Vegas. The reason the hotels are willing to pay for their fees is because Cirque du Soleil is such a popular circus that it will help attract other customers to stay at the hotel.

Cirque du Soleil also reduced the number of clowns in their circus. There are much fewer clowns employed by the company in comparison to the traditional circuses. This is also an effort to reduce costs, as well as o attract more adults to their circuses. They felt that clowns are only effective in attracting children.

Next, Cirque du Soleil raised the amount of special effects in their circus acts. This is done through increased use of lighting and sounds, smokes and music. With this, the circus performances are seen as more exciting.

By doing all this, the company managed to create stories in their performances. Each Cirque du Soleil has a special theme, some more geared towards adults, some more suitable for children. There is a narrative linking all the acrobatics on show in each performance.

By using the ERRC grid to crate value for customers, Cirque du Soleil became as successful as it is today.

Singapore

Companies are not the only institutions following the Blue Ocean strategy. Governments of countries can use Blue Ocean strategy to successfully run their countries too.

As we all know, Singapore is famous for being a very strict country. If you set up an unauthorised stall by the streets, you will be caught by the police in literally minutes. You cannot even eat chewing gum in the country as it is a banned substance. So how did it came to be that there are suddenly not one, but two, casinos in Singapore? Casinos are not exactly good in promoting civic values, after all.

To know the reason Singapore allowed the construction of two casinos in the country, we have to wind back the time. Back when Singapore was newly independent again, they had zero resources to exploit. Thus, the government asked itself, who is the strongest country in the world right now? The answer was America. So, they proposed to the Americans to set up an army base in Singapore. The Americans agreed. In return, Singapore received favourable trade conditions from America.

Some decades later, the Singaporean government saw another opportunity to attract companies to set up their headquarters in the country. This was due to the Communist takeover of Hong Kong by China. Previously, many companies set up their company headquarters in Hong Kong thanks to the tax policy. Companies with headquarters in Hong Kong pay zero tax for revenues and profits gained overseas (outside of Hong Kong and Mainland China). After China took over Hong Kong from the British, however, many companies fear that their businesses will be affected in some ways due to the Communist government of China. As such, many companies relocated their headquarters to Singapore, who welcomed them with open arms.

This situation did not last for too long. Companies soon relocated their headquarters to Hong Kong again, since the Chinese government did not really interfere in the running of businesses based in Hong Kong. Singapore has to rethink its strategy again. In looking for a new target market to attract, the government asked itself again, who is the strongest country in the world right now?(Besides America.) The answer was China.

Singapore decided that it will lure Chinese nationals to the country. The path to achieve that objective would be tourism. The Singaporean government would promote Singapore as a must-visit tourist destination for the Chinese. To do this, they must first set up something to attract the Chinese tourists. The solution was to let the Chinese gamble in Singapore, since they loved gambling. Hence, the construction of the two casinos in the famously strait-laced nation.

By changing strategies and target markets based on current trends, Singapore managed to become a first-world country despite having no resources at all.

Malaysia

The Malaysian government has also used the Blue Ocean strategy in advancing the country. Through the Government Transformation Programme (GTP), the Performance Management & Delivery Unit (PEMANDU) was set up. The aim of PEMANDU was to monitor the achievements of each ministry and to ensure that the Key Performance Indexes (KPIs) are met on time. This unit is under the Prime Minister's Department and was meant to oversee the progress of the ministries in the government in improving their services given to the public. Its primary function is to act as a catalyst. (However, the CEO of PEMANDU, Dato' Seri Idris Jala, has hinted that the role of the unit would diminish over time provided Malaysia achieves its aspirations to become an advanced nation by 2020.)