During the Gold Rush, gold prospectors searched for a promising location that wasn’t yet occupied by their rivals.
Companies seek out market zones or niches with many customers and few competitors.
But this is a flawed strategy.
Circus and business strategy
Adults rarely go to traditional circuses without children. Cirque du Soleil (CDS) broke this paradigm and revolutionized the industry.
Chan Kim and Renée Mauborgne explored this case study in detail in their renowned book, Blue Ocean Strategy, published in 2004.
The logic behind CDS’s strategy was pretty straightforward:
– The traditional circus market was far too crowded (Kim and Mauborgne called it the ‘red ocean’).
– It didn’t make much sense to create yet another typical circus.
– Adults with no children young enough to be interested in the circus were non-customers.
– The CDS founders created a new circus type – for adults (non-customers) and without animals. They built a ‘blue ocean,’ a market niche with many consumers and zero competitors.
– They became fabulously wealthy.
Being the sole fisherman casting their net in a pond is lucrative.
It would be strange to claim this approach doesn’t work. It worked out for Cirque du Soleil and Australian wine [ yellow tail ], the cases the authors researched in the book. But it narrows our perspective and causes us to miss out on many business opportunities.
Ice cream and Russian roulette
Imagine you’re an ice cream producer.
You know that 60% of customers in your country eat ice cream regularly, 20% eat it once in a while, 15% never eat it because they’re on a diet, and 5% can’t afford it.
The actual situation is always way more complex, but I’ve simplified the picture for clarity.
The competition is tough, and you seek out new opportunities.
Paying attention to non-customers or those who don’t eat ice cream seems logical. You may develop a diet ice cream or an ultra-cheap one. And that might work – in theory.
But if your competitors aren’t blind, they see the same picture. They are also aware that non-customers exist. Chances are, they’ve already tried to lure them and failed.
If you see an obvious, simple solution for a competitive market, it’s most likely wrong.
Doing what others don’t do isn’t a strategy, it’s like playing Russian roulette.
Another approach can yield better results.
The market is not an ocean
“The purpose of a business is to create a customer.”
Peter Drucker
First – there are no ‘red oceans’
Kim and Mauborgne published ‘Blue Ocean Strategy’ in 2004.
Travis Kalanick didn’t know yet that he would come up with the idea of Uber five years later.
In 2004, a group of Apple employees approached Steve Jobs with the idea of the iPhone, and he rejected it outright. It took them months to persuade him, and the device’s development began.
Both Uber and iPhone burst into blood-red oceans. They didn’t target non-customers. They came to existing ones and offered another way to satisfy their needs.
The Blue Ocean Strategy concept implies there are two oceans – a ‘red ocean,’ a market that exists ‘here,’ and a hypothetical market ‘somewhere out there,’ or a ‘blue ocean.’
But the market is a human-created concept. Nobody can say where it starts and where it ends.
When Red Bull launched its ‘energy drinks’ in 1984, it didn’t create a ‘new market.’ It created new customers.
There are consumers and their needs, and they don’t know they are part of a ‘market.’ People in many countries liked Uber and started using it. They liked Red Bull and began to drink it.
And building a new product for the current customers is not the only way to innovate.
Second – ‘blue oceans’ are here
The market is a human-created concept, which we discussed in detail here.
I like a clear and concise definition of the market that Philip Kotler coined years ago:
A market = need or utility; target consumers; a place; time; the situation; experience
And we can find many exciting ideas by playing with this concept. We can create new customers by changing one of the market components.
In 2007, a friend of mine was the CEO of a company that sold tea in colorful metal tins and boxes. People bought them as gifts. Supermarkets and grocery stores were its primary distribution channels.
But then my friend came up with the idea of selling the products in gift shops. The sales quadrupled within a year. Did he create a ‘blue ocean’?
He managed to find new customers – those looking for a present. If they had not found his tins and boxes on the shelves, they might have opted for eau de cologne or a candlestick.
In Dubai, you can call a fueling vehicle that will refuel your car right in your parking spot.
Both my friend and those businesspeople in Dubai changed only one part of the market definition – place, and capitalized on it.
We can also change the time of consumption. Online marketplaces successfully compete with physical stores not only through delivery. You can shop there whenever you want, even in the middle of the night.
We can also alter the situation of buying or consumption. Decades ago, people wore sneakers only to do sports. But companies like Adidas, Nike, Reebok, New Balance, and others persuaded us to wear them wherever we go.
And we may change the experience our customers get when they buy or use our products.
Before the 1980s, coffee was just a hot, refreshing drink. Flat whites, frappuccinos, and macchiatos were like, ‘What are those?’
But then Starbucks began its international expansion, and Nespresso revolutionized home coffee making. Today, we’re not surprised by coffee yoga, latte art (drawing on coffee foam), and TikTok coffee challenges.
An ice cream maker can also play with some market aspects.
- Ice cream as the main dish for lunch?
- Selling ice cream in traffic jams?
- Delivering ice cream to the beach via drones?
I’m not saying these wild fantasies are good business ideas. I’m just pointing out possible lines of thought.
Where to play?
The prevalent strategic concept developed by Roger Martin and Alan Lafley claims that strategy involves answering two questions:
– Where to play?
– How to win?
However, the first question also implies that there is a ‘market’ somewhere appropriate for our products or services.
In the first chapter of their book Playing To Win: How Strategy Really Works, the authors describe the revitalization of Procter & Gamble’s Oil of Olay brand.
Quote: “The questions to be asked focus on where the company will compete—in which markets, with which customers and consumers, in which channels, in which product categories, and at which vertical stage or stages of the industry in question.”
Visualize a picture of the top executives looking at a giant map representing all the market niches in countries where P&G works.
We can find a perfect place for our product in the existing market as P&G did with Oil of Olay.
However, we will never create new customers by doing this.
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Svyatoslav Biryulin
Check out my new book, Red and Yellow Strategies: Flip Your Strategic Thinking and Overcome Short-termism, here.
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