Business opportunities: Medical tourism

Over the years, economic improvements tremendously enhanced the lifestyle and health of the world's population.

According to a Pricewaterhouse Coopers study, 24 OECD countries spent $2.7 trillion on healthcare in 2002. The same study estimated that if this increasing trend in spending continues, the 2002 level will more than triple to $10 billion by 2020.

Meanwhile, dramatic changes in demographics are unfolding. Within the next two decades, the global population aged 65 and over will grow by an astonishing 88 percent, or almost a million people a month.

Back in 2000, 7 percent of the world population (or 420 million people) were over the age of 65. This is projected to double in 2025, when people over 65 will make up 10 percent of the world population (or a total of 800 million people).

These two developments are interrelated. As the population ages, there is more demand for healthcare which in turn, drives the cost of healthcare spending higher.

For every dollar, or yen or pound spent on healthcare, this means one less spent on computers, travel and other personal/consumable items.

While health expenditures increase with growth, reducing these expenditures may be a key factor to fuel economic growth.

Dilemma
Therein lies the dilemma for developed countries. How can they continue to sustain their health systems while battling with the double whammy of rising healthcare cost and aging population?

Globalization offered a solution.

For years, a global convergence in healthcare continues to unfold and already, it has radically altered the way this is managed and delivered.

From its early precursor of pharmaceutical companies who sought to broaden their market base by establishing global partnerships as a means of expanding their market reach, we now see a variety of global solutions employed to solve many local health problems.

The first to ride this wave is the Philippines. Our nurses were among and still the most aggressively recruited staff as many countries experience shortages of skilled health personnel.

Today, delivering the best healthcare is no longer defined by national boundaries.

It is not uncommon now for US physicians to receive training in foreign medical schools. Public private partnerships are making possible the establishment of new hospitals and clinics in more than 50 countries like Brazil, Gulf States, Sweden, Australia, Malaysia and UAE.

The already huge global expenditure for healthcare does not show signs of abating.

Countries are competing for the chance to serve the growing market - and Philippines is one of them.

What business opportunities have emerged or are emerging where Philippines can potentially compete in? These four areas show a lot of promise:

- Medical Travel/Tourism

- Retirement Destination

- Outsourcing opportunities

- Health human resource provider

Medical Tourism
Lauren Garret wrote: "In the newly globalized economy of the 21st century, no part of the planet is too remote, too exotic or too forbidding for travelers or business development."

This is truly opening up the global market for travel in pursuit of health and wellness.

Medical travel is now an attractive alternative to take advantage of health services that would normally be too expensive or too inaccessible because of long waiting lines in a patient's country of origin.

Services sought range from the simple ones like spa and wellness, dermatological services, aesthetic surgeries, executive check-ups and dental make-overs to the more complex ones like hip replacement and organ transplants.

Success stories keep getting repeated in various publications and on the Internet.

Among Asean countries, the early mover was Singapore, which is still working hard to increase its 200,000 tourists a year to a million by 2012 pushing the sector's GDP contribution above $1.6 billion.

Thailand is a serious competitor and has recorded at least 600,000 patients' arrivals a year. This year alone, it is expecting to earn more than $1 billion.

Malaysia, which treated more than a hundred thousand tourist-patients in 2005, is expecting to make $590 million in five years. India's medical tourism business is growing at the rate of 30 percent a year and projected to make at least $2.2 billion a year by 2012.

Let us not forget that these four countries expect to generate more than $4.4 billion by 2012. That is a lot of money for their economies.

The increase in medical tourism market has already overtaken the 4-6- percent growth in general travel bookings predicted for 2006 with the number of medical travelers swelling by 20-30 percent a year. The Philippines is moving to join the bandwagon.

Philippines is a natural for medical travel. Already, we are among the preferred tourist destinations with our amazing beaches, tropical weather, historical landmarks, golf courses and hospitality among many other enticements that tourists find attractive.

On the service delivery side, we have very competent doctors practicing in well-equipped hospitals. We are already a recognized global brand in healthcare and chances are, these tourists have been cared for by either Filipino nurses or doctors in their own countries.

We speak English fluently and what we lack in resources, we make up with our smiles and trademark hospitality. Surely we can give our competitors a run for their money.

An effort is also being made to enable the local players to enter the market. The DOT conceptualized the Philippine Medical Tourism Program in accordance with its mandate to promote and develop tourism as a major socioeconomic activity to generate foreign exchange and employment.

Other agencies likewise supported the initiative among them, the Board of Investments, which included medical tourism in the 2007 Investment Priority Plan, the Development Bank of the Philippines through its Health and Wellness Enhancement Access Loan Program and the Philippine Export Zone Authority through the establishment of medical tourism zones.

BOI, DBP and PEZA had already issued guidelines on how these incentives can be enjoyed by those desiring to invest in medical tourism activities.

Retirement
From a short stay medical travel, we move to a more long-term opportunity for the Philippines as a retirement destination and as a service provider for geriatric care. We are living in a graying world and projections show just how challenging this will be for the planet.

The current estimated over-65 population in US is roughly 13 percent of the total population or about 35 million persons. By 2025, this age group is expected to be almost 63 million, nearly 19 percent of the total population.

Aging population
In Europe, one in five Europeans will be more than 65 years old by year 2025. In Asia - Southeast Asian region, Japan will have the most number of elderly population.

A paper by Misako Ito revealed that the elderly population aged 65 years and older reached 25.33 million in 2005 - one out of every five people is at least 65 years of age.

Between 2000 and 2025, China's 65+ population will grow by 3.5 percent per year while its under-15 population will decrease by 25 percent. By 2015, the percentage of the 65+ population will reach 9 percent in China and Thailand; 10 percent in South Korea; 11 percent in Taiwan; and 15 percent in Hong Kong.

In 1985, children under 15 outnumbered people aged 65 and older by 5 to 1 in East Asia and 10 to 1 in Southeast Asia. These ratios will plummet to 2 to 1 and 4 to 1 respectively, by 2015.

Baby boomers
Why is there so much concern about the aging of the population especially in developed countries?

Two or three decades ago, the baby boomers were active members of the workforce and their contribution to the social fund is enough to support those who were retiring--a much smaller number in relation to the younger ones.

Today, the baby boomers are themselves about to retire--and the deceleration of population growth has considerably reduced the number of younger age group who should be taking over their place in the hierarchy to continue providing support through pension fund contribution.

Countries now face an inverted pyramid scenario with funding support diminishing while retiring employees are increasing, straining its ability to take care of their elderlies.

Governments are now forced to consider alternatives to maximize the depleting pension funds and 'outsourcing' may show them the way out: scout for locations where their retirees can avail of appropriate and affordable housing, enjoy greater independence and better quality of life--and all within their pension allotment.

The growing popularity of medical tourism is hastening the 'buy-in' for the "relocation" of retirement facilities in countries that will have the resources to build such communities and provide the required services that will support the needs of its residents.

Again, Philippines is presenting itself as an ideal second home for the growing retirement market. The cost of living is relatively low (at least, when you consider that foreign retirees will get more pesos for their dollars or euros) and the climate is pleasant and conducive to a more laid-back lifestyle.

The availability of healthcare services is also a major selling point. Retirees are in that age bracket where health worries abound and the presence of many health facilities is a competitive advantage.

The business imperative is to develop and implement a world-class retirement community that will be able to combine the best features in terms of physical infrastructure and use this to create a seamless yet flexible network of health and lifestyle services that will be in step with the age transitions of its senior residents from active to increasingly bed-bound condition.

Outsourcing opportunities
Another area that the Philippines can also explore is outsourcing engagements such as support services for healthcare.

Many disease management programs abroad make use of the services of call centers for monitoring and follow-ups. Our country is already a call center hub--we can extend the service coverage to include healthcare. Medical transcription is already an accepted outsourcing area and we can likewise capitalize on the English proficiency of our manpower to further increase the market.

In the health education sector, we are already linked with countries like Korea and China, which are sending their students for nursing degrees.

Health human resource provider
All three preceding business opportunities require foreign nationals to come to our country to avail themselves of those services. Not all will be comfortable taking this route though because of strong family and cultural ties. Why not reverse the process and explore the opportunity of having our services made available to other countries on a fixed period/rotation basis?

One of the major worries of countries employing staff from overseas is that eventually, they will become citizens with all the entitlements. This, to their view, will strain further their already shrinking social services budget.

The "rotation model" will allow us to deploy staff in a host country where they will work for one to two years then come back to the Philippines who will then send a new batch as replacement. Rotation in the form of fixed employment period will minimize the adverse effects of migration such as shortage of skills for our own health system requirements and the social consequences of family separations.

At the same time, the skills that will be learned from the host country can improve the quality of our healthcare delivery at home. It's a win-win situation and the host countries can continue enjoying the benefits of well-staffed health facilities.

The bottom line is that healthcare is creating new market spaces and is opening up new doors where investments can come in, among them in these two major areas:

1. Infrastructure

Putting up more health and wellness facilities that are geographically dispersed over regions already considered as tourist destinations from spas, specialty clinics to hospitals;

Expansion of tourist accommodation facilities such as hotels, inns, etc.

Establishment of retirement communities including long-term care facilities

2. Services

Operation of transportation facilities

Schools and other facilities for health human resource development and workforce re-training

Operation of boutique travel agencies that cater to this specialized market

Operation of companies that can provide telemedicine services

Operation of lifestyle service companies to provide support services

Now is the time to take advantage of opportunities. Through the joint efforts of agencies such as DTI, BOI, Peza, DOT and DOH, investing in health and wellness initiatives are made more attractive through incentives ranging from income tax holidays to tax exemptions on customs duties ad importation.

In fact, our hospital, St. Frances Cabrini Medical Center has been recently proclaimed by the President of the Philippines as the first Medical Tourism Special Economic Zone—and our hospital has likewise been approved as the first enterprise-locator in this special medical zone.

Growing market
How then can the Philippines penetrate and seize leadership of the growing market in healthcare?

First, we need an engaged travel and tourism industry fully cognizant that medical tourism is a new game where old rules may not apply.

There is a need therefore for new synergies, a retraining of workforce and learning new skills that will allow proper handling of patients' inquiries, complaints and condition.

Second, we need to go beyond great slogans and classy brochures to translate every healthcare service requirement into an excellent experience for the medical travelers from the time of arrival till their exit.

The process flow must be seamless and hassle-free. This means better airport facilities, better coordination between and among government, health facilities and support services.

Third, we must establish track record through consistent performance and delivery. Quality must be a top priority.

It has been said that the healthcare system of the 21st century is a public-private partnership that harnesses the creative impulses of the private sector with the social justice function of the public sector. A public-private partnership has the potential of combining the innovations of the competitive marketplace with the larger social values of solidarity and health justice.

Countries who have successfully positioned themselves in this robust healthcare market leveraging on this partnership went on to reap economic benefits.

The Philippines can likewise become a beneficiary of this niche market.

Beyond profitability, the dollar earning potential of this market offers a unique opportunity to ensure that the gains will redound to the benefit of our countrymen who have poor access to quality healthcare.

The most tangible manifestation will be seen in a bigger budget allocation for health to upgrade and expand public health facilities ensuring equitable access to quality health services.

With the patronage and business from our international partners and clients, we can make this happen.

Healthcare has succeeded in breaking down barriers and making this planet an increasingly borderless world—because we all realize that at the end of the day, caring, healing, empathy and alleviation of pain recognizes neither color, money, country nor race.

So, expect tourists to go home from their travels bringing not only a couple of Batangas balisong, Cebu keychains or Boracay shirts but also a new hip or yes, a brand new face.

JP Morgan: Consumer-led RP growth hollow

Despite the surge in the country’s gross domestic product, economists are saying that the consumer-led growth is hollow and has no real impact on the economy’s productive capacity.

According to JP Morgan, the prime movers of genuine growth have not been moving as they should, with investments which lagging behind the growth in domestic production.

JP Morgan economist Sin Beng Ong said future growth has been "based on faith" that the public sector would be able to deliver its infrastructure spending plan and work as a catalyst for private investments.

The GDP is projected to grow by seven percent this year but Ong said this raises no threat of a bust despite projections that growth in 2008 would drop to six percent.

"There is not going to be a bust because there clearly is no boom," Ong said.

To begin with, Ong said, broad inflation rate had been low not just because of the strength of the peso but also because there was no pressure on the demand side.

"So inflation will continue to be low. There is no second-order pressure outside of the energy sector because demand simply isn’t there," he said.

"The fact that there is no pick-up in demand is not good because that means there is no underlying demand for investments," he added.

The strength of the current accounts in the balance of payments, Ong pointed out, is indicative of lackluster investments which means that there will be a low demand for labor and therefore demand will be low as a whole.

Ong noted that the country also has a wide gap between savings and investments, indicating that investments are being financed largely by foreign borrowings instead of internally-generated funds.

According to Ong, there is strong liquidity but this is not being mobilized into savings and investments. Moreover, he said, credit demand had been dominated by real estate and personal loans with very little showing by the manufacturing sector.

"All of these is a reflection of what we think as hollow growth because there is no pick-up in domestic demand to sustain the growth momentum," Ong said.

"We are not sure why the GDP is so strong despite the yawning S-I gap but if we are looking for possible upturn in 2008, it will be led by the public sector," Ong said.

This means that future growth prospects have become an article of faith, Ong said, dependent on whether or not the public sector would be able to deliver its spending program under the Medium Term Philippine Development Plan.

"The question is whether public investments could catalyze private investments and I don’t know what the answer is," Ong said. "Theoretically, it should, especially if the government could allocate spending in a manner that will have the greatest multiplier effect."

SM Investments rated an outperform

Macquarie Research Equities on Tuesday gave conglomerate SM Investments Corp. an "outperform" rating, saying it is confident that the company will meet its full-year income projection.

"Retail businesses always show higher earnings in the fourth quarter," it said in a recent client note.

The brokerage firm also gave SM Investments a 12-month target price of P395.

In the first nine months, SM Investments' net profit rose 14 percent year-on-year to P8.5 billion, which accounts for 65 percent of Macquarie's full-year profit forecast of P13 billion for the company.

Consolidated revenue for the period almost doubled to P82.6 billion, including contributions from SM Supermarket and SM Hypermarket.

"The results support our outperform rating on SM, which is our preferred pick in the conglomerates sector. Moreover, SM is the best way to play the reflation story in the Philippines given its strong presence in retail, banking and property development."

SM Investments, which is owned by tycoon Henry Sy, is the country's third-biggest company by market value.

Its subsidiaries include mall builder and operator SM Prime Holdings Inc., SM Development Corp. and Banco de Oro Unibank Inc., the nation's second-largest bank by assets.

Joel T. Go: Taking care of business at Ever Gotesco

Joel T. Go is bent on continuing the legacy of his grandfather, Go Tong and his father, Jose Go, the two famous names behind the Ever Gotesco Group of Companies.

This 34-year old graduate of Electronics Communication Engineering was not involved in the family business until after the conglomerate was badly hit by the Asian financial crisis in 1997 when the Gos were forced to close down their banking arm, Orient Bank.

“Our father did not want to involve us in the business then. He wanted us to do what we want to do. He wants to make sure we live our lives the way we want it,” the young Go recalls.

Joel, however, believes that he, together with his brothers, are destined to become the keepers of the family’s business empire which begun in 1975 when the old Gos built their first mall.

“Being part of this family means a lot to me and my brothers. We want the public to know that despite what happened to us in the past, our conglomerate is here to stay and we will continue to stay resilient,” Joel says, with conviction.

The financial setback experienced before by the group, he says, serves as a challenge rather than a misfortune.

“It’s a good thing that we had this problem when we can still manage to repair the damages. Whatever fault we had before, we now have to make sure that we will never commit again,” he says.

Joel started to take part in the family’s enterprise seven years ago. Eldest of three brothers, Joel sees to it that the efforts of the old generation Gos, to establish a business that is anchored on family values will not go to waste. Only 27 that time, he was already a hands-on executive handling full operations and marketing of Ever Gotesco malls.

In 2004, Joel was assigned as president of the Metropolitan Medical Center which the Go family acquired. Along with managing the hospital, he also oversees the over-all operations of its school — the Metropolitan Hospital College of Nursing.

One of the few strategies and techniques injected by the young Go to the traditional business practice in the Gotesco group was the introduction of a middle management which he now heads.

“Our team is constantly on the lookout for fresh ideas to incorporate in our marketing strategies, unwilling to find ourselves behind the competition but always in the middle of it all,” Joel says.

Manned by young and talented group of professionals, the middle management sees to it that every little detail in the company’s operation will be reviewed; and must be consistent with the group’s core ideology which is “Enriching the Lives of the Filipino People.”

“We have been slowly keeping our phase. We have been moving forward. But this time, we have to be more careful. We are studying every step we are making,” he adds. “Continue to run the ‘malls for the masses’ will still be our battlecry.”

To keep up with this momentum, Joel says the group will now focus on the right market and invest on right projects. Being in the third generation of Gos, Joel is proud to say that he is also a “people person” himself.

He asserts that this distinct quality of the Gos will bring the conglomerate to the next level. “We are going to build a company that will last,” Joel says.

Future plans

Based on the company’s five-year plan, it will be spending about P2.5 billion for the construction of four to five medium-sized malls.

“As we observe, we can not really compete with big malls. Metro Manila is saturated. So we will have to concentrate on the unserved market particularly in the suburban areas,” Joel says.

The company is now in the process of identifying the sites for the future malls. Among the areas being explored by the group are Parañaque, Laguna and Dagupan.

Aside from Gotesco Grand Central Mall, the group also runs Ever Gotesco Commonwealth Center, Ever Gotesco Ortigas Complex, and The Manila Plaza (Ever Recto).

Funds to finance these projects, he says, will partly come from internally-generated income. “Our cash flow is getting better. The revenue level of the group is stable,” Joel adds.

Joel says a number of banks have already approached them for possible loan arrangements.

“This only shows that many financial institutions still believe in the company’s ability to recover and expand its operation,” Joel notes.

The business blueprint of the company will also involve the renovation of its existing malls.

Next year, the group will start renovating one of its oldest malls, the five-hectare Gotesco Grand Central Mall located in Monumento, Kaloocan City.

By 2009, they will be putting up the first new mall with an estimated investment of more than P500 million.

Aside from pouring in capital in the expansion and renovation of malls, he says they will be investing P800 million to double the bed accommodation of UDMC to 800.

Modernizing the equipment and facilities of the hospital to cater to more advanced medical needs of their clientele, he says, is also part of the company’s medium-term plan.

The group also owns and manages a secondary hospital and nursing/retirement home in its 400-hectare golf course property in near Tagaytay. The Evercrest Golf Club Resort and Chateau Royal Sports and Country Club are being managed by the group’s Gotesco Land Inc.

A possible joint venture with a US-based hotel/ property developer is being explored by the group to take advantage of the growing potentials of the Batangas-based property.

“We can put an enclosed leisure/entertainment complex that may include spas, casinos in this property. This may also have a retirement home to cater to OFW retirees or even foreigners who want to spend their retirement period here,” Joel says. The idea of putting up a retirement home, he says, is consistent with the Gotesco group’s vision to maintain a family-oriented business.

“For one, our Ever Gotesco Malls shall become the household name for value-added shopping and every Filipino family’s mall of choice,” Joel concluded.

Competitive intelligence and ethics

QUESTION: Our head office in the US has just reorganized our marketing research department to direct its focus on competition. This has been renamed “Competitive Intelligence Department.”

Our head office’s CIS (Competitive Intelligence System) that we’ve been asked to install was developed by an ex-military. Some of its techniques for uncovering and monitoring competition are treading along the thin line separating what’s ethical from the unethical.

Also, the system has a whole lot of competitive information that it’s asking us to gather on a periodic or continuing basis. Those information fall under five categories: (1) the competitors’ capability and track record to develop new products and to innovate; (2) their capability to manufacture and bring new production capacity online; (3) their capability to market, to command a strong channel support and point of sales presence; (4) their capability to finance and to shift budgets among brands and market segments; and (5) their capability to manage and retain key managers.

There are over three dozen items under these five categories and with just one product line, we have 5-8 major competitors! We don’t know if we can adequately set up for the required intelligence requirements. But our CIS model says these data are necessary for us to be able to anticipate competitors’ future strategies.

We have two questions. First, what ethically acceptable competitive intelligence method can you suggest that will give us just as helpful a set of competitive knowledge? Second, does your method include a way for us to short list the vast number of competitive data our CIS requires for us to be able to predict a competitor’s future strategy?

Answer: On your first question, here’s that ethically acceptable competitive intelligence method.

We call it “The Survey Based Competitive Benchmarking Study.” Its complete research details are in the senior MRx-er’s third edition book, “User Friendly Marketing Research.” For answering your question, it’s enough to limit ourselves to the logic of the method and to an example of the results of its application so that we can appreciate its power at "insighting" competitor behavior and strategy.

The model does its competitive intelligence function along two related logics: a “behavioral logic,” and an “analytic logic.” Its basic behavioral premise states that everything that your brand does versus its competitors gets registered with the target consumers. For example, consider the case of your ethical marketing of a medication to doctors. Your brand’s marketing campaign consists of its ethical prescription and ethical OTC promotion activities versus those of your brand’s competitors. The target response of your brand’s campaign is its target doctors’ prescription behavior. To what extent the promo activities of your brand’s campaign has succeeded in generating doctors’ prescriptions can be gauged from the data on how doctors rate those promo activities against their priorities and against competitors’ promo activities. Those data are forthcoming from an MD survey.

The analysis of those data follows the logic of a simple functional equation. The equation simply states that a leader brand’s share of doctors’ prescriptions is a function of superior ethical prescription and ethical OTC promo activities and inputs. The analysis’ “benchmarking” framework directs a focus of the data analysis. That’s on “best practice” or the “best practicing brand” which is the market leader brand.

The example we used to illustrate the model’s behavioral and analytic logics involved the four competing brands in the NSAID (non-steroidal anti-inflammatory disease) category. These brands were Feldene, Mobic, Orudis and Ponstan.

In terms of shares of prescriptions (SORx), the survey pointed to Mobic as having the highest SORx and therefore the market leader. Ponstan was No. 2 while Feldene was No. 3. Orudis was the fourth ranking brand in SORx.

How did the market leader brand, Mobic, attain the “benchmark” position in the category?

To answer this, the survey based competitive benchmarking study gathered two sets of data: (1) how the prescribing doctors prioritized 16 ethical prescription promo activities in terms of how doctors regarded each of these activities as necessary for a pharma company to do to gain their prescription, and (2) which NSAID brand these same doctors regarded as doing the best or the most among the doctors’ prioritized promo activities.

The survey identified nine out of 16 as the doctors’ priority ethical promo activities. Doctors rated Mobic, the market leader brand, as statistically significantly superior over its competitors on only four out of the nine. These were on the promo activities of: (1) doing the most regular visits to doctors, (2) doing the most frequent detailing, (3) doing the most product sampling, and (4) doing the best doctor PR.

What do these results say about how to succeed or gain the highest market share in the NSAID category at the time this survey based competitive benchmarking study was conducted?

There are at least two competitive intelligence insights here. First is that Mobic attained competitive leadership by focusing on just on detailing and product sampling. Regular visits and doctor PR are variants of detailing. Secondly, competitive superiority is achievable without attending to all or even most of the available competitive activities. It is focusing that made for the strategic difference.

As you can see, you can learn and monitor competitors and their competitive strategies without directly sourcing data on them. Surveying our common target customers presents the best competitive intelligence source and at the same time is the most ethical approach.

In ethics, nothing beats the old golden rule: do unto others what you want others to do to you. As a reference for business ethics, a good resource would be John Maxwell’s book, “There’s No Such Thing As ‘Business’ Ethics (There’s Just Ethics).”

Competitive intelligence that does not cross ethical lines

THIS IS THE RESPONSE TO A READER’S second question, “Is there a way to short list the vast number of data your CIS requires on competitor capabilities as a way to predict a competitor’s future strategy?”

We have found that the key is to have a focus. Here’s the logic we apply to this search for a focus: “None of a competitor’s physical, technical, financial and marketing resources and capabilities can make for a competitive difference and advantage without someone orchestrating, navigating and controlling them.” So what is the implied focus?

Know your competitor’s face. Who is the brand manager, the marketing director or the marketing VP of your major competitor? What is he like in responding and/or attacking his brand’s leading competitor brand/s?

To know your competitor’s face and answer the preceding questions, it’s obvious that you have to profile this person’s competitive style. In our competitor profiling experience, we have found at least four competitive styles.

The first is what we call “the indifferent competitor.” This competitor will respond to you with this almost complacent mindset: “I have loyal customers and they’ve stayed that way for a long time. As long as I do everything to keep them loyal, that’s my best protection against any competitor.” So what can you predict about how this competitor will react to your moves? Most obviously and most likely, no reactions will be forthcoming at all.

The second competitive style is the “Hamlet” competitor. This one will respond but he or she will do so after a long, long time. This competitor’s brain works like Shakespeare’s character, Hamlet, and therefore thinks this way: “To compete or not to compete. That is the question. … But maybe it’s better to wait. In 80 percent to 90 percent of the cases, nothing really bad comes out of these competitor moves. So most of the time, I’m better off waiting things out.”

So what can you predict about how this competitor will react to your moves? It’s likely that the reactions will come after a long period of time.

The third competitive style we’ve seen is in a “game, fun-loving” competitor. This competitor looks at marketing life as a game of fun. He or she expresses this outlook along this script: “I love this competitive game. That’s especially fun when I’m playing against a worthwhile adversary who knows what he’s doing. At first he wins, and I lose. But I learn why I lost and come back. Then I win, and he loses. He learns, and then he comes back. And the cycle repeats and afterwards, we both are better off as competitors than at the start.” So we ask again: What can you predict about how this competitor will react to your moves? Most obviously, smart and sometimes surprising reactions will be forthcoming. So prepare and be equally smart if not smarter.

The fourth type is fearsome— “the ruthless competitor.” We say this competitor is fearsome because his or her competitive brain cells reason out this way: “My response rule is simple: It’s always better to overreact than to under-react or wait. My attack rule is just as simple: You don’t just hurt competition. You come in for the kill. Annihilate the enemy.” What can you predict about how this competitor will react to your moves? It’s obvious—be extra careful unless you have the guts and resources to go to war.

Are these competitive styles consistently practiced by their advocates? What we’ve observed it that they change over time and according to the situation. Even an indifferent or a Hamlet competitor can at times take on a ruthless competitive style because of a traumatic experience.

But in all these, what you must now keep in mind is this basic proposition: “In dealing with the issue of a competitor’s future strategy, remember that a leading competitor will usually do what he/she has gotten used to do in the past, shaped or reshaped, directed or redirected by that competitor’s current or changed competitive style.”

Keep up with emerging competitive intelligence practices and trends. For this, you may want to every so often visit the web site of The Society of Competitor Intelligence Professionals (SCIP):www.scip.org.

Send questions to MarketingRx@pldtDSL.net. God bless!

Seven resolutions for marketers in 2007

BY the time you read this column, you (like millions of other people across the globe) would have made a handful of New Year’s resolutions.

Here are seven suggested resolutions that marketers can make and KEEP to have a better, more profitable new year in 2007.

As a marketer, why not resolve to …

1. Start or continue practicing “Truth in Advertising.”

Make this one of your core values. Focus on telling the true benefits of your product to build trust with your customers. Quite a number of developers and/or their ad agencies state that their project locations in the Cavite / Laguna / Tagaytay area are a mere “45-60 minutes” drive to Makati City. Immediately, this creates disbelief and distrust for those veterans who ply the South ‘Suffer’ Highway. I have personally timed the travel to several of these projects and it is almost impossible to make it under 60 minutes. Just tell the truth and say something like “average travel time is about an hour or two, depending on traffic conditions, but it’s well worth the drive.” As BrandChild author Martin Lindstrom says, “to build word of mouth (the best form of advertising), underpromise but overdeliver.”

This brings us to a question that a reader asked: “If consumer perception is the primary basis for motivating prospects to buy, then does this mean that truth in advertising is irrelevant in marketing? ”

To which we answered: On the contrary. What this means is that marketers ought to be extra careful in their use of consumer perception to motivate consumers via their advertising. As a marketer you can use consumer perceptions for a good purpose or for a bad one. Truth in advertising is a good purpose. Deception is bad and if you get away with it at first, it won’t last. Consumers will, sooner or later, find out how you’ve been fooling them. Abe Lincoln has been, is, and will be right: “You can fool some of the people some of the time. But you can’t fool all of the people all the time.” (Read Seth Godin’s book, "All Marketers Are Liars: The Power of Telling Authentic Stories.")

Deception of course includes cases of keeping quiet about what you know may harm consumers. That’s withholding of a “truth.” Take the case of Merck’s Vioxx, the acute painkiller and anti-arthritis medication, that had to be withdrawn from the market because Merck or more precisely its medical researchers withheld from publication in the New England Journal of Medicine knowledge of three heart attacks among Vioxx’s patients participating in the large scale clinical study of Vioxx.

The heart attacks took place in the final five weeks of the trial study. The patients who had the heart attack were supposedly at low risk for heart problems. But this was not the only thing the Merck researchers withheld. The study had apparently found “more cardiovascular problems potentially connected to Vioxx.” These problems were not reported in the published study. They should have been since in medical science and research, such withholding is highly unethical and a serious breach of the Hippocratic oath.

In pharmaceutical marketing, published clinical studies are a powerful “advertising” material for persuading doctors. So that withholding of the three heart attacks and the connection to more cardiovascular problems was also a truth in advertising infraction.

2. Grow bigger by going after “smaller” markets.

Today, market niches are all around you ... even in the mass market. Look at Unilever’s deodorant brand, “Axe.” This brand successfully made sales and profit by nicheing into the population of young men, not all of them, but only those young men who are “after a deep relationship with a girl.” That’s a niche, a small population size. But their usage frequency is high and willing to pay a premium for a deodorant specifically tailored to their needs. We understand from our Unilever friends that it is now the main contributor to the more than 10 percent growth in the company’s participation in the deodorant category! There’s a local equivalent (though in a different category) to Axe. That’s Eskinol’s “Master,” the Eskinol for a special niche of young men.

The extreme in market niche-ing is in real property marketing. Look at Ayala Land. Its initial target market was the niche of all niches: the very few and countable Class AAA consumers. Yet selling to this niche, say, a less than 100-unit condo project gave Ayala Land billions in revenue. The magnitude of the marketing task (MMT), another marketing concept worth your mastering, is accountable and manageable.

3. Focus!

It was a joy to host marketing legend Al Ries and his daughter/partner, Laura Ries, last June 2006. One of the most memorable pieces of advice that they gave was to focus.

Al Ries’ advice on choosing what to focus on is that “First, you want to be first in a category. Remember, not just first in manufacturing the product, but first in the mind of the customer. It doesn’t matter if a hundred of people are producing it already, if you are first in mind you will generally win. Second, you want to bet on the future. Pick ideas or concepts that fit in with future trends. In food, for example, you might want to focus on low-calorie products. In clothing, you maybe want to focus on the younger generation, because they buy more and will be around longer. Third, you want to be the opposite of the leader. If the leader is Coke and focused on the older generation, then Pepsi should focus on the younger generation. If the leader is McDonald’s and focused on kids, then Burger King should focus on adults, or grown-up kids.”

4. Put effort into internal marketing.

We hate to sound like a broken record, but this resolution is one of the most favorite ones to be broken every year. Before you market and sell to the world, make sure you’ve sold yourselves and the other departments/teams in your company on your product and its marketing plan.

Marketing to the target market and consumer segment is what gets formally planned. That marketing is what has come to be called “external marketing.” But every company has its “internal customers.” These are the people in the marketing and sales department, and those in the other departments including especially, manufacturing, supply chain, finance, and human resources. To win their support, these “customers” need to be sold to the company’s product and marketing plan. They must buy in if the external customers are to likewise buy and if the marketing plan is to gain the support it needs from them. This is marketing to the internal customers. It’s “internal marketing.” If it is to succeed, it needs the same kind of formal planning, implementing, monitoring and control that we routinely give to external marketing.

We’ll be back next week for the next three resolutions that marketers need to make.

Seven resolutions for marketers in 2007 - Part 2

APOLOGIES to our readers for the delay in publishing the second and last part of this series. Here it is! Thanks for your patience.

As a marketer, why not resolve to…

No. 5. Build your brand by putting more time and resources into Public Relations

Resolve to read "The Fall of Advertising and The Rise of PR" by Al Ries and Laura Ries, a controversial book that was -- or still is -- a wake-up call for an advertising industry obsessed with winning creative awards. PR practitioners, of course, love every page of this book.

Why put more money into PR? Ries and Ries build the case that PR builds brands because it is more credible than advertising. People tend to believe the stories they read or hear more than the advertising that “interrupts” their reading, viewing, or listening.

Here’s Al Ries’ advice:

“Over several decades, advertising has gotten more expensive at the same time as there has been a dramatic increase in the volume of advertising. These two factors make advertising less effective (too much volume) and less efficient (too expensive.)

Advertising agencies have responded to this problem by de-emphasizing selling and emphasizing the creativity of the advertising. As long as everyone was aware of a company’s advertising what difference did it make if nobody bought the client product, went the thinking. Selling is not our problem, said the advertising industry. Creating awareness by creative advertising is what we are all about.

Advertising has many advantages: You can reach exactly the right people at the right time with the right message as often as you want to reach them.

But advertising has one major problem. Advertising lacks credibility. People just do not believe what they read (or see or hear) in an advertisement. They recognize the fact that advertising is self-serving. What you say about yourself has little or no credibility. Contributing to the credibility problem, of course, is the volume of advertising. Consumers turn off most advertising because there is just too much of it. In many ways advertising is like spam on the Internet. It’s not believable because there is too much of it and the messages are self-serving.

Public relations or PR has many disadvantages. You can’t control the media, you can’t control the timing, and you can’t control the message. But it has one major advantage: PR has credibility. Consumers tend to believe what they read in the editorial pages of newspapers and magazines and what they hear on radio and television from independent people. It’s what we call “the third party effect.” What others say about you has credibility.

PR and advertising can work together. Use PR first to create credibility for the brand. Then use Advertising second to reaffirm and reinforce that credibility.

We recommend that companies launch new brands with PR only. Then when the brand has awareness and credibility in the mind, the company can switch to advertising to maintain the brand.”

No. 6. Stop being fooled into buying awards to build your brand

Winning awards for your company or brand can be very good PR for you. But it’s funny how thousands of companies, both large and small, can be duped into buying awards. In the past year or so, we’ve seen good reputable companies emblazon on their print ads and brochures the dubious logos of such awards that were practically sold to them.

Other “entrepreneurial” deviants, determined to make a quick buck, have joined the bandwagon of selling awards. In the past few months, we’ve been getting faxes and calls from these deviants congratulating us on our accomplishments. Now would we mind paying the “joining fee” to participate in the awards program? Ha, ha, ha.

Legit or just moneymaking?

Because of the current proliferation of these business and marketing awards, a good number of our marketing friends have asked: “Is this award legit?”

It pays to do a little checking into the award giving body, company, or so called “Institute” before joining. Many bodies do organize awards for both fund raising and recognition but are definitely legit. Take, for example, the Clio advertising awards in the US or the Araw Awards that accompany the Philippine Ad Congress. Every entry pays a fee that isn’t exactly cheap. But participating ad agencies don’t seem to be bothered and no adverse negatives are heard about the award’s required entry fee. Of course there are awards where the entries do not pay but are instead “paid” to those nominees who win as in the case of the most prestigious award in the world: the Nobel Prize (Winners get a $1M check). The Ramon Magsaysay Awards, known as the Nobel Prize of Asia, does the same thing but the check is in pesos—about P1M. These are the “Superbrands of Awards.” Their branding carries the name of their founder who is known and acknowledged for his or her life of excellence and professional and personal values.

Awards for sale

We’ve received some concerned calls from company heads and marketing professionals who have been receiving what look like generic form letters from awards program organizers. The letters inform them that based on "consumer surveys" their brands have been selected as a winner in a category. Some of these shoppers/brand/marketing award promotional campaigns then ask for a P15,000 to P50,000 award support fund/subsidy. The “leading” solicitor of such awards for sale has a team of account executives. They in turn “sell” thousands and thousands of awards on a local/regional and national level and asks awardees to shell out at least P15,000 for a plaque and the right to use the award logo on their marketing collaterals. Do the math—that’s a cool P15M for every thousand awards that you give!

According to one respected but skeptical marketing professor, the difference is that these awards programs inform you that you have won already and to participate in the awards program and to include your brand name in the subsequent advertising and promotions, all you need to do is return the contract that accompanies the congratulatory letter together with your "support fund" or "subsidy."

“What they are doing are selling awards to companies!” says the marketing professional who received several awards confirmation letters for his brand but refused to pay the award subsidy/fund that was asked of him.

No. 7. Keep on learning

We always end our MarketingRx New Year’s resolutions with this one and we see no reason to change or replace it. As a marketing executive, you must have a personal growth plan to be a better, more effective marketer. Keep on reading the best and latest books, journals, and articles on marketing. Go back to “school” by attending marketing seminars and conferences here and abroad. Marketing is one of the most challenging careers characterized by constant change. To rely on what you learned about two years or a year ago is business suicide. Keep on learning and you’ll have a really prosperous new year!

What to do with ad budgets when sales are down

QUESTION: How do we decide on our advertising budget? As they say, you spend what you earn. In 2006, one of our brands performed poorly. So this year, its ad budget is very small, so small that it’s impossible to support production of a TV material. How should we address this problem?

Answer: First, resolve for the New Year that you will no longer make marketing decisions according to “rules of thumb.” Rules of thumb are convenient decision shortcuts that enable us to cope with difficulties including decision challenges. But when they are based on assumptions that are no longer current, they obviously lead to wrong decisions.

This is true when deciding on your advertising budget as a percentage of your sales.

The rule of thumb is: “When sales go up, up goes your ad budget as well. When sales rise, down goes the ad budget as well.” Most of the time, it’s the reversal of the rule that is appropriate.

When sales go down, that’s when your product needs more support from your advertising to help move up sales.

Remember, advertising is one of your marketing mix tools for generating sales. Advertising is a means. Sales are an end. When you say the ad budget should be a percentage of sales, you’re saying the end should determine the means.

As one of your sales generators, any specific ad campaign has marketing functions you want it to perform, like raise your brand awareness by so much, brand image rating by so much and purchase intention for your brand by so much.

You have norms or you can get industry norms for each of these functions and you can benchmark on how much an average ad campaign will cost to undertake each of those functions.

This is the more logical basis for deciding on your ad budget.

Q: How do we properly segment the market for our products when the buyers are mothers but the end users are their children? Whose (product priority) value do we prioritize?

A: Your product category represents the case where the decision-maker or the buyer is one person, namely the mother, while the end-user is another, namely the child. It’s a family product and not an individual product.

Marketing 101 tells us that in such a case, you should respect the differing priorities of your two consumers, the buyer and the end-user.

Take the case of Sustagen when it was relaunched in the early 90s to compete against Milo and Ovaltine. Sustagen’s research revealed that it was in exactly the same situation as your product. The decision-maker and buyer was the Mom. The end-user was the child. The same research showed that the priority value of Mom for the chocolate drink of her child was “nutrition” while “taste” was a secondary value. The child’s priority was almost exclusively for a “yummy taste.” To the child what was yummy must be nutritious.

So what does Marketing 101 mean when it says you ought to respect these differing (and in this case, diametrically opposed) priority values? That simply means that in your communication with Mom, you support and reinforce her priority favoring nutrition. And that’s exactly what the Sustagen TV ad campaign did. It converted the TV into a nutritionist who announced that she’s better off giving her child Sustagen with its 23 “'resistensya' [resistance] builders.” On the other hand, in its communication with the child, another TV ad talked to the child about Susy and Geno, who told the child how to concoct his or her own tasty Sustagen shake.

Was that the right move? Marketing 101’s recommended GMP (Good Marketing Practice) was vindicated.

Q: My daughter, who’s taking up Integrated Marketing Communications, surprised me when she said the 4Ps are out and 4Cs are in.

Here’s the correspondence: product, out; consumer values, in; price, out; consumer costs, in; place, out; convenience, in; promotion, out; communication, in.

Is this true? What’s this 4Cs concept?

A: That’s one of the things daughters are for: to surprise us. Sometimes, they surprise us with the truth and a new reality.

But the 4Ps and the 4Cs are basically the same. Both are about the marketing mix. The 4Ps are the marketing mix components seen from the marketer’s perspective, the marketer’s decision tools for generating sales. On the other hand, the 4Ps are the marketing mix components now seen from the consumer’s perspective, the consumer’s decision considerations for making purchases. Remember, consumer purchases equal marketer sales.

The concept of the 4Cs as the consumer-centric marketing mix came when the “marketing concept” became and was accepted as the single most fundamental marketing principle. This concept simply said this: “In planning or implementing any marketing program, be it a product intro, pricing, an ad campaign, a consumer promo, or even a trade promo, a sales distribution program, never start from where you (as the marketer) are. Always start from where the consumers are.”

This is not of course saying that if you do marketing according to the 4Ps, you will go wrong. If your specific 4P decisions converge with where the consumers are with each of your 4Ps, then your marketing mix will still work. It is when there is divergence between the two that the 4P-driven marketing mix or program will fail or won’t get results as good as when convergence is present.

Just consider our Sustagen example above. The marketer-driven 4Ps concept was about choosing between the Moms and the children as alternative PTM segments. That’s because the Sustagen positioning will be different if the PTM segment is the Moms and if it’s the children. Looking at the marketing decisions from a consumer-driven 4Cs concept told us that the PTM segment decision is not a choice between alternatives. The two segments are the PTM segment because Mom will not buy a chocolate mix that’s not nutritious. But the child will not drink (many or most of them won’t) a chocolate mix that’s not yummy. And if the child does not drink, Mom will stop buying. The problem solution is clearer and more compelling in the 4Cs problem definition than in the 4Ps specification.

Of course, the marketing reality does not always work out in favor of the consumer-driven marketing. In a previous column, we spoke of consumer-driven marketing. That’s the 4P marketing or marketer-driven marketing. We’ve seen that with the phone companies and their very successful marketing and selling of SMS services and ring tones, to mention just two. Here, it was the marketers who taught the consumers that they needed SMS to stay connected with their loved ones. Consumers didn’t tell the phone companies that they have a need for SMS. The process didn’t start there. It started with the marketers. And when the consumers finally learned what the marketing phone companies were teaching them, and were finally convinced, they bought and revenue literally exploded.

So tell your daughter her IMC professor is probably trying to teach through shock value through exaggeration. Tell her not to go for a half-truth but instead go for the whole truth and nothing but the truth. So help us God!

‘How can Blue Ocean marketing strategy help my business?’

MANILA, Philippines -- Just the other day, we had lunch with a director of a Fortune Top 10 company who is being besieged by new competition, including copycats. He asked us “What’s this Blue Ocean marketing [strategy] all about?” This is not the first time we’ve been asked this question. Our readers are also curious about Blue Ocean Strategy.

The Blue Ocean marketing strategy refers to the “Blue Ocean Strategy,” a bestseller written by W. Chan Kim and Renee Mauborgne and published by the Harvard Business School Press in 2005. The book has sold over a million copies (translated in 37 languages) and has made this Korean and French tandem one of the most sought-after business speakers in the industry. Last time we checked, Kim and Mauborgne now command $150,000 each, per talk!

To answer the question we turned to Josiah Go, prolific marketing author, and chairman of Mansmith and Fielders training company, who had the foresight to acquire the license to teach the Blue Ocean Strategy here in the Philippines. (Thus saving the Philippine marketing community $150,000 -- you could hire Go to speak, at a tiny fraction of what it would cost you to hire either Kim or Mauborgne.) Go is the first and only Filipino to successfully complete the Blue Ocean Strategy qualification process in France and the first professor of a three-unit, full-semester Blue Ocean Strategy in Southeast Asia.

This week, Go answers your frequently asked questions about Blue Ocean Strategy.

Question: What are the key principles of Blue Ocean Strategy?

Go: To win in the future, companies must stop competing with each other the traditional way. Instead, a change in paradigm is needed -- the only way to beat the competition is to stop trying to beat the competition. The concept of value innovation, which places equal emphasis on both value and innovation, is the cornerstone of Blue Ocean Strategy (BOS). This is done by creating a leap in value for buyers and the firm, thereby opening up new and uncontested market by aligning innovation with utility, price, and cost positions. Blue oceans are thus created in a sustainable manner by simultaneously driving costs down while driving value and differentiation up for the buyers.

Q: How is BOS similar to or different from marketing strategy?

Go: In terms of customers, BOS is similar to marketing strategy in that both aim to assemble products or services that can satisfy the target consumers. The difference is that traditional marketing strategy looks at existing demand and satisfying current customers, while BOS is not competition-based, and it looks at non-customers and captures new demand in an uncontested market space.

In terms of competition, both traditional marketing strategy and BOS need to compete, however, traditional marketing strategy aims to beat existing competition by gaining market shares while BOS tries to create new value to make existing competition irrelevant.

In terms of company, traditional marketing looks at incremental improvement in revenue and profit, while BOS looks at a giant leap of value, thus giant leap in revenue and profit growth. Also, profit-wise, traditional marketing strategy seldom looks at how to reduce cost while BOS is both differentiation and cost-based. Thus, while the whole system of an organization’s activities in traditional marketing strategy is aligned with differentiation; BOS is aligned with both differentiation and low cost simultaneously.

Q: Does my company/business really need this Blue Ocean strategy? We’re doing all right with our current promos. Are there Filipino companies adopting this strategy?

Go: A lot of companies are suffering in red oceans -- they continuously try to outperform rivals by competing on price or promo, grabbing a piece of the existing known market space without looking at other viable options. Their promo does not even help them build their brand equity. Many also have a wrong concept of a low-price offering. They focus too much on the competition and brand switching without looking at what customers really need and want. They should continuously be alert asking one simple question -- what fundamental change in offering level buyers receive will make the competition irrelevant?

HBC is one of my favorite examples of a Blue Ocean Strategy company in the Philippines. From an obscure retailer mixing incompatible grocery products and beauty care products, they dropped groceries and canned products and focused on pushing beauty products. From selling brands of multinational manufacturers, they successfully built their own multi-brand private label lines now accounting for over 60 percent of their total sales; thus enabling them to be both differentiated and have low-cost at the same time. Instead of competing with the traditional beauty care “vaciador” stores, they have repositioned themselves and attracted new customers who used to visit retail shops selling imported and branded beauty care products, transforming them from a retailer losing money four years ago to winning the Most Outstanding Retailer award given by the Philippine Retailers Association.

Another example is "C2," with great value innovation -- green tea brewed and bottled on the same day, matched with great taste, great image at an affordable price. Universal Robina Corp. positioned it against soft drinks that at the time of launch were 47 times bigger than ready-to-drink (RTD) tea and four times bigger than the company size of URC. Today, C2 sells much more than the original market size of RTD tea when the product was launched.

"C2" is a blue ocean strategy launch because instead of looking at the existing RTD tea market as competition, it looked at alternatives and competed in a relatively uncontested market space. Instead of beating the competition, they made the competition irrelevant. Instead of exploiting existing demand by simply convincing people to switch RTD tea brand, "C2" created and captured new demand from those no longer drinking soft drinks -- people who are health conscious or those who would like their family members to drink something healthier than the usual soda. And because Universal Robino is part of the JG Summit conglomerate, the synergy from the bottles and the sugar supplied by their sister companies made the product both differentiated and low-cost at the same time, breaking the traditional value-cost trade off.

Josiah Go will talk on “How to Formulate New Products via Blue Ocean Strategy and Make Competition Irrelevant” at the Third Market Masters Conference on March 21, Mandarin Oriental Hotel and co-sponsored by the Philippine Daily Inquirer. Profit will go to Mansmith and Fielders’ charity and advocacy projects. Call +632 7222318 or +632 7277142.

WII

Nintendo's New Look
Rachel Rosmarin, 02.07.06, 10:00 AM ET

Perrin Kaplan Nintendo By This Author Rachel Rosmarin Betting On Yahoo! MySpace Tries To Grab More Space Burnishing Halo More Headlines RSS News Feed Popular Videos Adventurer: Water World Primetime's Glorified Commercials TechBytes: Samsung's New Smartphone Jennifer Aniston Scores at the Newsstand Property Index Pricing Related Quotes Most Popular Stories The Middle East's 20 Richest People TV's Top Earners The World's Top Sports Brands How To Wear Fall Fashion's Top Trends The 100 Best Mid-Cap Stocks In America

Burlingame, Calif. -

You can't blame videogame industry executives if they wanted to push the "reset" button on 2005. Videogame consoles neared the end of their product life cycles, customers held off buying new titles and gamemakers felt the effects.

Last week, game kingpin Electronic Arts (nasdaq: ERTS - news - people ) announced a 31% earnings decrease for the most-recent quarter, predicted a loss for the next and laid off hundreds. Also reporting grim news recently: game publishing heavyweights THQ (nasdaq: THQI - news - people ) and Take-Two Interactive.

Meanwhile, Sony (nyse: SNE - news - people ), Microsoft (nasdaq: MSFT - news - people ) and Nintendo (other-otc: NTDOY.PK - news - people ) are all bringing new game machines to life at a time when competition for consumers' entertainment dollars has never been fiercer. Microsoft made the first move with the Xbox 360 three months ago, but with fewer than 700,000 units sold so far, gamers appear to be reserving judgment and waiting for Sony's PlayStation 3 and Nintendo's Revolution, both expected by the end of 2006.

But while Sony's and Microsoft's boxes will eventually offer expensive high-definition disc players and complex processors, Nintendo's new machine will take a different tack, says Perrin Kaplan, vice president of marketing and corporate affairs for Nintendo of America. Employing a radical new interface and games designed to appeal to hard-core gamers and nontraditional audiences alike, the Revolution can help move Nintendo from its position as the steady third player in the American gaming market, Kaplan says.

With lessons learned from the standout success of its portable Nintendo DS--the company garnered 82% of portable software sales and sold 13 million DS units last year--the company has never had a clearer opportunity to differentiate itself to American audiences. We asked Kaplan how the company plans to do that--and for some details about the new machine.

Forbes.com: Why did consumers spend fewer entertainment dollars this past year, and what is Nintendo doing to stave off the softness in game sales seen by your competitors?

Kaplan: This past year we saw consumers get savvy--they want to experience new innovative software. We have seen this challenge grow over the past year as the console market has seen some decline. The industry library shows a plethora of the same type of games--and while many of them are popular, all good things run dry after a while.

While some spending may have gone outside of games this year, if companies make appealing games, that won’t be a problem.

Nintendo started out more than 100 years ago as a company that made Japanese playing cards called hanafuda. You could say that was our first software, and it is proof that we’ve always been about the games. Games are really No. 1 for us. Of course, some game titles go across all three main platforms, but we make a good portion of our own games.

What makes Nintendo's corporate culture and tactics different from its competitors?

Inside Nintendo, we call our strategy “Blue Ocean.” This is in contrast to a “Red Ocean.” Seeing a Blue Ocean is the notion of creating a market where there initially was none--going out where nobody has yet gone. Red Ocean is what our competitors do--heated competition where sales are finite and the product is fairly predictable. We’re making games that are expanding our base of consumers in Japan and America. Yes, those who’ve always played games are still playing, but we’ve got people who’ve never played to start loving it with titles like Nintendogs, Animal Crossing and Brain Games. These games are Blue Ocean in action.

So what aspects of the new Revolution are "Blue Ocean" and will create a new market?

Well, first there’s this new controller. It is out of this world, literally! You can now move your hand, arm, wrist or body to control the game. If you were playing a fishing game, before you would just press buttons on a controller held in both hands in front of you. With this, you can move your arm back and forth and cast your bait. It senses depth. As someone who doesn’t spend hours per day gaming, I was thrilled with the experience.

We’re also offering what we call the “virtual console"--the ability to download nearly every kind of Nintendo game going back to the original Nintendo Entertainment System through the GameCube. We think there is an untapped nostalgia market: Gamers who grew up and cut their teeth on these older games could come back.

How does the Revolution compare with other Nintendo products that have changed game-industry design standards?

We’ve launched product designs that our competitors adopt, such as the first directional pad, or wireless controllers or controllers with tactile feedback. One of the reasons we’re not giving a lot of details about the design of the new console prior to its release is that there’s no way we’re going to let that happen again.

All signs point to an aging gamer demographic--at least in the U.S. Isn't Nintendo ceding too much ground to Sony and Microsoft by not offering certain edgy, first-person-shooter (FPS) titles?

If you take a look at our library, you will find games in each genre, including FPS. That’s not the core of what we want to develop, but we do offer them. You could argue we have the widest array of games of all the hardware companies.

Does the "virtual console" effort represent Nintendo's entire online strategy?

No. More will be described soon. We will use the Wi-Fi component in a different way for each game, just like with the DS.

Though the new console won't include a high-definition disc player, how does the impending format war between Sony and Microsoft affect Nintendo?

For us, it's all about the experience, not if the technology allows you to play your game on the high-definition formats, which are now in such a small percentage of homes. Many independent sources tell us that experiencing current high-def games on a regular TV makes it near impossible to see everything clearly. That means the majority of homes are experiencing something lesser than what they bargained for.

Nintendo ® Creates a Blue Ocean and Wii Win

In a Forbes.com interview last year, Perrin Kaplan, vice president of marketing and corporate affairs for Nintendo of America told us about the influence of Blue Ocean Strategy in the development of Nintendo's new games console. After a well mediatised launch during the holiday season, its time look at the results.

Recently, Laurent Fischer, Marketing Director for Nintendo Europe commented:
"We have enjoyed one of the most successful Christmas holidays ever, with both Nintendo DS and Wii selling at staggering rates. The success of our products this Christmas clearly shows that Nintendo's drive to make gaming accessible to everyone has attracted people of all ages and abilities to the industry. We are facing such high demand for both platforms that unfortunately we are facing stock shortages, however we are doing everything possible to combat this by attempting to deliver both consoles and games to retailers on a daily basis."Last week, Nintendo increased its projected worldwide financial performance for the year ending on March 31 to be the best in company history.

go to Perrin Kaplan's Forbes.com interview

go to www.wii.com

Ford Model T - a blue ocean strategic move

In 1908, while America's five hundred automakers built custom-made novelty automobiles, Henry Ford introduced the Model T. He called it the car 'for the great multitude, constructed of the best materials.' Although it only came in one color (black) and one model, the Model T was reliable, durable, and easy to fix. And it was priced so that the majority of Americans could afford one. In 1908 the first Model T cost $850, half the price of existing automobiles. In 1909 it dropped to $609, by 1924 it was down to $240. In comparison, the price of the horse driven carriage, the car's closest alternative at the time, was around $400. A 1909 sales brochure proclaimed, 'Watch the Ford Go By, High Priced Quality in a Low Priced Car.'

courtesy of Ford

Ford's success was underpinned by a profitable business model. By keeping the cars highly standardized and offering limited options and interchangeable parts, Fords revolutionary assembly line replaced skilled craftsmen with ordinary unskilled laborers who worked one small task faster and more efficiently, cutting the labor hours by 60 percent. With lower costs, Ford was able to charge a price that was accessible to the mass market.

Sales of the Model T exploded. Ford's market share surged from 9 percent in 1908 to 60 percent in 1921, and by 1923, a majority of American households owned an automobile. Ford's Model T exploded the size of the automobile industry, creating a huge blue ocean. So great was the blue ocean Ford created that the Model T replaced the horse-drawn carriage as the primary means of transport in the United States.

Curves ® - reconstructing market boundaries

Since franchising began in 1995, Curves has grown like wildfire, acquiring more than two million members in more than six thousand locations, with total revenues exceeding the $1 billion mark. A new Curves opens, on average, every four hours somewhere in the world.

What's more, this growth was triggered almost entirely through word of mouth and buddy referrals. Yet at its inception, Curves was seen as entering an oversaturated market gearing its offering to customers that would not want it, and making its offering significantly blander than the competition's. In reality, however, Curves exploded the demand in the U.S. fitness industry, unlocking a huge untapped market, a veritable blue ocean of women struggling and failing to keep in shape through sound fitness. Curves built on the decisive advantages of two strategic groups in the U.S. fitness industry - traditional health clubs and home exercise programs - and eliminated or reduced everything else.

At the one extreme, the U.S. fitness industry is awash with traditional health clubs that catered to both men and women, offering a full range of exercise and sporting options, usually in upscale urban locations. Their trendy facilities are designed to attract the high-end health club set. They have a full range of aerobic and strength training machines, a juice bar, instructors, and a full locker room with showers and sauna, because the aim is for customers to spend social as well as exercise time there. Having fought their way across town to health clubs, customers typically spend at least an hour there, and more often two. Membership fees for all this are typically in the range of $100 per month - not cheap, guaranteeing that the market would stay upscale and small. Traditional health club customers represent only 12 percent of the entire population, concentrated overwhelmingly in the larger urban areas. Investment costs for a traditional full-service health club run from $500,000 to more than $1 million, depending on the city center location.

At the other extreme is the strategic group of home exercise programs, such as exercise videos, books, and magazines. These are a small fraction of the cost, are used at home, and generally require little or no exercise equipment. Instruction is minimal, being confined to the star of the exercise video or book and magazine explanations and illustrations.
The question is, What makes women either trade up or down between traditional health clubs and home exercise programs? Most woman don't trade up to health clubs for the profusion of special machines, juice bars, locker rooms with sauna, pool, and the chance to meet men. The average female nonathelete does not even want to run into men when she is working out, perhaps revealing lumps in her leotards. She is not inspired to line up behind machines in which she needs to change weights and adjust their incline angles. As for time, it has become an increasingly scarce commodity for the average woman. Few can afford to spend one to two hours at a health club several times a week. For the mass of woman, the city center locations also present traffic challenges, something that increases stress and discourages going to the gym.

It turns out that most women trade up to health clubs for a principle reason. When they are at home it's too easy to find an excuse for not working out. It is hard to be disciplined in the confines of ones home if you are not already a committed sports enthusiast. Working out collectively, instead of alone, is more motivating and inspiring. Conversely, women who use home exercise programs do so primarily for the time saving, lower costs, and privacy.

Curves built its blue ocean by drawing on the distinctive strengths of these two strategic groups, eliminating and reducing everything else. Curves has eliminated all the aspects of the traditional health club that are of little interest to the broad mass of women. Gone are the profusion of special machines, food, spa, pool and even locker rooms have been replaced by a few curtained off changing areas.

The experience in a Curves club is entirely different from that in a typical health club. The member enters the exercise room where the machines (typically about ten) are arranged, not in rows facing a television as in the health club, but in a circle to facilitate interchange amongst members, making the experience fun. The Quickfit training system uses hydraulic exercise machines, which need no adjusting, are safe, simple to use, and nonthreatening. Specifically designed for women, these machines reduce impact stress and build strength and muscle. While exercising, members can talk and support one and other, and the social, nonjudgmental atmosphere is totally different from that of a typical health club. There are few if any mirrors on the wall, and there are no men staring at you. Members move around the circle of machines and aerobic pads and in thirty minutes complete the whole workout. The result of reducing and focusing service on the essentials is that prices fall to around $30 per month, opening the market to the broad mass of women. Curves' tag line could be " for the price of a cup of coffee a day you can obtain the gift of health through proper exercise."

Curves offers the distinctive value at a low cost. Compared with the start-up investment of $500,000 to $1 million for traditional health clubs, start-up investments for Curves are in the range of only $25,000 to $30,000 (excluding a $20,000 franchise fee) because of the wide range of factors the company eliminated. Variable costs are also significantly lower, with personnel and maintenance of facilities dramatically reduced and rent reduced because of the much smaller spaces required: 1,500 square feet in nonprime suburban locations versus 35,000 to 100,000 square feet in prime urban locations. Curves' low-cost business model makes its franchises easy to afford and explains why they have mushroomed quickly. Most franchises are profitable within a few months, as soon as they recruit on average 100 members. Established Curves franchises are selling in the range of $100,000 to $150,000 on the secondary market.

The result is that Curves facilities are everywhere in most towns of any size in America. Curves is not competing directly with other health and exercise concepts; it has created new blue ocean demand.

JCDecaux® - reaching beyond existing demand

Consider how JCDecaux, a vendor of French outdoor advertising space, pulled the mass of refusing noncustomers into its market. Before JCDecaux created a new concept in outdoor advertising called “street furniture” in 1964, the outdoor advertising industry included billboards and transport advertisement. Billboards typically were located on city outskirts and along roads where traffic quickly passed by; transport advertisement comprised panels on buses and taxies, which again people caught sight of only as they whizzed by.

Traditionally outdoor advertising was not a popular campaign medium for many companies because it was viewed only in a transitory way. Outdoor ads are typically exposed to people for a very short time while they are in transit, with the rate of repeat visits low. Especially for lesser-known companies, such advertising media was ineffective because it could not carry the comprehensive messages needed to introduce new names and products. Hence, many companies refused to use such low-value-added outdoor advertising because it was either unacceptable or a luxury they could not afford. Having thought through the key commonalities that cut across refusing noncustomers of the industry, JCDecaux, a French company, realized that the lack of stationary downtown locations was the key reason the industry remained unpopular and small. In searching for a solution, JCDecaux found that municipalities could offer stationary downtown locations, such as bus stops, where people tended to wait a few minutes and hence had time to read and be influenced by advertisements. JCDecaux reasoned that if it could secure these locations to use for outdoor advertising, it could reach beyond existing demand and convert noncustomers into customers.

This gave it the idea to provide street furniture, including maintenance and upkeep, free to municipalities. JCDecaux figured that as long as the revenue generated from selling ad space exceeded the costs of providing and maintaining the furniture at an attractive profit margin, the company would be on a trajectory of strong, profitable growth. Accordingly, street furniture was created that would integrate advertising panels. In this way, JCDecaux created a breakthrough in value for advertisers, the municipalities, and itself. The strategy-eliminated cities’ traditional costs associated with urban furniture. In return for free products and services, JCDecaux gained the exclusive right to display advertisements on the street furniture located in downtown areas. By making ads available in city centers, the company significantly increased the average exposure time, improving the recall capabilities of this advertising medium. The increase in exposure time also permitted richer content and more complex messages. Moreover, as the maintainer of the urban furniture, JCDecaux could help advertisers roll out their campaigns in two to three days, as opposed to fifteen days of rollout time for traditional billboard campaigns.

In response to JCDecaux’s exceptional value offering, the mass of once refusing noncustomers flocked to the industry. As a medium of advertisement, street furniture became the highest-growth market in the overall display advertising industry. Global spending on street furniture between 1995 and 2000, for example, grew by 60 percent compared with a 20 percent total increase in overall display advertising.

By signing contracts of eight to twenty-five years with municipalities, JCDecaux gained long-term exclusive rights for displaying ads with street furniture. After an initial capital investment, the only expenditure for JCDecaux in the subsequent years was the maintenance and renewal of the furniture. The operating margin of street furniture was as high as 40 percent, compared with 14 percent for billboards and 18 percent for transport advertisements. The exclusive contracts and high operating margins created a steady source of long-term revenue and profits. With this business model, JCDecaux was able to capture a leap in value for itself in return for a leap in value created for its buyers.

Today, JCDecaux is the number one street furniture-based ad space provider worldwide, with 33

4,000 panels in forty-one countries. What’s more, by looking to refusing noncustomers and focusing on the key commonalities that turned them away from the industry, JCDecaux also increased the demand for outdoor advertising by existing customers of the industry. Until then, existing customers had focused on what billboard locations or bus lines they could secure, for what period, and for how much. They took for granted that those were the only options available and worked within them. Again, it took noncustomers to shed insight into the implicit assumptions of the industry that could be challenged and rewritten to create a leap in value for all.