The business strategy that wipes out the competition
October 23, 2006 | 12:00am
Have you heard of the world’s biggest, 10,000-branch gym chain called Curves, founded by failed fitness center businessman Gary Heavin and his wife, Diane? They totally innovated the concept of all-female centers with no mirrors, no frills and exercise sessions limited to only 30 minutes.
Another example of this kind of out-of-the-box thinking is the Gokongwei family’s Cebu Pacific Air. How else do you explain their shocking strategies of giving 95 percent off on plane fares to domestic destinations and Hong Kong, or the phenomenal success of their C2 tea drink? Meanwhile, there’s the Hortaleza family with their triumphant HBC retail chain.
Best-selling author, top marketing guru and Anvil Business Club member Josiah Go recently discussed these success stories and many other local and international corporate examples of the "blue ocean strategy" at the monthly dinner forum of Anvil in Greenhills, San Juan. Apart from legendary tycoons and top government leaders, strategic thinkers like Josiah Go are the favored guest speakers of the young Filipino-Chinese entrepreneurs of Anvil because of the organization’s goal of encouraging "rugged entrepreneurship, global thinking, excellence and competitive spirit."
Can Philippine businesses or professionals – even the whole Philippine economy – reduce the competition to irrelevance by using the world-famous blue ocean strategy?
Josiah Go recently taught an entire three-unit course at the Ateneo de Manila University on this topic, based on the groundbreaking business book of France’s Insead Professors W. Chan Kim and Renée Mauborgne entitled Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant (which is different from the traditional strategies described as "red ocean," similar to the book of Harvard’s Michael Porter).
Professors Kim and Mauborgne said: "Blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant... This book not only challenges companies but also shows them how to achieve this. We first introduce a set of analytical tools and frameworks that show you how to systematically act on this challenge, and, second, we elaborate the principles that define and separate blue ocean strategy from competition-based strategic thought."
What exactly is a blue ocean strategy? The authors explain by comparing it to a red ocean strategy (traditional strategic thinking):
1. DO NOT compete in existing market space. INSTEAD you should create uncontested market space.
2. DO NOT beat the competition. INSTEAD you should make the competition irrelevant.
3. DO NOT exploit existing demand. INSTEAD you should create and capture new demand.
4. DO NOT make the value/cost trade-off. INSTEAD you should break the value/cost trade-off.
5. DO NOT align the whole system of a company’s activities with its strategic choice of differentiation or low cost. INSTEAD you should align the whole system of a company’s activities in pursuit of both differentiation and low cost.
Kim and Mauborgne cite actual cases of companies using the blue ocean strategy, while Josiah Go holds up a few local Philippine companies as outstanding examples:
• Airline industry price wars result in bankruptcies and low profit margins worldwide. America’s famed price-busting Southwest Airlines creates a new market by offering the speed of air travel with the low cost and flexibility similar to driving rented cars.
According to Josiah Go at the Anvil dinner, Gokongwei’s Cebu Pacific Air has applied blue ocean strategy by not directly competing with Lucio Tan’s Philippine Airlines but by competing with the Super Ferry of the Aboitiz clan and other sea-going vessels. Thus, Cebu Pacific Air grew in success by effectively expanding the market and encouraging many new Filipino consumers to now fly.
Anvil regent and supermarket industry leader Steve Cua asked how come Cebu Pacific Air gives away so much. Go explained that Gokongwei already knows the periods of low passenger traffic throughout the year, and he just decided to give away huge discounts during those low seasons as "sampling costs" in order to attract more new Filipino air travelers.
• The cosmetic industry creates a red ocean by hiring models or celebrity endorsers, using expensive advertising, and promising the public youth and beauty. The now world-famous Body Shop created a blue ocean by giving the market functional cosmetics that defied an industry that traditionally sold emotionally appealing cosmetics.
Locally, Josiah Go pointed to the Hortaleza family’s trend-setting HBC stores, which are totally different from the older, existing Hortaleza shops owned by other family members. The Hortalezas who own HBC also own Splash. Go revealed that unlike before, when HBC sold other companies’ products and only three percent of their own brands, nowadays HBC’s sales of its own private labels comprise 70 percent of their revenues.
• For Dell computers, billionaire Michael Dell strategized using low-cost mass production of computers sold directly to consumers per each customer’s specifications, thus bypassing retailers and other costly marketing channels and schemes. This innovative strategy made his computer rivals almost irrelevant.
• One of Josiah Go’s most fascinating examples of an entrepreneur using blue ocean strategy is the stunning success of Curves fitness centers globally. Go said American entrepreneur Gary Heavin and wife Diane opened the first Curves in the United States in 1992, using the idea that "attitude plays an indispensable and differentiating role in marketing decision-making."
The couple pioneered the totally revolutionary idea of all-female gyms because they noticed that women in gyms are often uncomfortable with guys approaching them. Curves fitness centers also eliminated mirrors because they noticed that overweight people don’t like to look at themselves in gyms. They charged one-third the usual price, took away the amenities of traditional gyms, made gym use good for only 30 minutes, and located Curves in side streets with cheaper rental rates. Curves employed many other strategies to wipe out the competition.
Today, Josiah Go said a Curves fitness center opens worldwide every four hours and it is now number one in the world, all because of the blue ocean way of thinking.
How do we in the Philippines – whether company, professional or the Philippine economy in general – totally differentiate and free ourselves from age-old notions or prevailing industry wisdom? It is amazing how a lot of so-called "innovative" ideas are actually simple ideas, or even long-ignored, commonsense notions. Hard work, optimism and good products or services are not enough to be competitive in this increasingly complex world of ours. We need creativity. We need bold, daring and innovative blue ocean strategies to win!
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Another example of this kind of out-of-the-box thinking is the Gokongwei family’s Cebu Pacific Air. How else do you explain their shocking strategies of giving 95 percent off on plane fares to domestic destinations and Hong Kong, or the phenomenal success of their C2 tea drink? Meanwhile, there’s the Hortaleza family with their triumphant HBC retail chain.
Best-selling author, top marketing guru and Anvil Business Club member Josiah Go recently discussed these success stories and many other local and international corporate examples of the "blue ocean strategy" at the monthly dinner forum of Anvil in Greenhills, San Juan. Apart from legendary tycoons and top government leaders, strategic thinkers like Josiah Go are the favored guest speakers of the young Filipino-Chinese entrepreneurs of Anvil because of the organization’s goal of encouraging "rugged entrepreneurship, global thinking, excellence and competitive spirit."
Can Philippine businesses or professionals – even the whole Philippine economy – reduce the competition to irrelevance by using the world-famous blue ocean strategy?
Josiah Go recently taught an entire three-unit course at the Ateneo de Manila University on this topic, based on the groundbreaking business book of France’s Insead Professors W. Chan Kim and Renée Mauborgne entitled Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant (which is different from the traditional strategies described as "red ocean," similar to the book of Harvard’s Michael Porter).
Professors Kim and Mauborgne said: "Blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant... This book not only challenges companies but also shows them how to achieve this. We first introduce a set of analytical tools and frameworks that show you how to systematically act on this challenge, and, second, we elaborate the principles that define and separate blue ocean strategy from competition-based strategic thought."
What exactly is a blue ocean strategy? The authors explain by comparing it to a red ocean strategy (traditional strategic thinking):
1. DO NOT compete in existing market space. INSTEAD you should create uncontested market space.
2. DO NOT beat the competition. INSTEAD you should make the competition irrelevant.
3. DO NOT exploit existing demand. INSTEAD you should create and capture new demand.
4. DO NOT make the value/cost trade-off. INSTEAD you should break the value/cost trade-off.
5. DO NOT align the whole system of a company’s activities with its strategic choice of differentiation or low cost. INSTEAD you should align the whole system of a company’s activities in pursuit of both differentiation and low cost.
Kim and Mauborgne cite actual cases of companies using the blue ocean strategy, while Josiah Go holds up a few local Philippine companies as outstanding examples:
• Airline industry price wars result in bankruptcies and low profit margins worldwide. America’s famed price-busting Southwest Airlines creates a new market by offering the speed of air travel with the low cost and flexibility similar to driving rented cars.
According to Josiah Go at the Anvil dinner, Gokongwei’s Cebu Pacific Air has applied blue ocean strategy by not directly competing with Lucio Tan’s Philippine Airlines but by competing with the Super Ferry of the Aboitiz clan and other sea-going vessels. Thus, Cebu Pacific Air grew in success by effectively expanding the market and encouraging many new Filipino consumers to now fly.
Anvil regent and supermarket industry leader Steve Cua asked how come Cebu Pacific Air gives away so much. Go explained that Gokongwei already knows the periods of low passenger traffic throughout the year, and he just decided to give away huge discounts during those low seasons as "sampling costs" in order to attract more new Filipino air travelers.
• The cosmetic industry creates a red ocean by hiring models or celebrity endorsers, using expensive advertising, and promising the public youth and beauty. The now world-famous Body Shop created a blue ocean by giving the market functional cosmetics that defied an industry that traditionally sold emotionally appealing cosmetics.
Locally, Josiah Go pointed to the Hortaleza family’s trend-setting HBC stores, which are totally different from the older, existing Hortaleza shops owned by other family members. The Hortalezas who own HBC also own Splash. Go revealed that unlike before, when HBC sold other companies’ products and only three percent of their own brands, nowadays HBC’s sales of its own private labels comprise 70 percent of their revenues.
• For Dell computers, billionaire Michael Dell strategized using low-cost mass production of computers sold directly to consumers per each customer’s specifications, thus bypassing retailers and other costly marketing channels and schemes. This innovative strategy made his computer rivals almost irrelevant.
• One of Josiah Go’s most fascinating examples of an entrepreneur using blue ocean strategy is the stunning success of Curves fitness centers globally. Go said American entrepreneur Gary Heavin and wife Diane opened the first Curves in the United States in 1992, using the idea that "attitude plays an indispensable and differentiating role in marketing decision-making."
The couple pioneered the totally revolutionary idea of all-female gyms because they noticed that women in gyms are often uncomfortable with guys approaching them. Curves fitness centers also eliminated mirrors because they noticed that overweight people don’t like to look at themselves in gyms. They charged one-third the usual price, took away the amenities of traditional gyms, made gym use good for only 30 minutes, and located Curves in side streets with cheaper rental rates. Curves employed many other strategies to wipe out the competition.
Today, Josiah Go said a Curves fitness center opens worldwide every four hours and it is now number one in the world, all because of the blue ocean way of thinking.
How do we in the Philippines – whether company, professional or the Philippine economy in general – totally differentiate and free ourselves from age-old notions or prevailing industry wisdom? It is amazing how a lot of so-called "innovative" ideas are actually simple ideas, or even long-ignored, commonsense notions. Hard work, optimism and good products or services are not enough to be competitive in this increasingly complex world of ours. We need creativity. We need bold, daring and innovative blue ocean strategies to win!
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