Blue or Red Ocean

An important element in the management of a brand is innovation.  Successful brands are constantly innovating; developing new products and services, developing how those goods and services are delivered and developing new promotional channels.

As products move through their life cycle, they are continually innovated, packaging is redesigned, new features and functionality are added.  Take Listerine: It is currently sold as a mouthwash for bad breath but it started life as a household cleaning detergent.  Take Canon cameras: they launch a new model every six to twelve months and each time there is product adaption such as GPS, internet connectivity and ever higher pixel counts on the cameras sensor.

When looking for new products there are three possibilities:

  1.  An existing product class to meet an existing consumer need.
  2.  A new product class to meet an existing consumer need
  3. A new product class to meet a new consumer need (possibly a need the consumer is yet to realise they have).

An example is Apple.  When Apple launch a new iPhone, it is launching an existing product class to meet an existing product need, the mobile phone.  When it launched the iPod, it was launching a new product class, the digital music player for an existing consumer need, a portable music device.  Apple’s original product, the desk top computer was a new product class, the home computer, for a new consumer need, having a computer in the home instead of in the office or laboratory.

When computers were developed after the World War Two, they were seen as tools for science and mass computation.  In the mid-1970s following the invention of the silicon microchip, computers could be put on a desk but no one considered them a product for the home, they were business tools for accountancy and word processing.  It was innovators such as Sir Clive Sinclair and Steve Jobs who saw the possibility of a computer for the home and with the ZX 80, Sinclair was the first to put his to into that, Blue Ocean.

A word which is in common parlance currently is ‘Disruptor’.  Many business leaders, such as Sir Richard Branson, have disruptor programmes.  Disruptors sit neatly in the second of the three categories.  They are individuals who aim to create new product or service classes to meet disrupt existing market expectations.  These are businesses looking to do things differently and to present a radical marketing mix.  This is was is often termed as Blue Ocean Marketing.

In recent years, many researchers have focused on Blue Ocean Marketing and they have highlighted prominent successes such as Ryan Air, Amazon and Ocado.  Another example of blue ocean marketing is the estate agency business where companies such as Sarah Beeney and HouseSimple are breaking down the value expectations of the traditional estate agency market.

It is generally accepted that markets grow by the reduction of unit prices.  The home computer market is one such example where the cost of a PC has fallen dramatically in real terms.  Unit price falls and sales volumes increase.

However, when a market becomes mature the goal is not to increase sales volumes through expansive growth but to obtain the market share of your competitors.  Often it is not a case of increasing sales volumes but increasing sales value.

No one considers brushing their teeth six times a day.  Most people stick to brushing twice a day, or three times at most.  Our usage of toothpaste doesn’t change so we are unlikely to buy more toothpaste.  However, we may be persuaded to change to a different brand or to buy a more expensive version of toothpaste because it promises to whiten our teeth, kill bacteria or cure bad breath.

Businesses in mature markets aim not to sell more but to get consumers to pay more.  It is not an accident that Dyson vacuum cleaners are amongst the most expensive on the market.

To allow premium pricing, many brands aim to find value innovations, a more for more strategy.  This involves building an unprecedented bundle of marketing mix attributes.

Blue Ocean disruptors often aim to break this model.  They suppress certain value innovations and promote themselves on a single value attribute.

Take as an example Premier Inns.  They broke the accepted rules of the hotel.  They realised that there were huge numbers of consumers who didn’t use hotels.  Hotels were for the wealthy or paid for by your employer.  Students, OAPs and Other demographic groups tended to use B&Bs or to stay with friends rather than the premium prices of hotel chains.

So Premier Inns and the likes of Travelodge removed some of the value innovations of traditional hotels.  There is no room service.  Room decor is basic.  There is no mini bar of satellite TV service.  Breakfast is either from a vending machine or it is a self-service buffet.  These companies offer a value innovation of a hotel bed at a discount price but to enable that price they removed many of the traditional attributes of a hotel stay.

A critical element in blue ocean marketing is ‘identifying your oilfield’; the bundle off value attributes which are not offered by other providers.  Often this can be through identifying an area of market growth not utilised by others.  This can even be areas which others in the market see as unprofitable.

Blue ocean marketing is often a high risk strategy.  For every blue ocean success, there are thousands of failures.  Take Bic as an example.  Bic was an early blue ocean pioneer.  It applied blue ocean strategies to the pen market.  Until Bic invented the disposable ballpoint pen, writing implements were seen as premium products.  People would buy expensive fountain pens which would last a lifetime.

Bic then applied the disposable pen model to the cigarette lighter market.  Again smokers would buy a refillable lighter which would last many years.  Bic soon became the market leader in the lighter market.  Bic applied blue ocean marketing principles again, taking on the likes of Gillette in the razor market.  Again success.

However, Bic then tried to enter the mobile phone market competing with the likes of Ericsson and Nokia.  Bic produced a phone which was able of making calls but which didn’t have the accessories offered by their competitors such as games, internet access and a camera.  The Bic mobile phone was an utter disaster.

Other blue ocean firms, such as the Easy group, best known for the value airline EasyJet, have also had mixed fortunes in applying blue ocean strategies outside their original markets.

Blue Ocean innovations are risky.  The television programme Dragon’s Den is replete with failed blue ocean pitches.  Only a small minority of blue ocean innovations succeed.  So is it worth considering only blue ocean marketing?  Is it always advisable to ditch traditional incremental product innovation and to offer a radical alternative offer.  Is the concept of making a superior product to your competitors dead and is  modern marketing solely the strategy off meeting consumer needs in a different way?

Traditionally product innovation was all about creating a superior offer.  However, some marketing academics dismiss this approach as ‘Red Ocean’.  A blood filled sea of cutthroat competition where sharks fight to consume a shoal of tuna.

These academics argue that market disruption is the concept of our times.  To succeed you must think in a  radically different way and blue ocean marketing is the methodology.  To succeed you must think differently and offer distinct value propositions.  You must look at existing market beliefs and challenge them.  You must suppress some traditional product or service attributes and enhance those which promote difference.

However, these studies often concentrate solely on blue ocean success stories ignoring the many failures such as the Bic mobile phone.

There are also lessons to be learnt from Blue ocean failures:

  1.  Value innovations are not the only way to create new brands
  2. Value innovation – suppressing an attribute seen as necessary by existing market players – is no guarantee of success if there is insufficient demand for that innovation.
  3. Value innovation can lead to no innovation at all.

Some of the most successful products and brands in today’s market rely on traditional ‘red ocean’ innovation.  The iPhone is one such example.  It’s success is through the constant innovation of an existing product by adding better or additional functionality.

So if you are considering a new product or entering a mature market, do not only think of blue ocean innovation or a radical marketing mix.  Sometimes the answer is just to provide a superior product to your competitors.

 

 

Tips for managing a portfolio of brands

In previous blog entries I have discussed the concepts of a branded house and a house of brands.

A branded house is where one brand name is spread across a wide product portfolio.  A house of brands is where different brand identities are used in different market segments and for different product categories.

The firm I used use as an example of a branded house was Heinz.  But circumstances have changed.  Last year, Heinz merged with the American food conglomerate, Kraft Foods.  Heinz has gone from a position as a branded house and has become part of a house of brands.  Heinz has become part of a brand family which includes Philadelphia, Oscar Meyer, Cadbury, Planter’s Peanuts and Maxwell House coffee.  Heinz is now part of a multi-brand portfolio.

So what principles must you apply when managing a multi-brand portfolio?

Brand portfolios require strong management above brand level.  You do not want brands within a portfolio to duplicate their product offers.  You can end up competing against yourself.  Each brand may duplicate innovations doubling research and development costs.

To manage a multi-brand portfolio, you need a brand coordinator or a brand committee to avoid the duplication of effort and cost.

In some sectors, such as pharmaceuticals, independent duplication of effort may be necessary.  Scientific peer review may be required so teams independent of each other may have to carry out the same experimental work simultaneously.  There is only a single particle accelerator loop at CERN and the cost of building a second is prohibitive, so two teams of scientists carry out the same work to maximise the efficiency of the accelerator and to provide peer review evidence of each others work.

It is also true that a bit of organised competition may accelerate product development and innovation. But note the word organised.

Innovations should be allocated to brands according to their market position.  Innovation is the lifeblood of brands which grow through extensions and product renewal.   These maintain brand relevance as the market changes and allow brands to differentiate themselves from their competitors.

You must develop clear brand charters which describe the brands identity and which clarify the main lines of development and innovation for the brand.

This allows innovations to be allocated according to a brand’s values and not under pressure from sales departments who want every brand to have the same advantages.

It is important to differentiate between innovations which are to be offered exclusively for one brand and those which are to be phased-in over the whole portfolio.  It is no accident that car firms apply innovations to their luxury models first before applying them in stages down to their base models.  If you are to phase in innovations throughout your brand portfolio, you must clearly establish the order in which innovations are to be allocated

In certain circumstances, innovations may have to be introduced across a portfolio simultaneously.  It may be more cost-effective to spread the cost of an innovation across a brand portfolio, e.g. battery technology for electric cars or for manufacturing innovations.

In managing a brand portfolio, you shouldn’t ‘rob Peter to pay Paul’.  You want a portfolio of strong brands.  You don’t want a few stellar performers and other brands which struggle, sucking up hard-fought income.  Mars recently took steps to streamline its portfolio focusing on those brands which it considered market leaders.

It is standard practice to position brands so that they don’t compete with one another.  Brands must be designed to fit particular market segments.  Thus, each brand in a portfolio should be able to grow strong. Citroen Peugeot has to mass brands and innovation is key to both.  To focus innovation budgets on one brand would destroy the other.  There are no non-innovative brands in the car market.

A brand portfolio should not represent a history of product development and acquisition.  They represent a strategy of global market domination.  Why did Coca Cola pay a billion dollars for the Orangina brand; a geographically local brand.  It wasn’t because Coke lacked an orange soft drink (they own the Fanta brand).  Coke bought Orangina because Pepsi didn’t have an orange soft drink in their brand portfolio and to cover this gap relied upon a distribution deal with………….Orangina.  Coca Cola’s purchase of Orangina denied Pepsi a foothold in the Orange-flavoured soft drink segment.

Your brand portfolio is like pieces on a chessboard and it should be used strategically to defend your market position and to attack your competitors.  Each brand should stick to its defined strategic role.  Fighter brands are like pawns defending your king; your star brand.

Some brands will have a financial role providing income for other marketing activities.  Others will be banner brands which are closely related to, and bear the name of the brand owner.

Flanker brands, your knights and rooks prevent your opponents attacking your star brand indirectly.

Some brands will be attack brands taking on your competitors. On the chessboard of competition these are your Queen and Bishops.

Some firms design their portfolios as parent and child brands.  Each child brand has a specialised role.  Nivea have their traditional face cream but they also have thirteen child brands each with its own strategic intent.  It can be disastrous to purchase a parent brand and not to purchase its children.

All brands have a tendency to duplicate innovations and strategies. This can erode brand identity as effort is applied to create economies of scale.  This tendency must be avoided. Brands are designed to target particular customer segments within a market. If brands become indistinguishable from one another, that targeted appeal may be lost.

For firms such as Volkswagen Group.  Volkswagen, Audi, Skoda and Seat vehicles all come off the same production lines and share the same platforms.  Seat and Skoda have been pushed up market.  To ensure that each of these brands retains its individuality visual attributes have to retain distinct difference.  Design is playing an increasingly important role in brand management.

Managing a brand portfolio is a game of three-dimensional chess.  It takes continuous supervision and strategic control to ensure and maintain success.