Yes there are still more things to write about the Blue Ocean Strategy. In previous post I mentioned that the key behind successful Blue Ocean Strategy is the discovery of a Value Innovation. And the key for discovering those Value Innovations is to really learn what the customers want; not just observing the obvious needs but really going through the complete package of customer (and non-customer) needs. And often even the customers themselves may not need exactly what they want, which may sometimes make customer surveys pretty useless.
“If I had asked people what they wanted, they would have said faster horses.”
For example if a movie theatre wants to have more young couples as its customers may need to find out that it would need to offer a baby sitter service during the movies.
Blue Ocean strategy is not just a differentiation strategy, As the authors point out that in often the new services can often be provided less costly both for the customer and to the company – so blue ocean strategies often create such win-win situations. As an example of that, the book had a nice little story about a Hungarian bus company NABI that in just a few years had taken a significant portion US bus markets after discovering that for the buyers the initial price of a bus was less important than the totat costs of operating that bus. Therefore by making buses with fiberglass instead of steel NABI could hit about 5 flies with a single hit.
Traditional : Buses made from Steel
- Lower initial purchase price
- heavier & provides less space
- consumes more fuel
- maintenance prices higher (after each minor accident a major steel repair is needed)
New: NABI buses made from Fiberglass
- higher initial price
- provides more space
- it is lighter and thus consumes Less Fuel
- Thus fuel it’s more environmentally friendly
Another Value Innovation was the invention behind the fractionally owned NetJets airplane fleet. Basically someone at the company discovered in 1984 that the businesses generally wanted to use their own jet planes more than those could afford owning and maintaining ones. Therefore the solution was to sell 1/16th usage shares of jet planes to businesses. And naturally that small jet renting company with an innovative fractional ownership business model soon become worth a billion dollars.
Authors of the book also claim that the the success of Australian wine brand “Yellow tail” is also based on a Value Innovation. Basically the Aussies would have discovered wine drinking in the US being too elitist, too boring and too serious. So in year 2000 the “Yellow tail” brand was created and it skipped all the boring aspects of centuries of wine making traditions and all the hyping of the fine wine aromas. Yellow tail just started to brand itself as fun social drink available both in white and red wines. And suddenly the wine drinking become more fun – as long as people were consuming yellow tail wines. And they were … as the Yellow tail became the number one imported wine to the USA by 2003.
How to maximize the size of a Blue Ocean
Obviously its important to make sure you’re creating a true Blue Ocean – and not creating a puddle by locking yourself into a small niche market. The key for maximizing your customer base is not to focus in attracting a larger share of your industry’s existing customers, but instead successfully expanding the market to include current non-customers. The number of your industry’s non-customers is always greater than the amount of customers. And if you focus into your industry’s existing customers, there’s a big possibility that you’re still in a the Red Ocean and just providing incremental product improvements – not a true value invention.
The authors kindly provide Big Bertha as an example of maximizing a Blue Ocean. Until 1991 the Big Bertha was just a massive howitzer used by the German army in WWI, but then was re-designed (by “Callaway Golf Company”) into taking a shape of a massive golf club. The reason behind the introduction of Big Bertha Golf Club was a survey among non-golfers who had expressed lots of skills required in playing golf and especially that hitting-the-ball-thing was almost too difficult. For some reason “Callaway Golf Company’s” managers did not just sneer to those “stupid non-golfers” , but instead they decided to make a series of massive golf clubs that could just not miss the ball. And the legend was born. Soon the real-golfers also observed some benefits with using those ridiculously massive Big Bertha golf clubs and one year after the (1991) introduction of Big Bertha, the Callaway Golf Company went public and it’s now the worlds the world’s largest maker of golf clubs.
The final section of the Blue Ocean book is mostly about leadership and changing the company’s strategy. The book is actually improving towards the end. Next post will cover the rest of it.