Blue Ocean

Razor Strategy



The excellent manager is a restless one. He uses transformative strategies to move from one life cycle to another and strategies like the Long Tail, Blue Ocean, and the Razor for a competitive advantage and/or increased results. The Razor Strategy is three-step classic road map that has been used by many entrepreneurs to transform a moderately successful service business into a significant financial success. A similar approach can be used to transform a product company.

For the service company:

  1. In step one, you figure out how to package the business’s services in order to market and price them like a product (the razor).
  2. In step two, you figure out how to add a service component (the razor blade) to the packaged service product.
  3. In step three, add amenities around the product and services to create a unique, high-value experience for the customer. 

Product companies can be transformed by adding a service component (razor blade) to provide a continuing revenue stream and forge a lasting relationship with the customer. Make it easier for the customer to acquire the product (the razor) in order to secure the ongoing service revenues. Then amenities can be added to create a unique, high-value experience for the customer.

Why is it important to create the “blade” component for your business? Product companies have to resell their product every year to produce revenues. In effect, the top line on the income statement of the product business starts at zero on the first of every year. The top line of the “blade”-orientated company is cumulative from year to year. Each year’s new sales are added to the revenue line. It does not go back to zero.

Coffee companies transformed their business by selling coffee systems and coffee clubs where existing customers reorder coffee for the product (the system). They added exclusivity, deluxe packaging, and exotic blends to provide a unique customer experience. Printer companies dramatically reduced the cost of printers in favor of recurring ink/toner sales.

In a law firm example, an estate practice bundles its services in several different packages where each targets to different segments of the population: the up-and-coming professional, the young married couple, and the mature high-net-worth couple. The packages are sold for a fixed price, and promotional materials use the same look and feel as the brochure for a car. They add an optional monthly fee to its service package. This “razor blade” service includes updating the documents for changes in laws and keeping the client informed of any changes or expected changes in taxes, laws, court decisions, and regulations that might affect their estate or estate plan. The estate practice adds an addition to its office along with an upscale hospitality staff, all specifically designed to cater to their more affluent clients. Everything about their high-worth-focused facility and services reinforces the special VIP status of the firm’s opulent clientele. The experience provided for the clients’ benefit raises the firm to an entirely new level, attracting more targeted clients.
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Mysteries by Tom Collins include Mark Rollins’ New Career, Mark Rollins and the Rainmaker, Mark Rollins and the Puppeteer and the newest, The Claret Murders. For signed copies go to http://store.markrollinsadventures.com. Print and ebook editions are available from Amazon, Barnes & Noble and other online bookstores. The ebook edition for the iPad is available through Apple iTunes' iBookstore.

Tom.Collins@SixtyFiveNorth.com
http://www.sixtyfivenorth.com





Blue Ocean

Blue Ocean

Creative excellent managers don’t accept the prevailing rules.  They don’t settle for coloring inside the lines.  They look for ways to reinvent how the “wants and needs” of customers and prospects can be satisfied.  They look for opportunities to increase benefits that have so far gone unsatisfied.  They look for ways to reinvent how products and services are delivered.  Today there are successful businesses that no one could even imagine a few years ago.  Peter Drucker would say they created utility where there was none.  Thomas Edison did that when he created the electric light, the phonograph, and moving pictures.
 
W. Chan Kim and Renée Mauborgne gave this strategy a name.  They call it the Blue Ocean Strategy (BOS).  They call traditional businesses Red Ocean businesses.  In the Red Ocean, traditionally, businesses compete with other businesses for the same customers to fill the same need.  They compete in the same ways.  It is a game of one-upmanship—for one business to gain market share, another has to lose.  The Red Ocean is one where businesses ebb and flow in terms of competitive victories and losses.  In the Red Ocean no business will consistently succeed.  Leadership styles are transient.  Successful strategies do not continue in perpetuity.  Applauded leadership methods fail with changing circumstances.  The Red Ocean is a place where victories are only marginal improvements.
 
Under the creative excellent leader, a corporate team looks for opportunities to stop playing the Red Ocean game with all the other wannabes.  They create a new market, a Blue Ocean, where they are the only player.  It is the notion of reinventing the business, but kicked up a notch.  For example, it isn’t a matter of just reinventing how existing products or services are provided to existing consumers.  Instead, it is a matter of reinventing how the needs and wants of those customers are satisfied and inventing ways that those who currently don’t take advantage of a particular product or service can get the benefits.  With the Blue Ocean Strategy you reinvent the market, not just the business enterprise pursuing that market.  You break out of the box where everyone competes for the same business.
 
A pure Blue Ocean is an entirely new industry, created by bringing in neglected potential customer segments through offering them compelling buyer utility not currently offered anywhere.  Making the breakthrough to a pure Blue Ocean is not something every group—no matter how creative and how exceptional—will achieve.  But the constant effort to turn the water Blue is a mark of the excellent manager.  Imagine, for example, the impact on the hotel/motel business of breaking away from the fixed check-in and checkout time.  Why is that standard? Why can’t hotels operate like rental car companies—check in any time and check out anytime.  The fixed check-in and checkout time is an example of practices that become industry standard practices that do not serve the customer. Practices that reduce the customer's benefits should be the enemy of the excellent manager.

PayPal, Stamps.com, and Bazaar Voice are notable examples of Blue Ocean companies and so was Southwest Air who eventually changed how airlines compete.  So were FedEx and Starbucks.  Amazon is changing how people shop and read books.  A creative telecom carrier in Africa is creating a Blue Ocean by launching products that allow money to be transferred between mobile users across all mobile telephone networks.  Africa is a country where mobile devices, solar power, and wireless communication are transformative; and telecom carriers are in a position to bring brick-and-mortar-type services to the masses.
 
Kim and Mauborgne are the authors of the book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.  It was the product of years of research by the authors and collaboration with fellow faculty and students at INSEAD.  The French graduate business school and research institute, INSEAD, is considered one of the world’s best.  It is particularly known for its influential alumni—a global network of business intellect and power.
 
Gabor George Burt, a graduate of INSEAD, is one of the apostles of BOS.  His blog, http://blueoceanstrategy.typepad.com is a valuable supplement to the original work of Kim and Mauborgne.

In my Novel Mark Rollins’ New Career and the Women’s Health Club the main character, Rollins, reinvents the fitness center into a unique Blue Ocean business.  The WHC, as members call it, also serves as the “Bat Cave” for this modern day avenger and has continued to play that role for three more Mark Rollins adventures: