Emerging market potential is not necessarily defined by geography.
In today's overcrowded industries and markets, competing head on results in nothing but a bloody "Red Ocean" of rivals fighting over shrinking revenue and profits. But by creating "Blue Oceans" of uncontested market space, organisations can make their rivals irrelevant and thereby achieve hyper-growth.
Blue Oceans
Blue Oceans are defined by untapped market space. They are created well beyond existing industry boundaries, as well as within existing industry boundaries.
Let's look at the differences between Blue and Red Oceans: From Table 1 it is clear that the Blue Ocean strategy is a paradigm shift from the conventional, Red Ocean thinking.
For example, an organisation that follows Blue Ocean thinking can pursue low cost and differentiation simultaneously. This is what makes the strategy attractive.
Why Blue Oceans?
Technological advances have created an unprecedented array of products and services, resulting from supply exceeding demand in an increasing number of industries - for example, airlines, fast food, FMCG and industrial products, etc.
Globalisation is also resulting in monopolies and niche markets disappearing, due to trade barriers being dismantled.
Many free trade zones have been established globally. The biggest need for Blue Oceans is the commoditisation of products and services, increasing price wars and shrinking profit margins.
Many organisations believe that differentiation will help them gain a competitive edge.
However, when industries become overcrowded, differentiating brands too becomes harder.
How to create a Blue Ocean strategy
Value Innovation is the cornerstone of Blue Ocean strategy, where equal emphasis must be given to value and innovation.
Value without innovation only creates value on an incremental scale. This does not make brands stand out from the competition.
Innovation with value creates technological marvels that go beyond what buyers are ready to pay for. Therefore, value innovation can occur only when organisations align innovation with price, utility and cost positions, as seen in Table 2.
Hostile markets
These are characterised by the following:
Shrinking demand for products and services.
Aggressive price discounting to stimulate demand.
Unethical trading practices to gain unfair advantages over competitors.
A large proliferation of products and services.
Shrinking profit margins due to price discounting and declining market demand.
Declining markets, in most instances, create hostile markets. However, hostile markets can also occur in a growth contexts, if there is overcapacity caused by too many competitors.
With the global economic crisis, hostile and declining markets were created even in developed countries. Needless to say, this created a ripple effect in developing and under-developed countries.
Marketing in Blue Oceans for hostile markets
How can Blue Ocean thinking work in hostile/declining markets? In order to illustrate the practicality of the Blue Ocean strategy in such markets, here are some examples.
In my native country, Sri Lanka, the economy had many reversals, due to internal and external factors. Hence the market had all the characteristics of hostility and decline.
Enter a local bakery-cum-food outlet chain. In Sri Lanka, bread and related products are made and sold in traditional bakeries, using fairly primitive methods. Prices are kept low, quality is a variable.
At the other extreme are five-star hotel bakeries, offering excellent quality products at higher prices (catering to a niche market). Hence, a Blue Ocean was present, i.e., good-quality bakery and related products at affordable prices (note - not the lowest prices). This is the Blue Ocean that this local chain entered.
In true Blue Ocean strategy, they worked hard to eliminate and reduce unnecessary, non-value creating expenditure. They raised the bar on quality of finished products, and created a range of novel products - of which even five-star hotels would have been proud.
The results have been amazing. Over the past five years, sales and profits have been great. Customer volumes are growing. The good news is that no direct competitor has been able to make it, as yet - although many have tried.
Another excellent example of Blue Ocean strategy is Malaysia's low-cost carrier Air Asia, which operates in the fiercely competitive airline industry. What is the Blue Ocean that they captured? Rather than focusing on existing air travellers, they focused on non-travellers, a much larger segment.
In order to provide lower prices, they reduced all possible non-value creating costs. Simultaneously, they differentiated by creating a good service standard, convenience of travel and speed.
The results are simply astonishing. In an industry where many front-line players are bleeding in Red Oceans, Air Asia is hugely profitable and has been able to sustain their competitive advantage.
Conclusion
Organisations in emerging and developed economies would do well to explore Blue Oceans. To do so, out of the box thinking is required.
Further, rather than focusing only on existing customers, Blue Ocean strategy requires a focus on non-users in a given market. Blue Ocean strategy will be something hard to beat in the years to come.
Prasanna Perera, marketing and management consultant, chartered marketer, CIM UK Sri Lanka
© Gulf Marketing Review 2010
