Before I start typing this post I would like to thank you all for visiting. The site has received more than 1000 views since I first started it a few weeks ago. Thanks for coming back if you’ve been here before and if this is your first time, I hope you find this site helpful. Do like the page on facebook, just click on the little like icon on the right of the screen or follow me on twitter. Thank you for all the comments, emails and feedback. Keep them coming! As I’ve mentioned in the previous post, I have a few things coming in the mail and as soon as they arrive I’ll give them away. So stay tuned!
Last Saturday, I went to the Hunter Valley, went to the little driving range there, went to a few wineries and had a very good lunch as well, just for fun and it was a nice break from all the studying. After a whole week of terrible weather, by terrible I mean hardly any sun and raining most of the time, Saturday’s weather was perfect. So I was driving towards a winery and my friend asked, “So how do you think wineries like Tempest Two or Peppertree establish their brand and make themselves knows when there are so many other good wineries here?”
The first thing that came to my mind was the Blue Ocean analogy. So there is a book called “The Blue Ocean Strategy” written by W. Chan Kim and Renee Mauborgne. I highly recommend buying this book and reading it if you are thinking of starting a business. Basically it is a book about differentiating yourself from the competition and creating a blue ocean for yourself.
So a blue ocean is when you have uncontested market space and pretty much no competition. Blue oceans are vast and wide and almost never ending. The more traditional market space is described as red oceans, where they are a lot of sharks. It is small, bloody and very competitive. Companies try to beat their competitors by cutting margins and offering more. If you had a blue ocean where there were hardly any competition, you can charge more for less.
Some examples that they gave were like Curves gym. The more traditional gyms were like Fitness First, big, buff man pumping iron, slender women running on the treadmills, expensive to join, 12 month contracts, etc. Now this type of gyms are popping up everywhere and they can be rather intimidating for people with self esteem issues to join. So Curves came up with an ingenious idea. Offer memberships to females only and only focus on circuit training. Take away the hassle of learning how to use different machines and exercise regimes and make it simple. On top of that because it was an all female circuit gym, their members do not feel judges or self conscious. Curves gyms exploded not only because of their differentiation from conventional gyms but also their simple franchising model.
Some other examples were like budget airlines, Air Asia for instance. They differentiated themselves and created a blue ocean by offering dirt cheap tickets and different options for their passengers. The more traditional airlines only had a few different price options and had everything included in them. Air Asia gave you the freedom to purchase more baggage allowance, purchase food if you wanted to, rent a car, book a hotel, etc. In fact, most of their revenue came from these optional extras.
So as a business owner, it is important to educate yourself and think about creating a blue ocean for your business by differentiating yourself from competitors.
As an investor, it is important to identify companies that have created a blue ocean for themselves. Less competition means higher margins which mean more revenue and net profit. That is why in the post “To buy or Not to Buy”; does the company has a sustainable competitive advantage is included in the checklist.
So if you are a business owner, does your business have a strategy for differentiation? What is it if you do? If not, why not? If you’re a value investor, do the companies that you invested in have a good strategy in place to make competition irrelevant?
Thanks for reading. Do drop me an email or comments. Like the page on facebook if you find this site helpful or follow me on twitter!