Marketing Profs

The vast red and blue oceans of the marketing world tsunamied into our awareness and vocabulary a few years ago, when two INSEAD professors, W. Chan Kim and Renée Mauborgne, claimed that competition can be rendered irrelevant.

Their book, Blue Ocean Strategy, heralded the news to marketing managers and CEOs all over the world: After years and years of surviving in red bloody oceans, swarming with murderous competitors, finally there's a better alternative!

In red oceans, executives captivated in a conception-cage of competitive strategy business thinking, have been rivals, going head to head with their competition over the same consumer segments doing exactly the same things, only better and cheaper in order to offer customers a better cost/value tradeoff in order to convince them to stick around with their wallets open. In the process, these executives wore out their own companies and their profits were ground to dust.

Now, the Blue Ocean enunciation, based on long years of research, claimed that both serenity and profitability can be amply found in Value Innovation, which creates, via a new business model and new products, a "Virgin territory devoid of me-too brand propositions and cutthroat pricing" (BusinessWeek).

Let us consider an example of a company that supposedly followed the Blue Ocean strategy:

Casella Wines, an Australian winery, decided to "de-complex" wine for the sake of intimidated unpretentious adults. It decided to create new wine-drinking rules and to make a fun wine, sweet and fruity, to suit any taste. The chosen brand name was Yellow Tail; the label was highly recognizable, the selection targeted the mainstream (Chardonnay and Red Shiraz), and the price just above budget: $6.99.

The result? The brand quickly became the number-one imported wine into the USA, without a promotional campaign or consumer advertising. In just two years it emerged as the fastest-growing brand in the history of both the Australian and US wine industries. Casella Wines even grew the overall market. Genuinely impressive.

The big "Blue Ocean" promise took over the business world, but also aroused a great wave of criticism, partially justified—with the strongest claim being that the text carries no novelty beyond Ted Levitt's old differentiation directive, remolded with the trendy belief in the importance of innovation.

I think otherwise. First, Kim and Mauborgne talked about differentiation and innovation on the levels of strategy and business model, while most traditional occupation with differentiation and innovation has been focused on the level of products or brands. But more importantly, the Blue Ocean thinkers honed a major observation regarding the nature of business competition.

In sports competitions, competitors are compelled to follow completely defined rules while striving to achieve a superior result. In the business world, competitors also strive to achieve a better result of the same type: a larger share of the consumer's wallet. However, the competition does not restrict participants to any specific actions. The contrary is true. And yet, it is in this aspect exactly that Kim and Mauborgne are wrong and misleading, upon claiming that competition can be rendered irrelevant.