The Strategist

Finding the best strategy in the Blue ocean

07/19/2019 - 12:00

The "Blue oceans" are markets where there is no competition, but a new demand and opportunities for sustainable development and increasing profits. How to find a suitable approach to them?

It is not easy for companies to achieve profitable growth in the face of tough competition. Why are some of them still able to achieve steady growth in both revenue and profit?

The secret lies in the approach to strategy. Less successful companies adhere to the traditional approach: they seek to outpace competitors. In contrast, fast-growing companies are not trying to catch up or outperform rivals. Applying strategic logic, which is denoted by the term “value innovation”, they strive to make competition out of place.

Are you struggling to stay ahead of the competition? It is not necessary. Instead of trying to catch up or surpass them in terms of cost or quality, make other market participants lose their importance.

Secure a new market space, which competitors don’t dare to occupy.

How to do it? Become an innovator: find radical ideas that will provide a qualitative leap in value for consumers. Innovators of value put the question like this: “What if we start from scratch and forget everything we know about rules and traditions in the industry?” They do not seek to create a competitive advantage, but innovative methods of work allow them to achieve just that.

For example, Virgin Atlantic refused first-class passenger services and spent the savings on increased value for business class passengers. The airline created more comfortable seats and provided free transfer to and from the airport. As a result, the company was able to attract more passengers, not only business class, but also those who fly economy or first class with other airlines.

Translate ideas into action

To become an innovator of value, consider the following strategies on the example of the French hotel chain Accor.

1. Assume that you can shape industry conditions. In the mid-1980s, there were two types of hotels in the budget hotel segment in France: cheap, with poor beds and high noise levels, and more expensive hotels, with first-class amenities and good sleeping conditions. Accor brought this industry to a qualitatively new level by providing budget travelers with excellent low-cost rooms.

2. Focus on what is most valuable to consumers. Accor found what is necessary for customers of all budget hotels: proper sleep and low price.

3. Analyze how you can change your offer to attract customers in the selected market:

- get rid of everything that does not represent value to consumers or reduces this value,

- simplify complex products that were created to outperform the competition,

- improve customer value features so that they no longer have to compromise,

- create new features that your industry has never offered.

Example. Accor has created a new concept - the Formule 1 economy-class hotel chain. The company refused restaurants and large lounges, deciding that target customers would be able to do without them. Administrators worked only in the peak periods. Cabinet furniture was replaced by shelves and clothes hangers. In addition, the company has improved a number of functions: for example, it has provided good sound insulation by building buildings from cheap modular units.

Based on "Blue Ocean Strategy Reader" by W. Chan Kim and Renee Mauborgne

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