10/27/2020 How to create uncontested market space - The Economic Times

English Edition | 27 October, 2020, 03:23 PM IST | E-Paper

How to create uncontested market space

Synopsis
Cement as a wedding gift, video games for old age homes - Blue Ocean Strategy can take you just about anywhere, says author Renée
Mauborgne

Ren��e Mauborgne may not BE as well known as Bill Gates or Jack Welch, or even Michael Porter, but there is one area
where she leaves all three far behind. Consider this: her book, Blue Ocean Strategy: How to Create Uncontested Market
Space and Make the Competition Irrelevant, co-authored with W. Chan Kim, has been translated into 41 languages
globally. Compare this with 25 languages for books by Gates, 27 and 29 for Welch and Porter respectively , and you realise
just how popular the book has grown to be in the last few years.

It may seem like stating the obvious, but as supply outstrips demand in various markets and product categories, it has
become essential for companies to nd newer ways to compete and create strategies for new markets. ���Blue Ocean
Strategy is not only about how to tap new markets or uncontested spaces but about how to compete and create strategies
in existing markets which o er a leap in value to the consumer,��� says Mauborgne.

She uses Nintendo���s now revolutionary video game, Wii, as an example of how a company can use the blue ocean
strategy to succeed in a crowded marketplace .

Till the Wii was launched in November 2006, video games were aimed at what she calls ��� for lack of a more
succinct description ��� ���anti-social young boys and girls��� . Most were violent games which had the
gamer spending hours plonked in front of a screen (ideally, a high de nition one so that the graphics were optimised),
with minimal interaction with other people.

���The Blue Ocean Strategy comes through when you turn long held ideas and beliefs on their head, and that���s
what Nintendo did,��� she says. The new game requires people to be on their feet as they play games like tennis or
golf on their Wii���s , and it���s marketed as a game that brings families together.

The best part ��� Nintendo makes a pro t of $40 on every console sold, compared to Sony which actually loses $240
on each Playstation 3 (PS3) it sells. Sony makes the money on the software, but the PS3 console is basically is a loss
making product.

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This example, says Mauborgne, adheres to all the essential principles of a Blue Ocean Strategy. ���It grew the demand
for the product from the existing set of gamers to tap into a second tier of people who would perhaps be more inclined to
playing a sport over a video game, and even a third tier like parents or grandparents,��� she says. A product or service
has to compete, not only for existing consumers, but also new ones.

The Wii has moved the competition to a new level, no longer ghting for the same lot of gamers as a Sony Playstation or
Microsoft Xbox. In the process, it reduced cost through ���value innovation��� which is the cornerstone of Blue
Ocean Strategy ��� doing something which makes competition irrelevant.

Wii has also managed to di erentiate itself by eliminating the need for a high de nition TV and reducing the processing
power and thereby the cost. This has further widened its potential user base. ���What���s important,��� says
Mauborgne, ���is to nd a way of achieving di erentiation along with low cost simultaneously to grow pro tably, and
that is what Nintendo has done with the Wii.���

At times, you don���t even need to create a new product to follow the Blue Ocean Strategy ��� simply re-look at
how you are selling it. Cemex, the world���s third largest cement maker, is a case in point. About 85% of the cement
sold in Mexico is to the do-it-yourself (DIY) home-builders , most of who take about seven years to add an extra room to
their house.

This is because most of their money is spent on milestone events like village festivals, quincea��eras (girls��� 15th
birthday parties) and anniversary celebrations, which everyone contributes to. So while having a cement house is top
priority for everyone in Mexico , very few people can actually a ord it.

���Cemex realised that the market had to potential to grow substantially and in 1998, it started positioning cement
not as a functional product, but as a dream gift, romanticising ���rooms of love��� that allow people to share
their joys and bring them closer together,��� says Mauborgne.

Now Mexicans gift each other bags of cement and Cemex helps teach people how to construct their extra rooms better.
Not only has Cemex tripled the volume of cement consumption by the DIY homeowners, but it also sells at a higher price
and has better control over inventory and production ��� just by repositioning cement from a functional to an
emotional product.

A word of caution however. Just because a company is innovative today is no guarantee that it will continue to innovate
in the future. An example being Sony. ���It revolutionised the way people listened to music when it launched the
Walkman, but since then, Sony hasn���t managed to do anything as path-breaking . But its earlier breakthroughs
created tremendous brand equity for the company, so even today, a consumer is far more likely to buy a Sony music
system over others,��� says Mauborgne.

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10/27/2020 How to create uncontested market space - The Economic Times

Another trap companies often fall into is classifying all innovation as Blue Ocean. ���Often, when companies claim
that they have come up with a new innovation , it is an improvement on an existing product or service,��� says
Mauborgne. The reason for this is simple ��� most CEOs are more comfortable signing cheques for these seemingly
Blue, but actually Red Ocean Strategies, as it is something they can see and relate to.

Of course, Mauborgne isn���t recommending that companies blindly invest in vague and seemingly esoteric
businesses only. ���A company needs a strong balance between its red and blue ocean businesses, as it is the pro ts
from the red that will fund the blue,��� she says.

Also, as Nintendo did with the Wii, its often possible for an incumbent to create a blue ocean within the area of its core
competency. An additional bene t, she mentions, tongue rmly in cheek, is that if the product is di erentiated from
others in the market, it means far lower advertising and marketing spends otherwise needed to make your brand stand
out in the clutter.

She makes it clear that adopting a Blue Ocean Strategy does not simply mean technological innovation ��� after all,
people do not love Apple products only because of the technology aspect. A side e ect of having a blue ocean product is
that competition is no longer a cause for concern.

���It takes 10 to 15 years for a blue ocean strategy to get replicated in a systematic way,��� she says. Companies
end up replicating parts of the whole but to qualify as a Blue Ocean Strategy and be truly e ective, it has to be done in its
entirety. ���If you are a pioneer , you can stay blue a little longer than common sense dictates,��� she smiles.

But how does a company know that it is indeed creating a Blue Ocean product and not mistaking the red for the blue?
���Simple,��� says Mauborgne, ���you���ll end up creating fans, not consumers.���

De ning The Blue

The market place

comprises two oceans ��� the red oceans are the existing industries and the blue, the unknown, or all the industries
that do not exist yet. The basic premise of the Blue Ocean Strategy is that to be successful and really stand out, it is
necessary to create blue oceans.

Commoditisation, competition, price cuts, shrinking margins all turn the red oceans bloody, and while a company must
know how to compete and survive in the red, it will increasingly become important for it to seek the blue.

Here, the market rules and theories no longer apply as it is an uncontested space, and it is the company which creates the
rules. This becomes even more important in overcrowded industries where di erentiating a brand is di icult.

What���s important is not to benchmark yourself against competition, but on ���value innovation,��� which
the authors call the cornerstone of the blue ocean strategy. The idea is to do something so innovative that you end up
making competition irrelevant.

However, not all innovation can be called blue ocean. Very often, it is just an improvement over an existing product. A
study of 108 companies showed that about 86% of new launches were primarily line extensions which generated 62% of
the revenue and 39% of the pro ts.

Meanwhile, the balance 14% which were actually aimed at creating blue oceans contributed to 38% of the revenue and
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10/27/2020 How to create uncontested market space - The Economic Times

61% of the pro t. As industries change and evolve, the blue oceans will turn red, but it takes about 15 years for that to
happen. Meanwhile, its useful for companies to remember that just a single blue ocean service or product will sustain
them for only so long, and they still stand the risk of becoming obsolete over a period of time.

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