Notes from Red Ocean Traps

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Mental models have their merits. In dangerous times, a robust mental model can help you quickly make decisions that are critical to survival.

Red ocean traps anchor managers in red oceans.

Red Ocean - crowded market spaces where companies engage in bloody competition for market share.

Blue Ocean - previously unknown and uncontested market spaces with ample potential.

Trap One - Seeing Market-Creating Strategies as Customer Oriented Approaches

  • Problem is thinking ‘Customer is King’ and forgetting about the Non-Customers

So we need to focus on non-customers and learn why they are patronising an offering.

A focus on existing customers tends to drive to come up wit better solutions for them than what competitors currently offer. But that keeps a company in the red ocean.

Trap Two - Treating Market-Creating Strategies as Niche Strategies

  • Don’t focus on finer segmentation
  • But desegment by looking across buyer groups and identifying key commonalities

Trap Three - Confusing Technology Innovation with Market-Creating Strategies

  • Successful value innovations offer leap in productivity, simplicity, ease of use, convenience, fun or environmental friendlyness

Trap Four: Equating Creative Destruction with Market Creation

Does market creation always involve creative destruction? The answer is no. It also involves nondestructive creation, wherein new demand is created without displacing existing products or services.

People in established companies typically don’t like the notion of creative destruction or disruption because it may threaten their current status and jobs

Trap Five: Equating Market-Creating Strategies with Differentiation

Differentiation is the strategic position on this frontier in which a company stands out from competitors by providing premium value; the trade-off is usually higher costs to the company and higher prices for customers. We’ve found that many managers assume that market creation is the same thing.

As a result, they may inadvertently become premium competitors in an existing industry space rather than discover a new market space of their own.

In reality, a market-creating move breaks the value-cost trade-off. It is about pursuing differentiation and low cost simultaneously.

Trap Six: Equating Market-Creating Strategies with Low-Cost Strategies

When organizations see market-creating strategies as synonymous with low-cost strategies alone, they focus on what to eliminate and reduce in current offerings and largely ignore what they should improve or create to increase the offerings’ value.

are three propositions essential to the success of strategy: the value proposition, the profit proposition, and the people proposition. For any strategy to be successful and sustainable, an organization must develop an offering that attracts buyers; it must create a business model that enables the company to make money out of its offering; and it must motivate the people working for or with the company to execute the strategy.

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