Feature Story

 

Blue Ocean Strategy

Don't Compete With Rivals- Make Them Irrelevant!

 

By Kathryn Peterson

 

For decades, competition has been the heart of any business strategy. Now, entrepreneurial experts say the strategy has changed: Think differently so you won't have to worry about the competition.

This concept known as the "blue ocean strategy" became a successful book in 2005, "Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant," by W. Chan Kim and Renée Mauborgne. The strategy is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years. Its aim is not to outperform the competition in an existing industry, but to create a new market space or a blue ocean (as opposed to a red ocean infested with competing sharks), thereby making the competition irrelevant.

Of course, writing up a competitive analysis is still important. Venture capitalists and angel investors want to see that you've carefully considered your industry and can prove your concept and market space, but experts say an analysis is considered more of an academic exercise and should not define or constrain your efforts to innovate. So the next time you sit down to write a business plan or create a new product or service, here are a few examples of companies that found their way in the blue ocean.

 

Think Different

Gary Rhoads, director of the Entrepreneurship Center at Brigham Young University, says startups should focus on developing new categories and unique claims, not so much digging up dirt in their competitor's backyards. "They should focus on execution, management and getting the right people on the bus," he says.

Take, for instance, the popular energy drink Red Bull. The idea to create Red Bull originated in 1984. At the time, nobody thought that a functional drink previously unknown in the Western world (especially one packaged in an 8.3-ounce can and sold at a premium price) would ever stand a chance.

"They could have been a cola drink, but instead they coined the term "energy drink," and put them in a new category. The iPhone did the same thing. Apple wasn't too concerned about their competition, because their product was the first of its kind. When you get bigger, or launch a ‘me too' company such as a dress shop, that's when you should worry about your competitors' reaction," Rhoads says. "Competitive analysis, while a mere exercise, is important for startups because venture capitalists and angel investors like to see possible threats and proof of concept in the industry."

Rhoads says that when your company does get big enough to start worrying about the competition, react by researching cost comparison, altering design and packaging, etc. "Jolt is still trying to compete with Cola; but Red Bull said ‘Let's not even try to compete.'"

In the past 15 years, Red Bull has quietly captured more than 70 percent market share in more than 100 countries. The drink has been copied by more than 100 competitors, but companies such as Coca-Cola and Anheuser-Busch have been unable to take market share away from them. Dietrich Mateschitz, a former toothpaste salesman who built the multi-billion dollar energy drink company, says of his success: "If we don't create the market, it doesn't exist."

 

Finding New Market Space

According to the blue ocean strategy, when companies are willing to challenge the functional-emotional orientation of their industry, they often find new market space. Emotionally oriented industries offer many extras that add price without enhancing functionality. Stripping away those extras may create a fundamentally simpler, lower-priced, lower-cost business model that customers would welcome. Conversely, functionally oriented industries can often infuse commodity products with new life by adding a dose of emotion and, in so doing, can stimulate new demand.

For example, with its wildly successful Viagra, Pfizer created a blue ocean by shifting the focus of the pharmaceutical industry's largely functional orientation —medical treatment — to lifestyle enhancement, an emotional orientation.

Consider how Ralph Lauren, the U.S. designer created a blue ocean of "high fashion with no fashion." In creating Polo, Ralph Lauren combined the best features of haute couture (designer name, elegance of its stores and fine materials) with the best features of lower-priced classical lines (classical look, lower prices) to not only capture share from both strategic groups, but to also draw new customers into the market. That's the second path to reconstructing markets termed "looking across strategic groups."

 

A Lesson From the Politicians

Businesses in Utah could learn a thing or two from the 2008 presidential race. Rhoads says when it comes to politics, the best candidate may not always win, but the winner is almost always the one who did the best job at differentiating themselves and finding their voice. They've determined their strengths and weaknesses and know how to capitalize on those traits.

"Politicians have the best market researchers; they even have entire teams devoted to negative data about a candidate," Rhoads says. But, like politicians, don't get so focused on digging up dirt or creating slogans and jingles that your innovation suffers. Jolt now touts itself as the "energy drink that actually tastes good," perhaps a jab at Red Bull when industry pundits suggested it served its market best by providing them with energy, but not necessarily the best tasting.

"This is the point where it's dangerous to chase competitors instead of focusing on innovation," says Jeremy Hanks, chairman and co-founder of Orem-based Doba. "Yes, you need to know who they are and what they're doing, but I like having a dedicated employee do this and summarize the information for the rest of the team."

Steven Clegg, founder of Utah-based Sharkwatch, monitors companies' competitors. Clegg used to be a competitive analysis consultant for large corporations. He found that companies asked the same questions: Have product features changed? Has management changed? Has their pricing changed?

"Back then, we did extensive reports. We hired a Ph.D. to write a complex analysis. I developed a software that monitors the Internet, search engines and blogs to capture the pertinent information you want about your competitor," Clegg says. "Every two weeks executives get a one-page update on what's going on with their competition. If you don't want Google alerts filling your inbox, you can filter it out with our reports. We siphon the research down into a single tool."

 

Extras: Your Business Plan: Competitive Analysis Questions

>> Where is your competitor located?

>> What are the competitor's strengths?

>> What are their weaknesses?

>> What are your competitor's annual sales?

>> What is the company's product line?

>> How do the products compare to yours, in terms of quality, appearance and any other criteria?

 >> What is their price structure?

 >> What are the company's marketing activities?

 >> What are the company's supply sources for products?

 >> Is the company expanding or cutting back?

 >> What do they do better than you?

Competition research and assessment doesn't need to be complicated. You can do much of this research yourself, but you may consider employing research firms to find information that isn't available publicly. Here are a few tools for acquiring competitive intelligence.

Online Searches are a quick method of finding competitive information. However, this search will only provide information that has become public.

On-site observations of the competitor's parking lot, customer service, volume and pattern of suppliers' deliveries, etc., can yield useful information about the state of the competitor's business.

Surveys and interviews can yield plenty of data about competitors and products. Research surveys and focus group interviews generally provide more in-depth perspectives from a limited sample.

Competitive benchmarking is used for comparing the your company's operations against your competitor's. In making specific comparisons within an industry, an organization gains information about common marketing practices, available work force and suppliers.

Put It to Work: The results of your competitive analysis can establish the skills necessary to succeed in your business and define your distinct competitive advantage. But beware of focusing too much on your competitors' weaknesses. Instead, focus on innovation and new market spaces.

 

Extras: Internal Competition

Competition doesn't necessarily have to be between companies. There is also "internal competition" within companies. This idea was first introduced by Alfred Sloan at General Motors in the 1920s. Sloan deliberately created areas of overlap between divisions of the company so that each division would be competing with the other divisions. For example, the Chevy division would compete with the Pontiac division for some market segments. Internal competitiveness can improve a company's overall performance.

 

Launch - Spring 2008

 

 

For the full "digital magazine" version of Spring 2008, visit: www.nxtbook.com/nxtbooks/growutah/launch_2008spring/