Friday, December 9, 2011

How to keep the ocean blue?

Blue ocean strategy is about creating a new market with a specific customer base and demand for your product/service. It is usually used by startups to create a new market for their innovative ideas and very few established companies try to explore a new market using blue ocean strategy. Blue ocean strategy also gives a first mover advantage which is very difficult to maintain. It is very likely that some other players see the new market developed by you and they try to perform better in the areas that you have explored. Here, I would walk you through my thoughts on how to sustain the “Blue Ocean Advantage” of low cost and differentiation for a longer time.

Standardization and Regulations

One of the major advantages of creating a new market is that you get to write the rules. Microsoft has been one of the most successful companies in history to set favorable standards in the market. Microsoft created a huge market for their operating system, Windows, by putting it in almost every personal computer in the world by different methods. As a consequence, users got so much used to Windows, that all new entrants in its market had to follow some specific user interface patterns and had to allow Microsoft auxiliary software on their operating systems. Thus, standardizing, patenting or regulating the market according to your own needs and competencies is very useful.

Differentiation by Value Innovation

Innovation could be a must while entering the blue ocean but pure innovation does not help to keep the ocean blue. “Value innovation” is to create your innovation at lower cost and offer it at best price to the consumers. It is a threat that other big players quickly enter your blue ocean after you and start providing value innovation to your consumers. Hence, differentiation by value innovation is a key requirement to keep the ocean blue in long run.

Create competitor friendly market

When companies are creating a niche in the market for theirselves, they need to make sure that they make it attractive to other entrants as well. Deterring market entry by various means is an obsolete concept now. Google, the biggest and the most successful executer of Blue Ocean strategy, has used similar concept for their Android open handset alliance. This free alliance allows any hardware producer to modify the operating system software (Android) as per their needs and sell it with their phones. It appears to be a risky strategy as Google also produces and sells phones and they themselves are encouraging competitors to use their OS. Essentially, they are not inviting other competitors in its Blue Ocean of open source mobile operating systems. Such tie ups and eco systems make the ocean of auxiliary products even more red while keep your own ocean blue.

Make switching easier and make loyal customers

The traditional competitive red ocean strategy insists on imposing heavy switching costs on existing consumers while blue ocean strategy focuses more on making loyal consumers and keeping switching costs low. For example, when Zipcar created its blue ocean, a lot of car rental companies had customers locked in (using gold memberships, etc). Yet Zipcar has been successful in attracting and retaining customers by offering lower switching costs. Consumers can anytime go back to car rental companies but they do not because they are loyal to Zipcar and not locked in with Zipcar.

Blue ocean strategy is widely being used but it quickly turns into red ocean. Keeping the ocean blue for a long time helps sustain the company for a long time and meanwhile making a lot of money and consumer loyalty!

Blue Ocean Strategy, Kim and Mauborgne

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