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Turning red oceans blue: Why it all matters
In light of the dynamical nature of consumers, companies should not only continually respond to the changes taking place but also set new trends in their business strategy, so as to satisfy consumer demand.
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(Courtesy of PT Sasa Inti)
by:Rudolf Tjandra
In light of the dynamical nature of consumers, companies should not only continually respond to the changes taking place but also set new trends in their business strategy, so as to satisfy consumer demand.
Markets can be one of two types of oceans: red oceans and blue oceans. Any market where there is more than one player competing is by definition a red ocean market.
A red ocean is a market space where industry boundaries are defined and known, with players offering more-or-less the same benefits to consumers. A red ocean contains the common competitive structure where companies are constantly trying to outperform each other, applying the ETIC (vs EMIC) strategy to achieve a greater share or demand.
The emic–etic distinction refers to the two traditional strategies used to study phenomena in different cultures. Specifically, “etic” refers to research that studies cross-cultural differences, whereas “emic” refers to research that fully studies one culture with no (or only a secondary) cross-cultural focus.
Etic strategies focus on common phenomena across cultures which can be used to define a set of universal phenomena among all cultures, whereas emic is culture specific. (For more on the etic and emic strategies, please see Going East, Afterhours Publishing 2016 - https://www.amazon.com/Going-East-Dr-Rudolf-Tjandra/dp/6026990127).
With competition, companies try to outperform each other often through price wars, and as a result profit and growth is greatly reduced due to the lack of differentiation.
In red ocean markets the rate of product innovation is low. Therefore, the market is usually heavily populated by competition and there is a set of rules that is known.
Competition-based strategies have been the main fundamentals of strategic thinking over the past decades and as a result, most companies benchmark themselves against the competition.
The blue ocean strategy, as detailed in the book of the same name by W. Chan Kim and Renee Mauborgne, however, allows laser-focused, creative and agile consumer goods companies to create and develop relevant differentiation to make existing competition irrelevant.
Blue oceans are the re-defined market space where it is relatively, and for at least a period of time, unaffected by competition, and demand is created rather than fought for. In blue oceans, competition is not relevant because the rules or barriers to the market space are not set yet and are often waiting to be set.
To turn a red ocean into a blue one, it is important for companies to satisfy their consumers better. This is mostly derived from innovations that are driven by a complete understanding of the needs of consumers – both their functional as well as emotional needs. In Indonesia, in the 1990s, Sampoerna boldly came up with A Mild (a clover-based cigarette with lower tar and nicotine) to meet the needs of better educated young Indonesians who chose to smoke.
A Mild with its then popular tagline “How Low Can You Go?” was able to quickly change the clover cigarette market landscape and for a few decades since commanded a higher price tag bringing in higher profits and exponential market growth.
Eventually, all players within the industry introduced their own mild clover cigarettes but the biggest fights were on the lower end of the market segments. Softex Indonesia was another company that was able to turn the red oceans covering the diaper and feminine napkin industries.
Softex came up with Sweety diapers to meet the overly served (complex and less affordable) middle-class consumers.
Sweety was introduced as the best value for money solution for smart mums (and their babies). Sweety was the simple, understanding and affordable luxury solution for contemporary Indonesian nuclear families with babies.
In feminine sanitary napkins, Softex went all the way to create new markets among young and young at heart Indonesian women with its “Hello Kitty” napkins, and for the health conscious ones the solution came from betel leaf feminine napkins (with antiseptic properties, betel leaf has for centuries been known to cure varied ailments relating to stomach and vaginal hygiene).
With the pandemic, many Indonesians are increasingly aware that there are multiple unmet needs for easy to consume, affordable, tasty and healthy products.
First mover
Sasa Inti, a company with over five decades of experience in the Indonesian market, was quick to identify these needs.
Sasa Seasoned Flour is now fortified with vitamins and minerals while its coconut cream is Omega 3, 6 and fiber fortified. “If we viewed all markets from an “etic” perspective, we might easily miss these needs,” the company said.
“In more developed countries, the available disposable income among the general population allows for these vitamins, minerals, omega and fiber to be easily met. In fact, the lack of those basic goodies is at worst a rare and unfortunate occurrence,” it noted.
Swimming across a red and emerging in a blue ocean being a first mover is an important advantage because by being flexible a company can adjust easily to external changes such as customer demands and trends.
By being a first mover, the company gets benefits such as low costs and economies of scale. This is also the reason why the red ocean is so bloody because similar products and services have been refined and replicated over and over again with lower cost, it has caused companies to be afraid to look into new options and therefore in a constant battle to fight for market share by cutting profit margins lower and lower.
For the companies that succeed in gaining a competitive advantage by being a first mover, it is important for them to exploit the opportunity of that advantage as much as they can because very soon the competition will catch on to it.
Most companies tend to adapt to new trends rather than trying to shape new trends. To create an untapped market space, companies need to find trends that are observable today and look at the big picture and see what happens to the value it will have in the future.
