YESTERDAY’S article discussed how companies like Apple and Air Asia carve out new market space — their patch of “Blue Ocean” — to operate their business in.
In contrast, existing businesses that are struggling in the known marketplace with defined boundaries are operating in the “Red Ocean”.
Such companies are forced to compete with each another. To stay afloat, they focus on building advantages over the competition — usually by analysing what competitors do and striving to do it better.
This is a zero-sum game in which one company’s gain is achieved at the expense of another’s. Cost and value are seen as trade-offs and companies seek to capture more profit or market share instead of creating a new market. In doing so, they cut up and divide the market.
On the other hand, in the Blue Ocean, there are no rules or boundaries in the marketplace. The focus has shifted from supply to demand, which can be created by tapping largely unexplored markets.
Instead of focusing on competition, companies concentrate on creating innovative value to unlock new demand. This is achieved via the simultaneous pursuit of differentiation and low-cost. Competition is therefore rendered irrelevant.
By expanding the demand side of the economy equation, new wealth is created. The Blue Ocean marketplace is characterised by high growth and profit.
According to Blue Ocean Strategy authors W. Chan Kim and Renée Mauborgne, practitioners who hold this view do not let existing market structures limit their thinking. To them, demand is out there, largely untapped. The crux of the problem is how to create it.
This, in turn, requires a shift of attention from supply to demand, from a focus on competing to a focus on value innovation — that is, the creation of innovative value to unlock new demand. As the market structure changes, so do the rules of the game.
Cirque du Soleil
In 1984, a group of street performers founded the now world-famous Cirque du Soleil. Its performances have been seen by over 40 million people in over 90 cities around the world. In just 20 years, its revenue surpassed that of the Ringling Bros and Barnum & Bailey, the world’s leading circus.
Surprisingly, Cirque’s astonishing growth occurred in a period when the circus business was rapidly declining. There were many products competing for people’s attention — TV, video games and the computer.
The main clients of circuses — children — were lured by video games, and animal rights groups were pushing for people to boycott shows that featured performing animals. In such a gloomy scenario, how did Cirque outshine its competitors?
Most importantly, Cirque did not compete in the existing marketplace or steal customers from the circuses. Instead, it created an uncontested marketplace.
Cirque targeted a different audience — adults and corporate customers who patronised ballet, theatre or opera performances. These new (non-circus) customers were prepared to pay several times more than the price of a normal circus ticket.
Traditional circuses benchmark their performance against other competitors. They recruit better clowns and animal tamers. While increasing costs, they do not add extra value to the circus experience.
Cirque du Soleil redefined the circus experience by adding sophistication and artistic theatrical elements. Cirque cut costs by eliminating animals, which are costly to maintain and the regular subjects of animal rights groups. They also did away with sawdust, hard benches and the large number of performers.
The company only retained three factors that made circuses attractive — the tent, the clowns and the acrobatic acts. Its content borrowed from Broadway theatre, opera and ballet. Each performance had a theme and a story line along with an original musical score.
By simultaneously reducing costs and increasing value for customers, Cirque made a unique name and place for itself.
Blue Ocean is created when a company focuses on value innovation that creates value for both the purchaser and the company simultaneously. As with Cirque du Soleil, the innovation was in revolutionising the traditional format of the circus by adding elements of the performing arts and appealing to a more sophisticated audience.
At the same time, it eliminated animals from the show format, ridding the company of the cost of maintaining them and the negative publicity of animals rights groups.