One of the best books I’ve ever read is called The Blue Ocean Strategy. Its underlying concept is pretty simple: your product is either competing in a Red Ocean or a Blue Ocean.
Red Oceans are saturated markets where the rules are known and the customer has established expectations around pricing. In markets like these, you must steal market share from others by outperforming them in order to build revenue.
Blue Oceans surround markets where a game-changing product is introduced for the first time, and there are few—if any—competitors. Demand is created in these markets, rather than fought over. Customers don’t know what to expect or how much to pay…at least at first. Compared to the in-fighting of a highly competitive Red Ocean, the objective in a Blue Ocean market is to educate the customer, ushering him or her into a new reality.
You can find lots of examples of Blue Oceans. Tivo entered a Blue Ocean market, leaving VCRs to duke it out in the red seas. The iPhone completely changed the game when it was introduced, and, as a result, enjoyed a Blue Ocean market. That meant my Motorola StarTac and Blackberry were competing in a Red Ocean. It also meant that Apple could leverage the consumer’s lack of pricing expectations and charge $599 for a phone!
As you can probably see, this relatively simple concept can have significant implications for your managed service provider business. Once you’ve productized multiple offerings, it’s time to think about the makeup of your product suite. Thinking in terms of a Blue versus Red Ocean can go a long way to inform both positioning and strategy. To get there, you’ll need to balance two seemingly competing interests: where do I fit in, and how do I stand out?
Where do I fit in? (Red Ocean)
You’re always going to need what I call the “table stake” solutions. These are solutions that you’re expected to provide, and most importantly, they’re the solutions that prospects are actively seeking. Your expected offerings compete in a Red Ocean. That means all of your competitors are going to offer similar options, and in order to build revenue, you’re going to have to go head-to-head to steal market share. To get a good sense of the market landscape, I recommend doing a competitive analysis. Begin by asking your sales team which competing companies you typically run up against in the sales process. Next, talk to your customer support team and ask them where your customers go when they leave your business for someone else.
Once you know which companies you’re up against, you’re fully equipped to do this important analytical exercise.
There are many different ways to go about a competitive analysis, but here are some ideas to get started:
- Visit the websites of the companies on your list and identify their offerings.
- What do they lead with?
- What is featured on their site?
- What are some of the messages and themes they highlight?
- Do they focus on particular vertical markets?
- Sit down with your newest customers and ask them questions:
- How did you find us?
- Why did you pick us?
- How do we stack up against our competitors?
- What did you like about the sales / onboarding process?
- Is there anything you would you change about your experience?
- What does our solution NOT include that it should?
- Was a competitor’s offering significantly different than ours?
Once you’ve gathered this information, you’ll get a good sense of how you fit into the overall market. You should be able to start answering these important questions:
- Are you the value player?
- Are your offerings broader than the others?
- Are your offerings narrower and more focused?
- How are your message and focus different?
- How do you steal marketshare from your competitors? (Red Ocean)
- How do you build a moat around your customers? (Blue Ocean)
The answers to these questions will help you understand how you fit into the larger competitive environment.
How do I stand out? (Blue Ocean)
Once you understand how you fit in, you need to think about how you can stand out with offerings that are unique to your business. If it isn’t already painfully obvious, you’re going to have to CREATE ways to stand out. This is the true culmination of the “understand your strengths” and “productization” exercises I discussed a few blogs back. The good news is that if your offerings are truly unique, you’ll be working with a Blue Ocean. Competition will be slim, and you’ll enjoy price-setting power.
To start differentiating your business, ask yourself these questions:
- How do I draw positive attention to the ways that I am different?
- Can I feature an offering that the customer may not have even considered?
- Can I draw my competitors into a comparison that they can’t win? (In other words, is my differentiated solution so strong that they simply can’t compete with me on it?)
- Can I create additional value for the customer beyond what they are considering?
The balancing act in this exercise hinges on needing to both fit in and stand out. You’ll need to be good at the “expected” services, but also have some “unexpected” services to lure in the customer. If you’re light on expected services, you’re likely to disqualify yourself from the running when your prospects are comparing competitor websites. At the same time, you need to have differentiated services that make you stand out in a crowded market.
As you dive into this process and consider the solutions that make up your product suite more closely, you should have an eye on providing the Red Ocean services that are going to gain you market share, services that can beat the competition in a head-to-head match. You should also spend considerable energy looking to create services that are in Blue Oceans, markets that require you to create demand instead of steal market share. In the end, you’ll probably have more of a purple ocean, but that’s still better than only having a red one!
If you are intrigued by the idea of Blue Oceans, but don’t want to read the entire book, there is a great HBR article upon which the book is based, and you can find it here.
The HBR also has a great explainer video.
Finally, if you’re down for some academic reading, you really should get your hands on Michael Porter’s Competitive Strategy and Competitive Advantage. All the “rules” of the Red Oceans were first explained and codified by Mr. Porter and he is commonly known as the father of modern competitive theory. These books fall into a category I often describe as “homework reading,” but they are definitely worth it!