Thursday, December 8, 2011

Is LivingSocial swimming in the Blue or the Red?

“Blue Ocean Strategy” by Kim and Mauborgne describes the best strategy to drive profitable growth. The key is to stop competing in overcrowded industries, called red oceans and tap into uncontested market spaces, called blue oceans. Red oceans traditionally fight with competitors to out-perform, out-sell, and out-grow which just consumes more pieces of the shrinking pie. This market sounds like a war zone as Kim and Mauborgne describe it. In Red oceans strategies for growth focus primarily on competition in the existing market space, exploiting demand, and a trade-off between value and low cost. My analysis will show the differences in blue ocean strategy that create growth and how LivingSocial may or may not be effectively swimming in the blue ocean.

The blue ocean strategy is describes as a new strategy in the reading, but it has been around for decades…centuries even. The automobile and aviation industries are both industries that developed out of existing markets (red oceans). Blue oceans are typically formed out of existing red oceans. In blue oceans, new demand is created while offering value to your customers and streamlining your costs. The blue ocean strategy is created based on what customers value. For example, an easier, faster, shorter, nicer way of doing the same old thing. It must be a tricky thing to create an industry that does not exist. Apple for example, is drowning in the blue ocean. In order to succeed in this competitively driven economy that is saturated with options for customers, companies need to be swimming in the blue ocean too.

LivingSocial is trying to change how the local commerce industry operates whiles revolutionizing ecommerce at the same time. Is LivingSocial trying to beat or out-grow Groupon, or are they created a previously unknown market space AKA a blue ocean?

In trying to answer this question we must look at the defining characteristics of the blue ocean strategy. First, blue ocean companies do not use competition as a benchmark. Traditional strategies of companies operating in red oceans focus on competition as a means to grow profits, exploit demand, and shrink the pie. Secondly, the blue ocean strategy rejects the traditional strategy of having to make a trade-off between value and cost. Instead, blue oceans choose differentiation and low cost at the same time. If we forget about groupon for a moment, it appears that competition does not drive LivingSocial’s strategy. LivingSocial has successfully found ways to add value to everyday people by enhancing your daily experience. These experiences are brought to customers in a low cost fashion for LivingSocial and the consumer. They have created new demand in a down economy for people who are looking to enjoy the adventures and excitement of social life. Customers are also provided these joys at discount prices and all correspondence is electronic (lower costs). Red oceans still dominate the industry, even though business’ need to create blue oceans. Will this strategic shift in the commerce industry push other industries to push toward blue oceans?

Blue Ocean Strategy, Kim and Mauborgne

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