How to create demand and make the competition irrelevant
Sam Evans
Position yourself as an innovation provider.
Instead of pitching to your customers hoping that they see you as the best supplier of the same - the same product, the same service, the same solution as your competitors - let’s talk about making those customers imagine something better and how you can be the one to deliver it.
To do this you need to create demand for a product or service where there currently is none. You need to generate interest in something unique, make people want something they never knew existed and show them why they need it.
This is the fundamental concept of Blue Ocean Strategy developed by W. Chan Kim and Renée Mauborgne. Through a series of tools, developed during a 10 year study, they visually demonstrate how companies can find strategic success by using a systematic approach to making the competition irrelevant.
Blue Ocean Strategy shows that your business can thrive free from a red ocean of aggressive price wars and profit loss simply by reshaping your perspective and the way you deliver your product or service.
"You don’t have to invent a completely new product; what this means is you have the power to take your existing product (or service) to the next level and change how you communicate it to the market. It’s only a matter of time before someone does it, so that someone should definitely be you."
Strategic thinking
According to Blue Ocean Strategy tools, you can think about your customer’s buying experience in a cycle of six stages, running more or less sequentially from purchase to disposal. Each stage could include a variety of specific experiences. Purchasing one product might include the experience of browsing amazon.com as well as the experience of pushing a shopping cart through a supermarket aisle. Pulling on some or all of the six levers during all stages of the buyer’s experience and/or joining up the dots can help to deliver exceptional utility to your customers.
By locating a new offering on one of the spaces of the buyer utility map, you can see how and whether a new idea creates a different utility proposition from existing offerings, but also removes roadblocks to good utility that may be standing in the way of converting non-customers into customers.
Is the industry experience of buying your product typically a means to an end? Is using your product usually complicated? Can you think of ideas to make the purchase process simpler and more enjoyable? Could internal processes be adapted to become more efficient?
You may have previously focused on improving the same stage of the buyer’s experience, over and over again e.g. the end purchase. I’m sure you have even thought of ways to streamline the process to increase conversion. But, this simple map is one of many ways you can begin brainstorming and qualifying alternative perspectives to rethink your complete end-to-end offering.
Aligning resources
McKinsey Three Horizons framework can help you focus on sustainable growth and innovation. This framework is a method for managing current performance while maximising future opportunities.
Horizon 1: Core Business Core business means the activities that are most closely aligned to your current business. Most of your immediate revenue-generating activity sits in Horizon 1. This includes the day-to-day goals associated with selling, marketing and serving your product and customers. Your goals in Horizon 1 are mostly around improving margins, bettering existing processes and keeping cash coming in.
Horizon 2: Emerging Opportunities Emerging opportunities are about taking what you already have, and extending it out into new areas of revenue-deriving activity. There may be an initial cost associated with Horizon 2 activities, but based on them being an extension of your current proven business model these investments should return. This could include launching new product lines or expanding your business geographically or into new markets.
Horizon 3: Blue Sky Blue sky goals are about taking your business in new directions. These may be unproven and potentially unprofitable for a significant period of time. They could be things like research projects, pilot programmes or entirely new revenue lines that require significant upfront investment. These are projects that in the long-run and with commitment and passion, could end up redefining your industry.
"A lack of diversity introduces significant risk to your business from changes in the market, customer demand or competitive activity."
So understanding and allowing resources to all three of these horizons will keep you focused on exploring opportunities for growth and future revenue streams.
B2B real life examples
These strategies and thought-processes can be easily connected to companies like Spotify, Uber, Netflix and Airbnb. They were all new companies, but they redefined how customers engage with their markets. These companies provided customers with a new way of achieving the same goal, but showed them how to achieve it in a different (smarter) way. A way that nobody had imagined and also a way which was easier for them to maintain. When these companies arrived on the scene, it was clear they had created their own market space free from like-for-like competition.
"A lack of diversity introduces significant risk to your business from changes in the market, customer demand or competitive activity."
Let’s take Spotify as an example and put them into the buyer utility map. It was always easy to buy music - you just went online and downloaded it. You could create your own playlists instantly, as many times as you wanted. We were used to paying for each piece of music when it came as tapes or CDs or files, so we didn’t see a problem with paying per track or album. In fact the ease of downloading made it easier to share music with others.
Until of course Spotify came along and showed us a different way. Access to everything beats the ownership of some. iTunes delivered a platform which gave everybody access to buy music instantly in the comfort of their home. Spotify delivered access to the same music, but for free and with a more carefully considered experience. The customer gets a library of old and current music, search, genre-based shuffle and perfect sound quality. With a premium subscription service (available at a small monthly fee) the customer gets added benefits like playlist creation, offline streaming, enhanced sound quality. For most music lovers (which is millions) a monthly fee at a cost equivalent to buying a new music album every month is better and easier than paying for each song or album separately. It also provides a known outgoing which is easy to keep track of. Not to mention the ability to connect your account to any device, social share, create instant playlists, access other people’s playlists and collaborate on playlists no matter the location.
Monetisation for the free version of Spotify is simply achieved through advertising. In fact, the premium subscription wasn’t even profitable at first given the cost of creating the platform and paying royalty to music artists. The founders were confident that the number of users would grow and make up for it - they were right. Today, Spotify is a household name and has 40 million users paying a monthly fee to play music in the home, shops, cars and offices. Spotify worked because it was an alternative concept which is makes life easier for both parties. For the customer to purchase and use and for the business to deliver and maintain.
The idea was compelling at the time, but it's a consistent customer-centric strategy that has kept them ahead. Spotify made an upfront investment in the entire experience. This includes a brand design, value proposition, partnerships and content marketing which continues to validate their credibility and make the experience simple, convenient, safe, credible and trendy for today’s on-the-go busy adults. For Spotify, the continuous flow of customer data, behaviour analytics and real feedback is valuable to continue improving the experience in ways their customers need. This outlook has secured them brand loyalty and peer-to-peer recommendations.
In a management report in 2015, according to the Guardian the company wrote: "We believe we will generate substantial revenues as our reach expands, and that, at scale, our margins will improve. We will therefore continue to invest relentlessly in our product and marketing initiatives to accelerate reach."
B2B real life examples
As consumers we can all relate to the B2C example. But there are two clear B2B players who directly used the Blue Ocean Strategy to break their markets. The first is Salesforce who made a series of strategic moves early on in the CRM application market by innovating in three areas: product, service and delivery. The key to Salesforce’s success was that they were one of the first to create a software as a service application (SAAS) and this was based on a clear understanding of their B2B audience.
The implementation of on-site software into most businesses usually requires IT approval and demonstration of ROI. However, by introducing SAAS they eliminated this requirement. They also understood that sales people should be their primary target because they would be the ones who would use the platform daily. They would be the people who then unlock demand from their superiors - those who would only recognise the benefits from monthly, quarterly or annual sales reports.
Salesforce began targeting sales people in smaller businesses with simple pricing and low-risk implementation. They essentially created a software product that was paid for from a sales and marketing budget and managed by their own team of software engineers.
Whilst doing business this way and building a great reputation, they began to generate demand. Simultaneously, they came up with strategic way to offer more of their software with low barriers to adoption. They implemented two dimensions of growth which enabled them to capture more value per person, rather than per business. A user licence based subscription fee (more users equals more revenue) and a price increase per subscriber based on tiers of functionality. This provides them with flexibility within businesses based on usage AND eliminates the need to charge for upgrades and potential for any business to be on an unstable platform (if they didn’t upgrade). Software upgrades are simply updated and supported automatically, whilst the revenue comes from building new features and offering them to customers via incremental price increases.
Salesforce enabled their customers to adopt and use their software in the most straightforward way whilst continuously generating demand and revenue through ongoing innovation.
The second B2B example is Hubspot who started with the four Blue Ocean industry-based questions to reshape how they think about the CRM marketplace. A shift in perception made them target an alternative audience. They began to approach small businesses who don't have great information technology tools in place. They realised that the Hubspot USP is not about helping businesses to just track and store activity; it is to make use of that data to grow revenue. This new thinking showed them that their competitors were not CRM application providers like Salesforce. Their competitors were actually marketing and SEO consultants that smaller businesses were hiring to analyse and execute lead generation and marketing activity.
Hubspot created a tool which collects and stores data and also provides software to analyse and make data-driven decisions. It eliminates the use of additional tools by encompassing a full feature set within one platform with flexibility to integrate with alternative CRM applications. Hubspot also provides plenty of resources and guides to educate and inform businesses (who often cannot afford to hire a whole team of marketing experts) how to best use the data and the platform to strategise business growth through marketing.
Hubspot enabled the customer to gain what they needed most in the most efficient way available and this was valuable enough to justify the cost.
Both Salesforce and Hubspot continue to build solid reputations by staying steps ahead and providing free content centred around helping the customer. They essentially enable the customer to do better business by use of their platforms.
From looking at these examples and drawing from my experience of helping businesses strategise digitally, I believe there are four key pillars that successful businesses live by:
1. Focus on customer enablement
Today, the most successful business models centre around customer experience. As we all acknowledge, customer satisfaction is very much linked to business value and so it's the first thing to consider for demand generation. Your business simply cannot survive without customers, so what you are giving them and the way you build a relationship with them is important.
Businesses all over the world are now focusing on enabling the customer by listening to them first. Selling to them second. Everyone is asking - how can we make our customer’s lives better or easier? The next question is how can we cut across and enhance those six stages of our buyer’s experience? And finally, how can we nurture our customers and gain, analyse, act on feedback so that we can continuously innovate?
"If you put the customer at the heart of your strategy, it is going to pay off in the long-run."
2. Think 10x better
The surprising truth is that it's often easier to make something 10x better than it is to make it 10% better. This is called Moonshot Thinking. This is the idea that when you are working to make things 10% better, you inevitably focus on existing tools and assumptions and are most likely trying to build on an existing solution. It could be to gain 10% cost savings and 10% profit increases. This usually brings fast, but short term results. However, when you aim for making things 10x better, you have to think big and be brave and creative enough to make the impossible possible. 10% is the same old slog, whereas 10x is exciting.
Pick a big problem in an industry, country or globally and articulate a radical solution - one that could sound far fetched, but would completely solve the problem if only it existed. It might be enabled by a breakthrough in science, technology or engineering. The point is that even if the resources are not immediately available and results are not immediately achievable - as long as the solution is capable of making life better, then in the long-run it’s worth investing in. It's just that the investment may require enormous persistence and substantial risks over long periods of time.
Innovation is easy to celebrate when it’s complete and the benefits are obvious. But at some point in any story, there were things that seemed impossible until someone thought of it, believed and committed to making it happen.
You need to think long-term, on a larger scale and make the relevant investments.
3. Invest in technology
Businesses wouldn’t have been able to redefine their market to the level we see today if it wasn’t for technology and the exquisite ways it is being leveraged. Keeping up with technology is one thing, but understanding and utilising the right technology in a beneficial way and taking the risk to fully invest in it makes the difference.
Today, technology allows us to collect data and perform tasks faster and with less energy. It allows us to find answers, solve problems, get directions, communicate, organise, analyse and act. Software is regularly sold as a service and social media is used more than SMS. Billions of searches are performed on Google every day, 4/5 adults depend on their smartphones and artificial intelligence is a real thing. Who knows what advances in technology we’ll be talking about by the end of this year alone.
There are many examples of businesses who spend IT resources fundamentally on ‘urgent fixes’ or ‘patch jobs’ when these are clear signs of falling behind. To remain in a state of catch-up is a position that can only worsen over time. It will either result in a costly lump sum overhaul or force a business out of it's market as more savvy competitors arrive. This is why one of the keys to long-term growth in the modern age is consistent investment in progressive innovation.
If you don’t take advantage of business intelligence or stay on top of your tech stack, you will get left behind.
4. Bank on content
No matter what stage you are at with a business - it’s imperative to evaluate your brand and build clear value propositions to put out to market and stick to it.
Do your own research and invest time in building a hub of content full of resources ready to (a) educate customers about the benefits of your product or service and (b) inform them as to why they want it.
A strategy is required, but it’s not as difficult to execute when you are creating something that is 10 times better than anything else out there. You just need to know your audience and understand how to segment them. There are plenty of tactics you can use to guide them through the conversion funnel by understanding the key components of demand generation: building awareness > positioning relevance > supporting validation > mitigating customer evaluation.
You need to map out your customer’s buying journey and deliver the right content at the right time. Seek to collect as much data as possible and personalise and automate wherever you can. Remember to treat the B2C audience differently to the B2B audience where the initial contact is almost never the end decision-maker.
At the end of the day, a unique solution which sells itself naturally through a hub of information is naturally more enjoyable than pushy hard-sales efforts in a saturated market place.
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Sources
https://www.amazon.co.uk/Blue-Ocean-Strategy-Expanded-Chan/dp/1625274491
https://hbr.org/product/salesforce-com-creating-a-blue-ocean-in-the-b2b-space/INS255-PDF-ENG
Analytic tools featured in this article are: © Kim & Mauborgne. All rights reserved.
