In 2003, technology company Apple Computer Inc. decided to strike out into new territory: music distribution. It created online store iTunes, from which people could download legal, high-quality song files at a buck a pop.

Until then, no company had been truly able to capture the online market, which consisted mainly of the illegal downloading of millions of songs at no cost. iTunes was convenient and bug-free, and its success fed into Apple’s hot portable MP3 product, the iPod.
Apple’s shares shot up in price.

“Apple capitalized on this decisive trend [of downloading]” say W. Chan Kim and Renée Mauborgne in their new book, Blue Ocean Strategy: How to create uncontested market space and make the competition irrelevant. “iTunes unlocked a ‘blue ocean’ in digital music.”

What’s a “blue ocean”? It’s undiscovered but highly profitable market space, according to Kim and Mauborgne, both professors at France’s INSEAD business school. That stands in contrast to “red ocean” market space, in which competitors fight tooth and nail over existing space and along common rules of engagement, turning the ocean blood-red.

The authors argue the best way to reach that blue ocean and beat the competition is to stop trying. Instead, you rethink and re-imagine what you are offering, making it so distinctive the competition no longer matters.

Roch Parayre, a managing director of Decision Strategies International Inc. , in West
Conshohocken, Penn., employs value innovation concepts outlined in Blue Ocean
Strategy in his consulting work with financial services, pharmaceutical and information-technology corporations. He’s also a senior fellow at the Mack Center of Technological
Innovation at the Wharton School in Philadelphia.

“Too many people, when they talk about strategy reinvention, just talk about adding more stuff to their offering,” he says. “In value innovation, the key is what you can consciously choose not to do because it provides very little value added, so that you can release time and resources. Because you’re not doing X, that allows you to do Y, which you weren’t doing before.”

Apple isn’t the only example of blue ocean thinking. Southwest Airlines Co., the original discount airline, famously created a blue ocean space by offering a much different value proposition — no frills, frequent flights, low cost — than consumers had been receiving from the traditional airlines.

Likewise, clothing retailer Zara, a subsidiary of Spain’s Inditex Group, delivers reasonably priced cutting-edge fashions to its stores at lightning-quick speeds. Its store managers continually monitor consumer demand and that information is fed back up the chain. Quick product turnover keeps the fashions current and creates a false — but enticing — scarcity.

One of Parayre’s favourite case studies of blue ocean creation is Cirque du Soleil, not the least because, like the phenomenally successful acrobatic show, Parayre also hails from
Quebec.

Twenty years ago, Cirque du Soleil shed some of the familiar big-top trappings — animals, concessions and slapstick — while keeping the acrobats and introducing up-market elements from theatre, opera and rock. It revolutionized the circus, creating a live-entertainment business phenomenon.

Blue Ocean Strategy also argues that traditional red ocean competition will get fiercer and less profitable as technological advancements and globalization increase price wars and consumer fickleness. Companies that are capable of carving out a unique market space will thrive.

The authors set out a step-by-step process of value innovation. To begin, you need to define the different elements in your current value offering. For a brokerage firm, for instance, it might be convenience, speed in execution, low cost and quality research.
Then assess your competitor’s current value offering. The more the two pictures align, the more you’re fighting a costly red ocean battle.

Ask yourself if there are value elements that you could eliminate or reduce, as they bring in too little value for the time and cost involved. Conversely, are there value elements you should play up or introduce in order to begin to tell a distinctive value story?

Blue Ocean Strategy counsels travelling down six “paths”:

> Look across alternative industries. Running a restaurant and running a movie theatre, for
example, are two completely different businesses and yet, for consumers, they both provide a similar service: a fun night out. Are there neighbouring industries from which you can learn?

> Look across strategic groups within your industry. Different companies in the same industry offer products and services targeted at different levels of price and performance.
A corner barbershop might charge $15 for a simple haircut, no appointment required.
Meanwhile, a high-end salon will give you a stylish hairdo and colour treatment, but at 10 times the price. Figure out how, when and why consumers make the decision to trade up or down in a particular category.

@page_break@> Look across the chain of buyers. Three groups can be involved in the buying decision — the user, the purchaser and the influencer. Companies usually focus their energies on just one group: for example, the clothing industry targets the user; the office-equipment industry focuses on the company purchaser; and the pharmaceutical industry targets the influencer, the doctor. But what would happen if you targeted a different group?
Financial-information company Bloomberg LP leaped over rivals in the 1980s by designing its IT terminals with the users — the traders — in mind and bypassing purchasers. The traders soon demanded purchasers buy the Bloomberg terminals.

> Look across complementary service and product offerings. What products or services do consumers need in tandem with yours? A decade ago, the big-box book retailers realized you could sell customers expensive coffee and other non-book items while they browsed.
Is there a service or product that would allow customers to enjoy your product or service better or more comfortably?

> Look across functional or emotional appeals to buyers. In the 1980s, The Body Shop International PLC found success by playing down the glossy advertising, expensive packaging and high prices traditionally used by cosmetics houses, and playing up inexpensive, healthy and environmentally friendly products. In contrast, Starbucks Corp.
hit a home run in the 1990s by turning an inexpensive product into a luxury purchase.
Can your product or service be pitched differently?

> Look across time and trends. What external trends will affect your industry or the business environment in a clear and permanent way? Apple saw the trend of music downloading and found a way to adapt and prosper. How can you alter your value offering to thrive in the new environment?

Blue Ocean Strategy offers suggestions on how to go beyond the conceptual stage and through the difficult process of changing your value offering. Eventually, however, new trends will arise, tastes will change and the competition will catch up. Then, it may be
time to consider re-evaluating your offering again. IE