By Aishath Nashwa, Communications Executive
As more and more businesses come up with similar products, rivalry between organisations increases as they compete for a greater demand and market share.
This often results in reduced profits and cut-throat competition between organisations – what we refer to as a red ocean.
However, there are still new entrants and start-ups coming up in the red ocean which makes us wonder if they’ve really thought things through before making such a decision.
The truth is, red ocean won’t always affect your business badly. Despite the initial struggle by many companies regardless of the industry, some figure out the route to long-term success while others unfortunately don’t make it.
According to Harvard Business Review, a very important point which many businesses miss out on is that “long-term success doesn’t depend on competitiveness alone, a major part of it depends on the ability to generate new demand and create and capture new markets.”
To achieve this, businesses need to be creative in generating and executing their competitive strategies because at the end of the day, being in the red ocean space means facing many other businesses which are aiming for similar or even more demand and market share to sustain their business.
So how do you generate new demand and create new markets? Focus on your non-customers and try to figure out why they refuse to support your product or service.
Non-customers here refers to people who are not your customers, but potential customers who prefer your competitors’ products or services.
These are the group of people who have the greatest insight into the pain points of your business and the intimidation boundary of the industry you’re in.
However, businesses need to ensure that their existing customers are given plenty of attention by coming up with better solutions for them compared to what the competitors offer as they are the anchor keeping your business from drowning in the red ocean.
Whether you’re a start-up, new entrant, small business or even a large corporation, to stand taller than your competitors, new ideas, strategies and innovations are needed.
More often, the need to outrun each other drives businesses to come up with better innovations and ideas which help them to sustain their business.
Nonetheless, not all inventions are successful. Red ocean has “traps” which can affect your business performance. A common trap emerges from our assumptions on marketing based on customer preferences.
A perfect example would be Sony’s launch of Personal Reader System (PRS), an e-reader. As a new entrant to the e-reader market, Sony turned to existing customers in the e-reader market to identify how it could improve its new product.
After finding out that most of them were not happy with the size and quality of the products they were using, Sony came up with a PRS which was lightweight and thin which should be attractive to the existing customers in the market for PRS. However, Sony lost to Amazon’s Kindle.
Why? Because it only looked at the existing customers and failed to consider the non-customers and their reasoning for not wanting to be part of the PRS market.
Upon launch, Sony stated that “the freedom to access material at their convenience” would make consumers adopt the new technology.”
Unfortunately, this exact point was what led to its downfall. Although Amazon launched its e-reader three years after Sony, it provided a huge range of titles and this became its winning point.
Amazon beat Sony’s e-reader by simply listening to the non-customers’ demands. And it’s still doing well in the market today compared to Sony who pulled out from the market in 2014.
Apple and Samsung, on the other hand, are the two most heard names when it comes to the smartphone market. While these two are the major leaders, there are other companies such as Sony, Oppo, Huawei and Xiaomi trying to come out with innovative designs to compete with each other.
Although the competition between the two big players is quite bitter, it can be said that the competition is healthy and probably needed to be better than the other. This results in better and more functional smartphones.
How then are brands like Huawei and Oppo sustaining in the market? They’re doing it by de-segmenting markets by identifying key commonalities across buyer groups that could help generate broader demand.
Everyone desires a smartphone but not everyone can afford an Apple or a Samsung phone. Therefore, Huawei and Oppo designed smartphones with almost the same functionality but are sold to the low-end market that consists of lower-priced products suitable for consumers.
Similarly, we also see competitions happening between the major telco brands in Malaysia.
Table 1 shows the overall subscribers and market share of the three major leaders in the telco industry in Malaysia. On a closer look, it shows that Y was leading on the first quarter of 2015 but lost to X on the first quarter of 2016 by a mere 0.1%.
The reason behind the slight loss could be the infamous social media mismanagement by Y triggered by dissatisfied Y users.
During the fiasco,X and Z took the opportunity to release their new postpaid plans to win over some Y users.
To please its unhappy customers and prevent more customer deflection, Y lowered prices and increased data from 3GB to 10GB.
This could be taken as an example of a market-creating strategy. For a successful market-creating strategy, both differentiation and lower cost are important.
When X and Z released their prices for postpaid plans, it was giving better value for customers at lower price, whereas Y focused only on providing quality data to customers at a higher price.
Despite lowering prices, it still maintain a higher price compared with X and Z and allows data pooling which enables users to distribute data to other devices for free and can even be used overseas.
Data and postpaid plans aside, Y takes the lead when it comes to network coverage giving it the upper hand which keeps it on top. At the end of the day, it doesn’t matter if you can get the amount of data. It’s the coverage which counts because without coverage, data is useless.
According to the state of mobile networks in Malaysia, 4G time coverage for Y was 70% whereas X and Z managed to get a score higher than 58%.
It could be deduced that, instead of following in Y’s footsteps, both X and Z are aiming to improve at areas which Y is somewhat lacking.
While brands compete with each other by coming up with better and much improved technologies in the red ocean, there are a few organisations which manage to enter the blue ocean.
Businesses which make it to the blue ocean are able to access untapped market space and create demand, giving them the opportunity for highly profitable growth.
iTunes is Apple’s blue ocean space which it has been dominating for over a decade now.
iTunes offers legal and flexible à la carte song downloads for reasonable prices breaking a key customer annoyance factor: the need to purchase an entire music compact disc when they wanted only one or two songs in it.
They provided better sound quality as well as intuitive navigation, search and browsing functions in value instead of free downloads. Apart from songs, iTunes also offers books, TV shows, movies and podcasts.
Competition is irrelevant in a blue ocean space. Instead of focusing on competition, creating value for customers is their top priority.
Creators of blue ocean do not use competition as their benchmark but follow a different strategic logic that we call value innovation.– Blue Ocean Strategy Australia
While blue ocean space is a comfortable zone, it might be unhealthy for business leaders in the long run.
Just because blue ocean space is almost competition-free, it’s not good to get too comfy because new competitors will emerge and beat you at your own game – a typical case where your blue ocean space slowly turns red.
Regardless of the market you are in, skilled and competent employees are the foundation for sustainable competitiveness. The basic skill sets employers look for in a highly competitive environment include being a self-motivated team player who is smart, curious, creative and ambitious.
Businesses in the red ocean are constantly competing and coming up with innovative and disruptive technologies, making it critical to keep up with the latest tech and business trends in the industry.
In the end, the competitive advantage in a saturated and highly-competitive industry often comes down to having talent with soft skills that paper qualifications alone cannot guarantee.
According to Apple, employees who can deliver great customer service and connect with customers on a personal level are highly sought after.
This is not to say that employers in blue ocean companies do not require these skills.
However, these companies typically hone their competitive edge through value innovation which involves creativity, strategic thinking and analytical skills.
They focus most of their resources on creating value for customers by understanding their needs more deeply rather than by pushing products and services on them.
Whether you are in the red or blue ocean, the most important thing is to ensure you’re constantly innovating and thinking of ways to create better value to your customers, both existing and potential ones.
Businesses are actively looking for newer ways to fully utilise the technology available to gain the upper hand in the market.
Automobile companies such as Renault-Nissan have partnered with Microsoft and Adobe’s marketing cloud platform to plug their cars to the cloud. It’ll enable the cars to host navigation data, allow drivers to predict gas usage and check on their cars remotely.
With businesses looking for new opportunities, what will be the next best innovation which can disrupt our industries and our lives?
This article was written by Aishath Nashwa, Communications Executive of Lava Protocols and first appeared in Leaderonomics.
Lava Protocols is a digital architect that has been revolutionizing businesses of all sizes, from various sectors by consulting and bringing together business success through implementation of leading cloud based solutions such as Salesforce.com and Google.
