Category: Blue Ocean Strategy Articles

Cross-posted from blueoceanthinking.substack.com.

The blue ocean strategy process includes the well-known “Four Actions Framework” where we eliminate, reduce, raise, and create key factors in search of a new offering. Eliminating and reducing features that add cost but not value is often key to creating a blue ocean megahit.

Traditional marketers have a knee-jerk reaction; they never want to eliminate a “feature” — using the term loosely — especially ones common in competitive offerings. Marketers and red ocean product developers scour competitive products and box themselves in by assuming every feature, each which invariably adds cost, is necessary or everybody wouldn’t be offering them.

However, it’s not uncommon for features to increase cost while decreasing buyer value.

I’ve repeatedly cited remote controls that have more buttons than an Apollo-era spaceship. A small number of those buttons allow users to change channels whereas a large number enable … I’m not sure and neither are most users. Finally, more than a few of those buttons put the TV in a mode where watching television — the primary purpose of the device — doesn’t happen.

Despite the uselessness of all those buttons, somebody had to specify, program, manufacture, test, and support all those extra “features.” Lots of costs creates no value at all and arguably reduces value.

I thought TV remotes must be the worst offender for worthless yet costly features yet I’ve found something worse … digital home kitchen scales. Specifically, the auto-off function that quickly turns off a scale to save battery life. It’s a feature so bad that top-tier gadget reviewers highlight the lack of the function as a bonus.

Check out this New York Times review, “The Best Kitchen Scale.” Each individual product review is less than a hundred words yet every scale reviewed, without exception, calls out a longer auto-off function as a benefit. The very best scale reviewed has an auto-off function that can be entirely disabled.

Congratulations to the “My Weigh KD8000” for paying attention to what the gadget is actually used for. Quoting the New York Times, “It’s one of the few scales we’ve come across that allows you to disable the auto-off function.” Priced significantly higher than other scales, it sells so well it’s out of stock at Amazon when I’m writing this.

Since all scales weigh things, the sole differentiator seems to be that it doesn’t turn itself off. That is, the product developers realized this “feature” — presumably to save battery life — gets in the way of cooking.

The New York Times isn’t alone. A quick check of reviews, by amateurs and professionals, show the auto-off feature is reviled. “Auto shutoff became erratic and much too fast. Ruined the utility of the scale.” reads an Amazon review. One product labels itself the “CBW 10 Minute Auto Off Professional Kitchen Scale,” acknowledging the problem in the product name. The only review that praises auto-off, by “heavy.com,” shows the reviewer clearly doesn’t know and hasn’t actually worked the product she’s reviewing.

Why is auto-off so despised by cooks? Speaking as a budding bagel baker that’s easy to answer: because the scale turns itself off and loses the amount of food that you’ve weighed out in the bowl sitting on the scale. This causes cooks to lose track of what they’ve added making it easy to mess-up a recipe. This problem is so common in auto-off digital scales that countless cooks use old-fashioned analog scales instead.

The auto-off feature is presumably there to protect battery life but let’s think about that. I don’t know how long two AA batteries would last powering a digital scale that either didn’t turn off or had, say, a half-hour turnoff time (most are two-minutes but the better-reviewed ones are four minutes). But I’d guess those two batteries would last a long, long time.

A quick check shows Amazon sells 48 high-performance AA batteries for $15.49 which comes to $.32 each, $.64 for a pair. A 5-lb sack of King Arthur bread flour costs $9.95 or about $2 a pound. So it’s three times more expensive to waste one of the lowest-cost ingredients as it is to simply replace the batteries that’d cause a recipe to be ruined.

Some product developer, somewhere, paid to vastly reduce the functionality of what should be a simple gadget, a home coking scale, and everybody else who makes a similar gadget copied and made the same mistake.

Eliminating the auto-off function, or at least making it far longer, increases the value of the offering. How much? Enough that the New York Times spent a sizable amount of their review praising scales that have eliminated or vastly reduced this “feature.” Also, enough that one of the home scales that disable the dubious feature sell at a far higher pricepoint yet sells out compared to the lower-cost scales.

Despite that, there are countless home scales that contain the auto-off functionality. The only way to explain this is 1) a marketer or product developer studied and copied the feature in competitive products and 2) they didn’t bother trying to actually cook with their scales, to use their product.

When we discuss the pitfalls of red ocean competition — of looking at competitive products and trying to compete by making something “better” — we normally discuss that it’s difficult and costly to differentiate via traditional marketing. However, there is another dimension apparent here; if all the competitors are making a mistake then, by copying their offering, you’ll make the same mistake. Even if that mistake is obvious and if avoiding the mistake would cost little or nothing (or, in this case, reduce the cost) they almost all do the same thing.

Home scale product developers copied one another like lemmings walking off a cliff and all included the same annoying feature which, frankly, sucks. Their scales fail to do the most basic core function well, helping cooks accurately measure food.

Some of the other scales I’ve tried add even stupider expensive to implement features, obviously added by marketers who believe more is better. For example, many support measurement units the vast majority of people do not need or want. Grams alone would be fine with me. Maybe ounces for Americans still stuck in the middle ages. But fluid ounces? Since a kilogram weighs the same as a liter of water, weighing anything but water could and would produce an inaccurate result whereas weighing water or similar fluids would yield the same measure in grams.

The core of value innovation is differentiation and low-cost. Adding a feature to a product or service that’s universally despised — a feature that adds to production cost — is the opposite of this ideal. Compounding that, scale manufacturers are causing recipes to be ruined, food to be wasted, and home cooks to be stressed out. All for absolutely no reason except to save an insignificant amount of money on battery life.

When creating a product or service, think about how it will be used by the majority of customers and noncustomers. Bring your thing home and try it yourself not once or twice but over and over again.

I worked for a consumer products company and went to one of their top reseller stores, a large flagship store not far from the manufacturer’s headquarters. I told the store manager I was from the manufacturer and asked if I could watch people buying the product and talk to his employees. He agreed.

Every salesperson at the store said buyers were confused at the enormous selection of similar products the manufacturer offered. Similarly, customers confirmed they were overwhelmed and confused. The manager confirmed that in the 6+ years he’d been at that store, nobody had come from headquarters to talk to either the salespeople or the customers. Marketers were proud to maintain the extensive product line, which was significantly more expensive than a scaled-down version.

When I brought my findings back that customers were underwhelmed, marketers rejected them saying their focus groups (with core buyers) showed there is no problem. A few years later, the division of that company was sold for scrap.

It’s easy to get stuck in the red ocean. The vast majority of MBA programs guide students there. Countless books talk about the virtues of competing. Marketers and engineers constantly benchmark and push to add “features” no matter how useless those features are. Yet, like a scale that stops measuring in the middle of a recipe, this is a recipe for disaster.

On the importance of being open to divergent ideas & non-experts.

Cross-posted from the blue ocean thinking substack: https://blueoceanthinking.substack.com.

About a decade ago I’d just moved with my new bride into a house we rehabbed. We owned our house mortgage-free and my work was routinely cited in leading newspapers including the New York Times, Wall Street Journal, and Bloomberg. Congress, the Federal Reserve, and various university’s called looking for my advice and data. Despite the gloom-and-doom of the financial crisis, things were looking up.

My sister was also newly married. Her husband never went to college and didn’t seem to hold down jobs for long but she loved him. Similarly, my wife’s ex — who’d hang out with us sometimes — also never went to college.

Both asked me about something they saw on the internet, Bitcoin.

I knew about Bitcoin. Part of my work has always involved keeping track of technology trends. I’d heard about it from the earliest days. There were fun stories of people using the new cyber-currency to, say, buy pizzas. A mere 10,000 bitcoins was good for a large pizza with unlimited toppings (today, each bitcoin is worth about $23,000).

Of course, back then everybody in tech knew the main use of bitcoin, illegal transactions. It was especially favored as the currency to buy drugs on Silk Road, a website colloquially known as the “Amazon for Drugs.”

Both my brother-in-law and my wife’s ex asked me if they should buy some bitcoins which, at the time, were trading in the $100-dollar range.

Nah, I answered. It’ll probably disappear, along with your money, when Silk Road meets its predictable demise. Besides, I didn’t answer, I didn’t want anybody close to me tied into the shady world around Silk Road given where I was pretty sure the site operators were headed to.

I was right about one thing; in November 2013, the FBI raided and shuttered Silk Road. They arrested the head of the site, libertarian Ross Ulbricht, and eventually sentenced him to life without the possibility of parole. Digression: while I try to focus on business, it’s impossible not to believe that sentence seems seriously harsh for a man who never actually committed a violent crime (though he did allegedly believe he’d commissioned five murders).

Bitcoin fluctuated in price, bubbling up and down like a pot of rice nobody’s watching closely. Neither my brother in law nor my wife’s ex bought any.

I didn’t think much of it until the price started to spike a few years ago. Up and up it went, with bitcoin enthusiasts predicting it’d hit six-digits. Until it didn’t then down and down it fell. Apparently, a lot of young Koreans lost a lot of money.

Now, bitcoin is the hottest thing again, the idea being the world will switch to it because the Federal Reserve is debasing the US dollar, printing an enormous amount that will devalue the dollar to near worthless. It seems like the Fed has been printing dollars at a ridiculous clip for some time now with no serious effects on their value but, at this point, I’m not making any predictions in the field anymore.

Fruitcake

This brings us to fruitcake. I’m writing this on Christmas Eve, a holiday my family doens’t much celebrate except to eat Chinese food and watch movies. Still, most people we know are into it and we’re often invited to parties and given small gifts, one of which is fruitcake.

Confession: I’ve never actually eaten fruitcake. It looks like something that’d simultaneously spike your blood sugar, add a few grams to your butt, rot your teeth, and get the kids hyper all the while not tasting very good. Fresh fruit with a slice of a not-too-sweet homemade cake sounds nice. Fruitcake, not so much.

The English have a savory cousin to fruitcake called Christmas Pudding. Think fruitcake with even more calories and less appeal. For whatever reason, it’s traditional to make Christmas Pudding weeks or months ahead of Christmas and let it develop f̶u̶n̶g̶u̶s̶ flavor as the holiday approaches, or something like that.

My wife worked as a pharmacy tech for years and tends to be hyper-vigilant about expiration dates. I’ve explained those are sell-by dates. And that lots of expiration dates are marketing ploys to get people and businesses to restock perfectly fine products. Also, yes, I’ve shown her the study where somebody found a batch of various decades-old pills that were perfectly safe and nearly full potency.

She doesn’t care; expired anything, even by one day, goes either to the dog or in the trash. (Note, while editing she clarifies “I don’t feed that s**t to my dog.”)

I try to focus on business advice but here’s a gem of wisdom that applies both in the office (assuming we ever get back there) and at home: it’s sometimes best to be quiet. Some things aren’t worth arguing about and a spouse’s dedication to protecting the family from what she’s sure would be slow and painful death caused by expired products is one of these. Better to trash the occasional packaged food or jar of multivitamins than marital harmony.

All of which puts the following into context: we were invited to a party at the house of an acquaintance and given some Christmas Pudding and a small wrapped fruitcake. After eating the Christmas Pudding our host told us how it holds up miraculously well despite that it had expired six years prior, which happens to be about the same time I was telling the ex’s to pass on Bitcoin. The fruitcake was only two years gone.

Bitcoin, Fruitcake & Christmas Pudding

Yes, this post does have a point and it’s this: different people have different vantage points. While we need to reject made-up nonsense it’s equally important to realize that a fine idea for one person is anything but fine for another and that nothing is wrong with this. Different viewpoints can co-exist just fine.

I was absolutely in a position myself to easily buy, say, a hundred bitcoins a decade ago. It wouldn’t have been an especially large investment. And I could obsess on my recommendation not to buy them.

Still, the primary purpose of Bitcoin, at that time, was to purchase illegal drugs and it seemed entirely reasonable the value of the coins would collapse with the drug marketplace. Did that happen? No. Could it have happened? Yes. Was it more than likely than not to happen? The idea that an entirely fabricated cyber-currency used to buy illegal drugs would soar in value and become respectable seemed far-fetched to a reasonable person.

However, maybe I should have listened to my (now ex) brother in law or my wife’s ex. If I’d said “I dunno – what do you think?” about Bitcoin then maybe I would’ve seen what they did which would’ve led me to buy a bag full of coins and make a bundle of money. Yes, I’m a world-recognized expert. Journalists source me for both quotes and background information. Congress, the Federal Reserve, and big banks relied on my advice. But, in hindsight, I was entirely wrong about this emerging field.

Similarly, nobody died from Christmas Pudding (though I think my wife wanted to). I don’t remember what we used the expired fruitcake for — maybe a doorstop? — but I’m certain we never ate it.

Even today, I don’t entirely get the point of Bitcoin. With the marketplace shuttered, you can’t even use it to buy illegal drugs anymore (uh … I think — I’m admittedly no expert in that field). And I’m not sure who actually wants a fruitcake or even unexpired Christmas Pudding. Still, I know there are people into all these things and that rather than snicker or sneer or roll our eyes it’s important to listen and try to see the good they see inside.

Find and solve painpoints to navigate towards a new blue ocean offering.

Painpoints are parts of the purchase or use experience identifying parts of the experience which are pains in the derriére. For example, haggling with a salesperson when buying a new car — wasting time while worrying about being taken advantage of — is a classic painpoint. Working through insurance coverage or submitting a claim is another well-known and understood painpoint.

Painpoints stink. They range from annoying to uncomfortable.

Traditional competitors often work on solving the same painpoints under theories of competitive strategy. For example, auto dealers focus on the car sales painpoint because that’s what everybody else is focused on. Besides, dealers know they have an advantage due to experience and information disparity with their customers. Some buyers go to elaborate lengths to play the game back the dealers, some with more success than others.

None of this adds much value to the overall experience. For the customer, they often leave with a feeling they’ve been taken advantage of. For the dealers, they spend an inordinate amount of time haggling which doesn’t always lead to a sale.

Businesses that manage to circumvent painpoints can do well. Take Carmax, the used-car behemoth that purchases and sells warranted used cars with no haggling. Prices are clearly stated and buying a car takes no more haggling than walking into the grocery store and buying some bananas.

Buyers love Carmax despite that their prices aren’t always the lowest.

“I also hate buying cars. CarMax makes buying a car as easy as buying an appliance from Best Buy or something which is great. … They don’t however have the best prices. Which I personally am ok with since I hate spending a week playing the stupid car buying game to save money,” writes one Carmax customer.

Carmax buyers are willing to pay a premium to avoid the painpoint of haggling. That means lower costs for Carmax, who doesn’t have to pay people to haggle, along with higher value for buyers, who don’t have to endure the dreaded experience.

Lower cost, higher value, a classic blue ocean strategic move.

The purpose of the blue ocean strategy Buyer Utility Map is to find and explore painpoints to figure out which might be solved.

You’ll quickly find most if not all competitors in a field are trying to solve the same paintpoints while ignoring painpoints that customers might find more annoying. Anybody who remembers purchasing computers is familiar with the technical jargon that used to prevail, with long lists of features detailing the chips and whatnot. Even today, this still exists to a lesser extent. The vast majority of buyers don’t know one videocard from another. Few realize the benefits of more cores; they simply want a computer. Apple vastly simplified computer buying by offering a small number of choices for RAM, different size disk drives, and not much else. Others soon copied.

Smartphones and tablets built on this simplicity though, even in those categories, some manufacturers still insist on confusing customers. Lots of Android phones list the amount of RAM, a totally meaningless statistic for the vast majority of buyers yet one that silently intimidates them.

I’m writing this in 2020 and Apple’s latest top-of-the-line iPhone includes a LIDAR sensor without explaining why somebody might want that. “It’s a cool piece of technology,” explains one reviewer, who admits the only thing it seems to do is drain the battery faster. Lines like this are a class indicator an offering is tech innovation that doesn’t solve a painpoint.

The Buyer Utility Map

The blue ocean strategy buyer utility map is a grid. Across the top, on the horizontal axis, is the Buyer Experience Cycle, the steps that make up the lifecycle of the product. Creating a buyer experience cycle is a sub-project on its own detailed in a different post.

In the first column on the left are the Value Utility Levers. These are six attributes that are cross-referenced to the buyer experience cycle. The utility levers are customer productivity, simplicity, convenience, risk, fun & image, and environmental friendliness.

By the book, utility levers never change though sometimes slight modifications are necessary. For example, in a project involving a legal process I helped reconstruct, we modified “environmental friendliness” to “sustainability” – trying to capture the same idea in a context that applies. Utility levers should only be modified if they make no sense at all and, even then, only to the closest possible analog.

To use the map, plot a red circle where the industry competes and a blue circle where there is a painpoint that most aren’t focusing on. Moving through the map helps identify opportunities that are ripe for developing a new blue ocean strategic move.

Quoting the late, great Harry Chapin, “It’s got to be the going, not the getting there, that’s good.” Which is to say that like all the blue ocean tools, the end result might not result in a new strategy but the steps required to use the tool often help unlock latent creativity or insights. Along with all the blue ocean tools, don’t worry so much if a strategy doesn’t immediately pop out. Take a step back, a deep breath, and continue working through the process.

Put yourself in the shoes of your buyer

The Buyer Experience Cycle (BEC) is a superficially short and often overlooked blue ocean exercise. In the books, tutorials, and even the tool itself, the BEC is always coupled with the Buyer Utility Map though they’re separate parts of the exercise.

In short, the BEC is a series of steps describing how a buyer finds, uses, and disposes of your product or service, with each step following the other. The book uses six default steps, Purchase -> Delivery -> Use -> Supplements -> Maintenance -> Disposal. For many products, these six steps work and too few people think through them in much depth.

Let’s look at an example of there the default six-steps of the buyer experience cycle work, an automobile. First, buyers look for and purchase a car. Next, it is delivered either at a dealership or some other way. Buyers then use it, driving it around. They supplement it with fuel over time. Maintenance is important and, eventually, most people dispose of their car either selling it or sending it to the junkyard.

The point of the exercise, which becomes more clear in the blue ocean strategy Buyer Utility Map exercise, is to find blocks to utility, areas where an industry focuses their attention but where a buyer might be lacking. I’ll go into more depth about blocks to utility in the Buyer Utility Map post; for now, let’s just focus on the Buyer Experience Cycle.

As I said, the default six steps work for many products and services but not all. Some products use some or all of the steps whereas others require fewer or more steps. Note that in the Buyer Experience Cycle it is permissible to modify, add, and remove steps whereas in the Buyer Utility Map it is (largely) impermissible to do so with the Buyer Utility Levers.

Let’s check out a few other examples where the default Buyer Experience Cycle doesn’t work.

Houses. Simply bucketing everything into “purchase” is too simplistic for buying a house. There are countless other considerations that, later, could create blocks to utility. Proximity to schools, work, shopping, and fun all come into play. One person’s block — say, being in the middle of nowhere — might be exactly what a different buyer is looking for. Financing needs to be added as a separate step. Delivery can be removed though Moving In replaced it. Supplements disappears whereas Maintenance and Disposal remain the same. Our final cycle becomes Analyze -> Finance -> Purchase -> Move In -> Use -> Maintain -> Sell.

Digital Music. Before obtaining digital music, users must first decide which format they want; streaming, digital single-track purchase, and what system plays their music. The buyer experience might be Understand Playback Options -> Explore -> Purchase -> Download/Stream -> Rate. Note this is entirely different than the default experience cycle. The only possible overlap might be “Supplement” if a strategist argues buyers might want to buy more similar music. Experts in digital music, a group that does not include me, may disagree with this cycle which is one of the reasons it is important to have subject matter experts do these exercises, not consultants.

Shoes. Simple, right? Actually, it’s a trick question because shoes can be purchased through so many outlets and each has a different buying experience, with many focused more on the emotional experience than the functional. It’s essentially impossible compare buying a pair of high-end designer shoes in a boutique from buying a pair of standard name-brand exercise shoes. The former are unlikely to be available online and the shopper is more likely to want a customized experience. In these cases, where the category of goods is so broad the product may appear the same but is substantively different, it sometimes becomes necessary to make two maps which would be the correct approach here.

Note the example above has seven steps which is not uncommon. Some cycles have as few as four steps whereas others have as many as ten. If your cycle has fewer than four or more than ten further thought is required.

Besides setting up the Buyer Utility Map exercise, thinking through what the steps are in the buyer experience cycle is important to devising a blue ocean strategy that redefines market boundaries, oftentimes by doing something different than those steps.

This exercise seems simple and, indeed, on its own it’s just a series of lines. But thinking it through carefully often leads to insights that help find blue ocean opportunities.

Blue Ocean noncustomers aren’t just new customers; they’re a new type of customer.

It’s your first week of MBA school. You’re excited, psyched, and vaguely hungover. A professor walks to the front of the class and asks “should you focus on existing customers or new customers?”

Every hand in the room shoots up.

“Anyone knows the answer to that!” answers George, a tall strong guy from central casting. “It’s always better to sell to your existing customers.”

In a normal world, give George an apple and an internship. Countless articles recount how much more profitable it is to sell to existing customers than to find new customers.

“Don’t Spend 5 Times More Attracting New Customers, Nurture The Existing Ones,” reads an article from Forbes.

“The Value of Keeping the Right Customers,” reads another from Harvard Business Review.

Normally, this is a perfectly acceptable answer. You have a relationship with your current customers. Unless you’re Comcast, they trust you and remain with you for a reason. Why waste time, energy, and money trying to find new customers instead of just selling more stuff to the existing customer base?

The reason, in blue ocean strategy terms, is that there are a whole lot more noncustomers than there are customers. Furthermore, those noncustomers might be open to an offering that is different, and more profitable, than those currently in the market might expect.

When marketers refer to converting new customers, they assume you compete for those customers with other competitors. This is one of the core postulates of Michael Porter’s competitive theory, that the five forces in an industry all compete.

And yet, blue ocean strategy shows us a better way. Don’t compete: make your competition irrelevant by finding new customers, noncustomers.

The easiest case to illustrate the power of noncustomer case is the Nintendo Wii.

Repeating, briefly, there are three videogame console makers, Sony’s Playstation, Microsoft’s XBox, and Nintendo. In the mid-aughts, Nintendo was far behind Sony and Microsoft. Analysts said their competitive position was hopeless and suggested they not release a new console, opting instead to transform into a gamemaker for other gaming systems.

Instead, Nintendo used blue ocean strategy to create an entirely new type of game console, the Wii, and blew away the other two in sales. For two years, an eternity in console sales, Nintendo’s Wii outsold Sony and Microsoft combined.

How? By using value innovation to focus on noncustomers.

I won’t go into a detailed analysis of Nintendo’s blue ocean case (though I’ve published one, available at Harvard Business School Publishing). But I will focus on the use of blue ocean noncustomers.

There are three “tiers” of noncustomers plus the existing customers.

Nintendo didn’t ignore existing gamers but also didn’t let them box the company in a strategy. Traditional gamers purchased a Sony or Microsoft system, and also purchased a Wii.

First-tier noncustomers are those who were about to jump ship. In the case of Nintendo, it was boys who were playing the Game Cube. Normally, those boys would grow up then buy a more “serious” Sony or Microsoft console.

Second-tier noncustomers are those who seem like they should be in a market but aren’t. Typically, second tier noncustomers are the most likely to build your blue ocean. In the case of Nintendo, second-tier noncustomers included girls (who, until then, gamed far less than boys), young adults, and parents. All those categories of people played games; they just, at the time, didn’t play videogames.

Finally are third-tier noncustomers, those in distant markets. These are the people you’d never think would be interested in an offering no matter what you did. In the case of Nintendo, they famously spent considerable time interviewing elderly people in nursing homes, a classic Tier 3 noncustomer group.

Typically, strategists don’t intend to sell to Tier 3 noncustomers. Instead, they learn from them to create an offering more attractive to Tier 1 and Tier 2 noncustomers. In Nintendo’s case, they learned that elderly people in nursing homes play games all day. More specifically, these games have relatively easy-to-understand basic rules making them approachable for beginning but scaling to being mind numbingly complex for advanced players. Consider Chess, Bridge, and Go. None of these games has especially complex rules but they’re all far more complex than any traditional videogame when played by experienced players.

This insight, about simple-to-approach games that scale in complexity, led to the notion of casual games, games that anybody could play but that became increasingly difficult as a players skill increased. Countless analysts have focused on the technology behind the Wii, which was important — the motion-controller made the system especially easy-to-understand — but the casual games the system played was the real secret sauce behind Nintendo’s success.

The idea of noncustomers is one of the most misunderstood components of blue ocean strategy. I’ve all too often seen it approached as a marketing strategy to loop in more customers or to poach customers from a competitor, which isn’t the idea at all. Rather, the point of noncustomers is to redefine the rules of the game, to change the boundaries of an industry in blue ocean terms and to make competition irrelevant.

A different way of thinking.

It’s right there on the front of the jacket of the book Blue Ocean Strategy, “How to Create Uncontested Market Space and Make the Competition Irrelevant.” It’s also one of the most misunderstood concepts of blue ocean strategy.

I’ve been working on blue ocean strategy since 2001, when it was a series of articles, years before the book was published. I work directly with the authors. It took ages before I understood what making competition was irrelevant meant. In fact, I thought it sounded like nonsense for the longest time.

The concept doesn’t mean that competition doesn’t exist but that it doesn’t much matter; it is irrelevant.

Let’s return to the Nintendo Wii which illustrates the concept well. Repeating, there were three console makers, Sony, Microsoft, and Nintendo. Before the Switch, Nintendo was a distant third. Sony was spending billions on a new chip, Microsoft willing to lose hundreds of dollars per console to buy market share, and Nintendo essentially broke (a pattern we see with many blue ocean businesses).

Nintendo used blue ocean strategy to create the Wii then outsold Microsoft and Sony combined for two years, an eternity in the console gaming market.

Nintendo never competed with Sony or Microsoft. Instead, they messaged that traditional gamers should buy a Sony or Microsoft console; the two vigorously competed against one another. However, Nintendo suggested gamers should also buy a Wii. Additionally, Nintendo suggested countless non-gamers, “noncustomers” using blue ocean language, should also buy a Wii which is exactly what happened.

Nintendo didn’t compete with Sony or Microsoft despite that they were selling a similar product. Rather, the Sony and Microsoft offerings were simply irrelevant. It wasn’t an either/or zero-sum offering but, rather, additive.

Countless marketers fall into the trap of allowing competitors, real or imagined, to set market boundaries and define their offering. They accept industry boundaries and feel compelled to play in those boundaries, set by others, despite the boundaries are almost always set to the benefit of a market incumbent.

Even when a blue ocean offering comes along — after the maker of the offering expaines what happened — traditional marketers still don’t get it. I was with a colleague at a trade show when we ran into a Microsoft product manager from “those days.” Paraphrasing, he said “we didn’t know what hit us — Nintendo just came out of the gate and was an unexpected enormous competitor.”

This is after Nintendo announced that they’d used blue ocean strategy to invent the Wii and all but laid out their strategic focus. The traditional product manager simply couldn’t envision what had happened well over a decade later. It’s almost inconceivable to those who set and play within industry bounds that an entrant can redefine those boundaries away.

Marketers think of industry bounds like rules of a game and, to them, changing those rules is like a play ignoring dribbling rules in basketball and clobbering an opponent by running with the ball. Of course, the vast majority of industry bounds — everything except government rules and regulations and the rules of physics — is an artificial construct incumbents abide by, oftentimes to their own detriment.

We see this in countless product offerings, large and small. Does the family doctor or lawyer who has been working with the same people their whole lives care much about “competition?” No, of course not. Does Cirque du Soleil compete against circuses or Marvel compete against other superhero movies? No. As I write this, Nintendo’s Switch is the bestselling console about two years in a row and Sony and Microsoft have again released their new consoles. And, again, the offerings do not compete with one another.

Making competition irrelevant is not driving competition into the ground by lowering prices; that is Porter competitive strategy. It is not purposefully monopolistic or predatory behavior; again, that’s a way to compete. While a blue ocean offering may disrupt a market or include disruptive technology, the central focus is disruption.

It takes a while for traditional marketers to get their heads around and grok the idea of making competition irrelevant. The idea just doesn’t sync with what they know about business. It’s not altogether uncommon for traditional marketers to hurl ad hominem attacks that blue ocean practitioners “don’t know business” because “business,” in their minds, is done a certain way and they follow those rules almost religiously.

However, as I’ve written about in this and other articles, blue ocean businesses almost always cost less and have a significantly higher chance of success. Interested in talking more about blue ocean strategy? Write to me: info@olen.com.

Oftentimes spending more doesn’t get more and, sometimes, gets less

Michael Porter is the father of modern business strategy theory and defined a few basic ideas. Core among them is that business centers around competition.

Competitors, new market entrants, suppliers, customers, and substitute products are five forces that influence profitability, he argued in his famous Porter’s Five Forces Theory.

To analyze a market approach, potential competitors — everything is competition-centric — analyze strengths, weaknesses, opportunities, and threats, or SWOT for short. To this day, MBAs everywhere spent countless hours drawing SWOT charts.

Baked into this is the notion that cost and value correlate. Spend more; get more. Spend less; get less.

Sometimes, spending more does buy a better product or service. A $1,000,000 house is likely to be nicer than a $250,000 dollar house in the same area purchased at the same time. However, oftentimes the opposite is not true. Not infrequently, the price of a good or service doesn’t correlate much at all to the value received.

Letting go of this idea that cost and value are hopelessly intertwined is a key component of value innovation, the heart of blue ocean strategy.

Rather than raw academic-speak, let’s check out some examples.

Gasoline. Fuel is heavily regulated. The same grade fuel drives your car the same no matter where you buy it from assuming your filling station isn’t cheating. Filling stations can advertise brand to their heart’s content but, ultimately, fuel is fuel. In fact, many filling stations branded to an oil company are actually franchisees who have licensed the name. Despite this, people pay more and less for the same fuel from different stations. In the US, it’s not uncommon to find multiple fuel stations close to one another selling the same grades of fuel at different prices. What stops buyers from always going to the cheapest since the value of the fuel is the same? Something else. We’ve spoken to convenience store Wawa who used blue ocean strategy to redefine the experience and created enormous incremental value with that that “something else,” which is often what we’re looking for when we create a blue ocean strategy.

Clothing. It’s Autumn as I write this and my teenage daughter has decided she likes sweaters. My sweaters, to be exact. I can’t blame her: they’re big and cozy and warm on her. She also likes clean clothes so tends to send them to the laundry after not much use leaving both of us with fewer choices. In business, there are certain decisions simply not worth the energy of fighting over and in life the same. This is one of these decisions. To make up the sweater deficit, I’ve turned to buying more (with her advice, of course). I’ve found sweaters range in price from €15 to twenty times that price. The difference? The higher-priced ones do seem nicer but I can’t figure out the difference between the €50 sweaters and the €250 ones. I suspect the difference is about €200 and not much else. Clothing, along with countless other brand-marketed items, often breaks the value/cost trade-off adding enormous cost for a brand without much if any corresponding value.

Automobiles. I once drove a Lexus hybrid that happened to look exactly like a Toyota Camry. Everything about it was identical down to the paint offered. But for the name, you could never tell the difference. Because there wasn’t one. In fact, I purchased the Lexus instead of the Camry because Lexus buyers figured that out and rejected the rebranded Toyota so they were being sold at a deep discount, below the price of Camry’s. These are very well made cars but the Lexus brand didn’t justify a higher price tag. Similarly, countless lower-priced cars offer far more value than their higher-priced cousins. Is there really much difference between a Toyota and Lexus? Between a Tesla Model 3 and a Tesla Model S? No. Car manufacturers are exploiting the value/cost trade-off.

Entertainment. Let’s look at a more common use of how the value/cost trade-off helps to develop a blue ocean strategy offering, Marvel. When the company created their movie studio, they found countless industry practices added cost but didn’t add buyer value. Movie studios used to, and many still do, offer lavish perks. Stars who like playing basketball might find a full-size indoor basketball court on the studio lot. One studio built an Italian villa in lieu of an office to make an Italian director feel at home at work. Marvel, which had pivoted from bankruptcy not long before creating their studio, realized these perks were unhelpful at best and an expensive distraction worst. They eliminated them, along with countless other common accouterments, and built the most profitable movie franchise in history.

Many people think of the four action framework when we reconstruct a new offering by figuring out what to eliminate, reduce, raise, and create. Focusing on what to eliminate and reduce is key to the exercise. Thinking about the value/cost trade-off with a hyper-focus questioning whether every component of an offering offers value that corresponds to its cost, to customers and noncustomers, is key to creating a successful blue ocean offering.

An introduction to the core of blue ocean strategy

Blue Ocean Strategy is a strategic framework and the name of a bestselling 2005 book written by Chan Kim & Renée Mauborgne published by Harvard Business Review. The book is based on a series of articles published in Harvard Business Review starting in the 1990s.

This post is the first in a series of brief, high-level overviews of the ideas and tools. Like others I work with, we’ve worked directly with the authors of the book and published extensively on the subject, typically at Harvard Business Review and/or Harvard Business School Press. Absent the authors themselves, there are no more authoritative figures.

Over time, we will publish ongoing micro-cases — examples of blue or red businesses over time — so please subscribe to our newsletter.

A very generalized overview of blue ocean strategy…

The business world is divided into blue oceans and red oceans of opportunity. These aren’t businesses; they’re what we call strategic moves — individual products or services businesses have built.

In red oceans, many competitors offering similar products and services often competing on price. Blue oceans are products and services that redefine market boundaries so they don’t compete on price.

Blue ocean strategic moves make the competition irrelevant. Sounds impossible? It did to us, too, at first. Please, bear with us…

There are three top-tier components in blue ocean strategy:

1. Value Innovation
2. Fair Process
3. Tipping Point Leadership

We will focus on value innovation, often described as the heart of blue ocean strategy. The other two components are important but too often ignored.

Value innovation has several high-level concepts:

1. Breaking the cost/value trade-off
2. Noncustomers
3. Making competition irrelevant

Besides the higher-level concepts, there are a number of popular tools to help explore and identify a blue ocean opportunity. These are the:

1. Blue Ocean Strategy Canvas
2. Blue Ocean Buyer Experience Cycle & Buyer Utility Map
3. Blue Ocean Noncustomer Exercise
4. Blue Ocean Six Path Framework

In individual posts, we’ll explore each in more detail.

Making Competition Irrelevant

Sounds impossible, right? Maybe even ridiculous? Honestly, we thought so too even after reading the book until we took the time to learn in more depth. Let’s check out a well-known and easy-to-understand case study, the Nintendo Wii.

Before the Wii, Nintendo was a distant third in the console market behind Sony and Microsoft. Sony was releasing the PS3 with a chip that cost billions to develop and could guide cruise missiles. Microsoft was losing hundreds on every Microsoft 360 game console sold.

Nintendo realized they couldn’t compete and didn’t try. Instead, they turned to value innovation.

Nintendo released the Wii which made the competition irrelevant. Sony and Microsoft competed fiercely and gamers purchased a Sony or Microsoft system. However, they also purchased a Wii. Additionally, many people who wouldn’t purchase any type of game console also purchased a Wii.

The Wii is a blue ocean offering. It didn’t compete with Sony and Microsoft but, rather, made them irrelevant as competitors. In contrast, Sony and Microsoft very much competed with one another (and, in their minds, they also were competing with Nintendo).

What happened? After analysts predicted doom-and-gloom Nintendo outsold Sony and Microsoft combined for about two years, an eternity in videogame time.

Nintendo used the six-path framework and buyer utility map to figure out how to break the value/cost trade-off, to create a system that cost less but offered more value and didn’t compete with the better-funded higher-powered and better-known consoles.

Are finding blue oceans impossible in your industry? No. There are consultants who say so. Many have a poor understanding of what blue ocean strategy means, relying on a superficial understanding. To find the right person look to books published and articles in Harvard Business Review or Harvard Business School Publishing. Avoid fly-by-night types with sleek websites who have taken or who offer cheap internet classes.

I’ve been applying blue ocean strategy since 2001 with the authors of the book, since when the book was a series of articles. Like you, I also thought the entire “make competition irrelevant” sounded impossible; hoaky even. But, over time, I worked with countless companies and have seen it work again and again. Blue ocean strategy, under the guidance of somebody who knows what they’re doing, is a great path to unlock creativity to find blue oceans of opportunity.