Blue Ocean Strategy in e-commerce. How to conquer new markets?
Running an online store can be a challenge. Especially if the competition is always on your heels. However, this does not mean that success is out of your hands. All you have to do is to choose the right way of development for your company and industry. With help comes the blue ocean strategy, which I recommend to everyone. So how do you create an undisputed market space? Read on and find out what value innovation is. You will also find out which brands the blue ocean strategy has helped to achieve global success.
Blue ocean strategy – what is it?
It’s an innovative concept that originated in 2005. All thanks to the appearance on the market of the book “Blue Ocean Strategy” by Chan Kim and Renée Mauborgne. These two prominent theorists have been teaching strategy and management at the French school of management and business INSEAD for years. The bestselling book they have written has quickly received worldwide acclaim. All thanks to the Blue Ocean Strategy, which they created and which explains how to get ahead in business.
Unlike traditional methods, which are based on satisfying consumer needs, this concept emphasizes expanding the market space in order to create a product/service that the competition has not yet discovered. Its main premise is to focus on creating a space undeveloped by other companies. It relies on innovation to create a whole new quality of service in the future. The blue ocean strategy therefore differs from the red ocean concept.
The blue ocean, or creating a market space
Reading the book “Blue Ocean Strategy” you can see that it differs significantly from previous textbooks on running a business. The authors of the book point out that in order to exist in the market, you need to look for a new, previously undeveloped market space. This is what “Blue Ocean” is all about, which is the opposite of Red Ocean. In the book, Chan Kim explains that unlike traditional business strategies that rely on meeting customer needs, you need to carve out your own market space. This leads to creating a whole new quality of service.
The concept of the red ocean
The red ocean is the area in which the vast majority of companies are located, according to the book’s authors. Thus, it is a market space where the boundaries of individual industries are known and have not changed for years. This is because the red ocean area has been dominated for many years by constant competitors who enjoy a strong position on the market. For this reason, it is difficult to compete with it – especially when the business has just entered the service market. A red ocean crowded with competition is therefore a difficult place for a business to succeed.
Is the Blue Ocean Strategy worth pursuing?
Many companies that have used Blue Ocean Strategy have been extremely successful – and globally. The research the book describes also supports this theory. Chan Kim and Renée Mauborgne analyzed the performance of 108 companies that decided to launch new products. 86% of them merely improved on products previously sold. As a result, their total revenue was 62% and their total profits were 39%. The remaining 14% of companies bet on innovation and ventured into blue oceans. This resulted in 38% of their total revenue and 61% of their total profits. Creating their own market space in their case made the existing competition in their industry irrelevant. In addition, these companies have also made many positive changes. Among other things, the blue ocean strategy contributes to low production costs, making their products even cheaper. Creating innovations has made them not have to fear competition. The value innovation they have applied has made them organize their operations and expand their territorial area, e.g. by introducing licenses.
Blue ocean strategy – useful tools
Implementing a blue ocean strategy in a company is not complicated, although it requires having the right tools. It is also extremely important to know how to use them skilfully. In the implementation of the blue ocean strategy, tools such as:
1. Strategy canvas
This scheme is based on undertaking a series of diagnostic activities that lead to creating a development strategy attractive for the company. The value curve created on this basis, takes into account, among other things, the current situation of companies in the market space, which helps to know the investment objectives of companies operating in a particular industry. The strategy canvass also helps to understand the framework of functioning of supply, production, implementation of services in the market, etc. It is presented based on the use of a graph of the so-called value curve. This helps in determining the relative performance of the activities of companies that are potential rivals in the business. The creation of the graph is thus used to know the quality of services offered by other companies. Thus, it gives you a chance to chalk out a whole new quality of service. In conclusion, it allows one to recognize the traditional factors that determine the success of a company while incorporating new elements that will help the company survive in the blue ocean.
2. The Four Action Plan
This method is based on learning the answers to 4 questions that challenge the logic and business model so far chosen in a given industry. In this way, it becomes possible to work out a trade-off between product diversity and low cost of production. So what questions should be answered? Here they are:
- What factors are important in a given industry to eliminate rivals? – The answer to this question will help to break the habit of competing with other companies. This will make it easier to focus on the real needs and expectations of consumers;
- What factors can be reduced so that they go beyond the standards of the industry? – This will reduce production costs, which will increase total profit;
- What factors can be strengthened so that they are beyond the standards of the industry? – is to spot the factors that will make your product or service stand out from others;
- What has never been offered before by competitors that could bring a breath of fresh air to the industry? – This will help to create demand for the new product and reduce the cost of its production.
3. Eliminate-reduce-enhance-create diagram
The four-action diagram will allow the company to determine what action to take. It will also result in an “eliminate-reduce-strengthen-create” diagram that complements the tools mentioned above. It consists of:
- Eliminate elements – which are the object of competition with other companies. This stage consists in getting rid of those features of the product, which do not have any value from the consumer’s point of view;
- Reduction of elements – which are below the standards of a given industry. This makes sense only if you are certain that the product feature is of little value to consumers;
- Strengths enhancement – locating the product’s strengths and refining them so that they surpass the standards of other companies. These factors must be highly relevant to potential customers;
- Creating new values – which will be relevant to consumer needs. It is based on innovation, creativity and ingenuity. At this stage, the product or service takes on values previously unseen in the industry, which will attract the attention of new customers.
Michael Porter’s main competitive strategies
In running a business, it is also useful to know the competitive strategy, created in 1980 by Micheal Porter. It was he who proposed a new definition of competitive advantage. Earlier authors of publications) including Philip Kotler, among others) believed that the advantage is due to better quality products, lower prices or more benefits that go along with a higher price of the product. However, according to Michael Porter, the success of a business is determined by 3 competitive strategies defined by him. We are talking about cost leadership, differentiation and concentration. They allow companies to introduce products to the market that other companies will not be able to fully realize. So how to do it?
It is about gaining an advantage over competitive companies based on cost reduction. Following this pattern, a company implementing this model should also identify the target customer it cares about. Ignoring the needs of consumers who are not the target customer will serve to minimize the company’s expenditure on advertising, research, service and much more. Thus, cost reduction is not at the expense of the quality of the service or product offered and the total profits of the company will increase. The competition present in the market will not pose a threat. Moreover, it will also save you from incurring losses that others are exposed to due to lack of cost leadership.
By implementing this strategy, pressure from consumers that would force prices down can also be avoided. As a result, the company will pursue a price advantage. However, it should be remembered that cost-cutting should not affect the quality of the offered service/product. This may result in the opposite reaction and discouragement of consumers. On the other hand, the implementation of a low-cost model is possible only if the company enjoys the title of leader in its industry, or compared to other companies – it has better access to the necessary raw materials. It is also worth mentioning that it may require large financial resources.
According to Michael Porter, the idea is to create a product that is unique. This result can be achieved, among others, by using an interesting design, a unique function or by using an innovative technology that no one has implemented yet. The effects of differentiation will be the better, the more areas of the company they will concern. It is also worth noting that in this model minimizing costs should not be the main goal. On the other hand, however, this factor cannot be completely neglected. What does the use of product differentiation give? As a result, the company will gain an advantage among its competitors. However, it will happen only thanks to the customer’s loyalty, who prefers to pay a little more but be sure to receive a good quality product.
This approach ensures that the company will be able to achieve high margins – while at the same time depriving consumers of the influence to lower the price of the product. Differentiation also helps to create high barriers to entry for possible rivals in the future. In turn, thanks to customer loyalty, these companies will not have to fear the threat of others. When deciding to implement differentiation, it should also be kept in mind that this model usually does not lead to a leadership position in its field. Imposing slightly higher prices will put the product beyond the financial reach of some consumers. However, higher prices will allow for a lot of innovation and research that will help grow the business.
The last strategy developed by Michael Porter is concentration. It focuses on the needs of the consumer group that is most crucial from the company’s point of view. This strategy can take many different forms, but unlike the others proposed by the author – it has strictly defined objectives. The advantage over competitors built on its basis is based not on a lower price or a unique value of the product, but on the fact that it satisfies the needs of a given group of customers as much as possible. However, like the other methods, it leads to gaining an advantage over other brands.
The implementation of concentration works especially well for companies that do not face strong competitors. During its implementation, however, special care must be taken to balance the profitability of the product with the amount of profit from its sale.
Famous brands that have triumphed through blue ocean strategy
The purpose of the blue ocean strategy is to provide consumers with products of a completely new quality, and several well-known brands have used this strategy in the past. They have made it clear that you don’t have to be in a pointless race to beat your competitors. The blue ocean strategy shows that the only way to beat the competition is by not competing.
Cirque du Soleil
This is how, among others, Canadian Cirque du Soleil triumphed, whose secret to success lies in creating a completely new quality. Thanks to this, Cirque du Soleil’s shows have met with worldwide acclaim. However, it required great creativity – as it is impossible not to notice that the circus show is given differently than traditional circus groups. The show’s organizers relied on many innovative solutions, which, like the complete lack of animals in the arena, went far beyond the framework. Instead of animals that have been present in the performances of other circus groups for centuries, something completely new was put in place. The fabulously colorful Cirque du Soleil shows became a combination of theater (acting, set design, costumes), circus (acrobatic displays), ballet (choreography) and stunning visual arts. Thanks to this, in just 20 years it has risen to the position of the most recognizable circus in the world – although it deviates significantly from the standards that have been present in this environment for hundreds of years.
Ford Motor Company
Founded in 1903, it has survived many difficult times. But as it turns out, the secret to the brand’s success lies in its creativity and the implementation of a blue ocean strategy. and that was years before Chan Kim and Renée Mauborgne’s book came out. After all, the first Ford T was created in 1907. – almost 100 years before the blue ocean theory was formulated. The aforementioned Ford T model provided the brand with a triumph that the brand still reaps today. After all, until the first Ford T came out, passenger cars were something out of reach for most of the general population. Cars were considered a luxury good whose market prices (even despite the high competition) were constantly increasing. For this reason, only a few and the wealthiest could afford to own a car.
However, there are many more examples of companies that have benefited from implementing a blue ocean strategy. Among them are other globally recognized brands such as Apple, Nintendo, Amazon.com, Body Shop and many others.