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Blue Sea Strategies Overview

Strategy involves standing up right out of the competition and making options that give the organization a unique and valuable position by offering distinctive products and services. Competitive gain and profitability may be accomplished simultaneously by solutions that create consistent internal synergies and incorporate a company's operational activities successfully. Strategies are produced at various levels of the business. However, a typical organizational structure includes strategies at 3 specific levels: corporate, business and efficient (marketing book) (Appendix)

Blue Sea strategies are a form of business level strategies that permit firms to achieve sustainable competitive edge by tapping uncontested market space. Developed by INSEAD professors, W. Chan Kim and Renee May, BO strategies were derived from studying winners and losers greater than 150 strategic techniques across 30 market sectors, including hotel, movie theater, vehicle, retail, airlines etc. , over the course of several years.

Conventional competitive or red sea strategies encourage firms to select from value and differentiation to contend in prevailing marketplaces with clearly described limitations and conditions. In red oceans, firms aim to gain market share by exploiting existing demand and overtaking challengers. Ruthless competition in red oceans confines companies to benchmark against competition, and make incremental advancements that increase costs without increasing earnings or having much impact on demand. This leads to a packed market space, difficulty to differentiate products and services, better supply than demand, price wars, which turn the ocean bloody and red ensuing a decrease in profit and expansion.

Contrastingly in Blue Oceans, businesses exceed industry edges and make the competition extraneous by redefining the industry, creating new demand and profitable progress. This is achieved by filling strategic spaces and targeting market segments and opportunities that aren't being served. Rather than encouraging companies to create a defensible position in an existing industry, this approach employs a reconstructionist view whereby companies acknowledge key factors respected by customers within standard industry borders and reconstruct these factors across market restrictions while concurrently pursuing differentiation and cost command.

To give a quantitative impact of BO strategies, proof business launches of 108 companies over the years demonstrates:

  • 86% launches that were incremental advancements within existing companies accounted for only 62% total revenues and 39% revenue.
  • The left over 14% launches that created BOs led to 38% total revenues and comprised 61% of total profits.

A strategy canvas and four action strategies are some key tools that assist customers with formulating and executing BO strategies to target unexploited opportunities. Value invention is an integral foundation of Blue Sea thinking which involves eliminating or minimizing factors that the industry competes on and creating factors which were never previously provided by the industry. This enables firms to save costs and drives up their service or product value for customers allowing companies to break the value-cost trade-off. Value Advancement also requires aligning power, price and cost. The superior service or product value made available from the firms brings about high sales amount over time, and further reduced costs anticipated to economies of scale.

It is important to notice that a lot of key sectors such as vehicle, biotechnology, telecommunication, cell phones are due to blue ocean thinking. Historically, several companies across numerous industries have offered major products and services that exposed new market space and produced significant demand. The situation of the changing US vehicle industry provides key proof BO success.

In 1893 when equine buggies were the principal means of vehicles in the US, the Duryea brothers created the first one-cylinder automobile. Following this unveiling several vehicle manufacturers entered the market to make regular automobiles at the same time when they were considered an unreliable, and unaffordable luxury. Furthermore, they weren't expected to become popular in the future, making the industry look small and unattractive by standard wisdom.

In 1908, Henry Ford travelled beyond boundaries by launching the Model T, that was made using preeminent components, in support of came in a single shade and model. Marketed as reliable and durable, and sold at half price of existing automobiles, it soon captured the mass market with its reputation as a high quality, low priced car. Its price dropped even further through the years and it continued to sell cheaper than the carriage. As the automobile was easy to make and highly standardized, Ford used unskilled personnel on its assembly lines who could build them quickly and proficiently, thereby reducing costs. This allowed the business to charge a reasonable price for its automobiles, increase its sales, and how big is the auto industry along the way. Some automakers made expensive automobiles, Ford created a huge BO using its Model T eventually becoming the key mode of transportation.

Following this in 1924 when the car became an essential household item, GM created a BO by starting a type of automobiles which were dissimilar to Ford's basic useful, one colour, solo model idea. By appealing to the feelings of the united states mass market, its strategy included building fun, exciting, and comfortable vehicles fit for 'every purpose'. The range of models offered by GM included different colours and styles that were updated each year thus creating new demand for popular cars. The simple replaceability of the cars also led to the formation of the used car market and GM eventually surpassed Ford as the leading carmaker.

In the 1970s, the Japanese created a fresh BO by producing small gas efficient cars by challenging US carmakers and their idea of bigger and better vehicles. While the big three car manufacturers focused on benchmarking and competing each other, Japanese carmakers improved conventional reasoning by launching and offering a new value idea of good quality, compact, and gas successful automobiles. Demand for these vehicles soared further due to US oil crisis in the 1970s as consumers considered fuel efficient vehicles like Honda, Toyota, and Nissan. Apart from reducing the competitiveness of US car producers, this Blue Sea also challenged their success.

In 1948, troubled and on the edge of personal bankruptcy, Chrysler launched the minivan creating another BO in the automobile industry. By producing an totally new kind of vehicle, the business provided a middle earth between your car and truck. The minivan possessed the features of both, was smaller and easier to handle when compared to a van, and much more spacious than a car. This greatly appealed to nuclear families that needed sufficient space to hold important necessities in addition to passengers. By exploiting this untapped market space, the minivan became Chrysler's bestselling vehicle within the first year, enabling the business to restore its position on the market and earn significant revenues over the next year or two. This success also resulted in the SUV growth in the 90s by stretching the BO that Chrysler got tapped into.

These good examples show how companies that created BOs could actually earn more profits than industry market leaders in a short time span and managed to achieve growth in business with limited probable that were unattractive matching to competition structured strategies. The evolution of the vehicle industry because of Blue Sea thinking also reveals that vehicle companies became successful by attractive to new customers and breaking way from the competition instead of poaching customers from competition. Instead of offering better solutions to given problems, they redefined the challenge by offering comfortable and functional cars for sensible prices thus reinventing individual experience. The implementation of the strategies not only challenged the position quo of the automobile industry but also allowed it to favorably evolve through the years generating profitable progress in the process.

By creating a whole new strategy that broke the value-cost tradeoff and by looking over the market boundaries, the auto companies offered new critical success factors into their offerings, taken out or reduced irrelevant factors thereby increasing demand. Invented new kinds of transportation by eliminating costly production methods enabled these carmakers to accomplish both differentiation and cost

A classic exemplory case of a Blue sea strategy doing his thing is the introduction of the Yellow Tail wine beverages brand by Australian winemaker Casella Wines. By using the strategy canvas, the business identified 7 key industry factors in the US wine industry:

  • Price per container of wine
  • Premium product packaging with labels containing information about wine beverage medals and complex wines terminology to emphasize the artwork and knowledge of wines making.
  • Above the brand marketing to increase consumer consciousness about the merchandise on the market and encourage distributors and stores to prioritize their brand over opponents.
  • Aging quality of wine
  • Prestige and legacy of the wine's vineyard
  • Complexity and sophistication of the wine's taste
  • Diverse selection of wines to hide all varieties of grapes and consumer choices (ex. Chardonnay and Merlot)

By plotting the proper profiles of key players in the industry, Casella acknowledged that competitors generally focused on prestige and quality that made the merchandise far more complicated. To achieve profitable progress, benchmarking against competitors or supplying a bit more for a little less wasn't enough. While these RO strategies may have more sales, they didn't exploit unserved market areas. Additionally, by observing the demand for wines alternatives such as beverage, spirits, etc. , that had a more substantial market show of alcoholic beverages sales, Casella observed that the mass market did not like wine beverage too much as it was associated with ostentation and complexity. Customers didn't specifically appreciate the sophisticated taste of wine beverages even though that is exactly what the industry was competing on, and instead preferred to drink beers and cocktails which were sweeter and better to drink.

Thus, the business set out to create a fresh value curve by changing its proper focus from competition to alternatives and from customers to non-customers to create a BO. As an alternative to offering better solutions than its rivals, the company directed to redefined the challenge by reconstructing the critical success factors over the industry and shifting its strategic profile.

It have this by using the four actions construction to answer 4 key questions that defied industry logic and its own supplementary eliminate-reduce-raise-create grid to act on these questions (Appendix). This empowered the company to uncover, eliminate and reduce investment in unimportant factors that its competition contested on such as wine aging, sophisticated terminology and vineyard prestige that was also intimidating to customers. Noticing that these factors were no more valuable and this there is no gain in making costly changes to its products to defeat your competition, Casella used these tools to find new factors such as effortless drinking, simple selection, and fun and experience to focus on and complete a strategic difference. This resulted in the development of the Yellow Tail, a wine brand that broke from competition and created a Blue Sea. By offering customers an entirely new experience, Yellow Tail created new demand and lifted buyer value by diverging from the value curves of its competitors and differentiating itself. Combining the characteristics of both wine beverages and beer, the yellowish tail was a great, non-traditional and easy to drink affordable, cultural drink that appealed to all sorts of wine beverages and non-wine alcohol drinkers (occasional drinkers, beverage and cocktail drinkers, wine beverage aficionados). Being a simple product, the mass market loved its uncomplex flavor.

While previously sellers offered several wine beverages varieties which were overwhelming for average customers who found it difficult and exhausting to produce a selection, the Yellow tail, however, made it easier for potential buyers by offering and then selections: Chardonnay white wines and Shiraz red wine, in that way streamlining its business design and minimizing inventory costs. Breaking industry convention by offering both wines in same designed containers allowed the firm to simplify its processing process and significantly save on costs. Additionally, Casella made easy drinking wine that did not require years to build up thus allowing it to keep your charges down further. Simplified presentation with bright eyeball finding and catching colors and nontraditional product labels made the product approachable for clients as it was easy to comprehend and select. Whereas large companies invested heavily in marketing to develop their brand, Yellow Tail required no expensive promotional campaigns to poach sales from competition, and expand the market by attracting non-wine drinkers.

By implementing BO thinking, Casella was therefore able to achieve profitable development through differentiation and cost management, become the quickest growing brand in the US and Australia within 24 months, and overtake French and Italian wines. By 2003, it eventually became the bestselling burgandy or merlot wine in america.

Appendix

Strategy Levels

Corporate strategy identifies a company's alternative progress and management direction regarding its various businesses, products and services. Business strategies, on the other side, are established at the divisional levels and typically give attention to enhancing the tactical business unit's competitive position in its industry. Practical strategies try to maximize resource productivity and are typically set by efficient departments within each SBU to boost competencies and performance. (marketing book). The profitability of an company will depend on three major factors such as the price tag on a company's products, the identified value and traits of a firm's products or services such as performance, design, quality and after sales, and the costs of creating this value (slides)

Blue Sea Strategy Canvas

Strategy Canvas allows businesses to recognize key success factors in its market that are essential to customers and hence provide competitive edge or downside. By allowing the organization to assess the current situation in its market space and comprehend the factors that rivals spend money on, the firm can analyse itself in relation to its existing competitors based on key competing factors explore routs to new market space and regulate how to convert non-customers into customers by looking at the picture as a whole. Depicted in a visual form, the horizontal axis symbolizes the range of factors while the vertical axis show the particular level at which these key factors can be found. The value curve, an essential component of the canvas graphically plots the relative performance of companies in the known market space across the range of factors. This tool therefore enables firms to minimize competition and risk and improve opportunity.

By developing a substantially different value curve, a firm can create value creativity which involves tapping into new market by creating new factors where the customer's requirements were recently not served. In addition, the company can also surpass performance on industry factors where competition aren't doing perfectly.

Graph plots strategic information sing vlue curve of key fighting fctors for companies within an industry.

Strategic Canvas of your wine Industry

Wineries over the industry centered on these factors to market their brand as a distinctive beverage to wines connoisseurs, and be the first brand to come to consumers' brains for special events. Despite the numerous offerings, the graph shows a convergence in the value curves of the opponents over the industry from the market's perspective. Premium brand wines experienced the same strategic profile of high price, high quality, etc. , followed a classic differentiation strategy, and were seen by customers as different from budget wines just as. Likewise, budget wines also essentially experienced an identical strategic profile of low price, low quality across key industry factors, and were mostly seen as low cost players. Furthermore, the canvas depicts that the value curves of both wine categories have a basic shape that signifies the strategies employed by these wine teams are very similar but at 'different altitudes of offering levels. '

Eliminate-reduce-raise-create grid yellowish tail

Grid stuffed in with action sof eliminating, minimizing, elevating and creating.

Extra stuff

Breakaway from competition

BOs show how to align 3 strategy propositions of value, income and folks. Dveleop products and service sthat allures buyers, enables the corporation to produce a profit; motivate people doing work for or with the business to do the strategy. Position of these 3 propositions regarding to BOS ensure sorg takes a holistic approach to the formulation and execution of strategy.

By attractive to a whole new band of customers they were bale to break away from your competition by offering and unprecedented product experience and reinventing consumer experience

Offered unprecedented utility, CDS created and created new form of live entertainment- very different from traditional transportation means and at the same time taken out many costly development methods and dramatically reduces cost composition, achieveing both differentiation and low priced

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