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.

NetJets ® - reconstructing market boundaries

Consider NetJets, which created the blue ocean of fractional jet ownership. In just over twenty years NetJets has grown larger than many airlines, with over six hundred and ninety aircraft, operating more than three hundred and seventy thousand flights to more than one hundred fifty countries. Purchased by Berkshire Hathaway in 1998, today NetJets is a multibillion-dollar business. NetJets’ success has been attributed to its flexibility, shortened travel time, hassle-free travel experience, increased reliability, and strategic pricing. The reality is that NetJets reconstructed market boundaries to create this blue ocean by looking across alternative industries.

The most lucrative mass of customers in the aviation industry is corporate travelers. NetJets looked at the existing alternatives and found that when business travelers want to fly, they have two principal choices. On the one hand, a company’s executives can fly business class or first class on a commercial airline. On the other hand, a company can purchase its own aircraft to serve its corporate travel needs. The strategic question is, Why would corporations choose one alternative industry over another? By focusing on the key factors that lead corporations to trade across alternatives and eliminating or reducing everything else, NetJets created its blue ocean strategy.

Consider this: Why do corporations choose to use commercial airlines for their corporate travel? Surely it’s not because of the long check-in and security lines, hectic flight transfers, overnight stays, or congested airports. Rather, they choose commercial airlines for only one reason: costs. On the one hand, commercial travel avoids the high up-front, fixed-cost investment of a multimillion dollar jet aircraft. On the other hand, a company purchases only the number of corporate airline tickets needed per year, lowering variable costs and reducing the possibility of unused aviation travel time that often accompanies the ownership of corporate jets.

So NetJets offers its customers one-sixteenth ownership of an aircraft to be shared with fifteen other customers, each one entitled to fifty hours of flight time per year. Starting at $375,000 (plus pilot, maintenance, and other monthly costs), owners can purchase a share in a $6 million aircraft. Customers get the convenience of a private jet at the price of a commercial airline ticket. Comparing first-class travel with private aircraft, the National Business Aviation Association found that when direct and indirect costs—hotel, meals, travel time, expenses—were factored in, the cost of first-class commercial travel was significantly higher. In a cost-benefit analysis for four passengers on a theoretical trip from Newark to Austin, the real cost of the commercial trip was $19,400, compared with $10,100 in a private jet. As for NetJets, it avoids the enormous fixed costs that commercial airlines attempt to cover by filling larger and larger aircraft. NetJets’ smaller airplanes, the use of smaller regional airports, and limited staff keep costs to a minimum.

To understand the rest of the NetJets formula, consider the flip side: Why do people choose corporate jets over commercial travel? Certainly it is not to pay the multimillion-dollar price to purchase planes. Nor is it to set up a dedicated flight department to take care of scheduling and other administrative matters. Nor it is to pay so-called deadhead costs—the costs of flying the aircraft from its home base to where it is needed. Rather, corporations buy private jets to dramatically cut total travel time, to reduce the hassle of congested airports, to allow for point-to-point travel, and to gain the benefit of having more productive and energized executives who can hit the ground running upon arrival. So NetJets built on these distinctive strengths. Whereas 70 percent of commercial flights went to only thirty airports across the United States, Net-Jets offered access to more than five thousand five hundred airports across the country, in convenient locations near business centers. On international flights, your plane pulls directly up to the customs office.

With point-to-point service and the exponential increase in the number of airports to land in, there are no flight transfers; trips that would otherwise require overnight stays can be completed in a single day. The time from your car to takeoff is measured in minutes instead of hours. For example, whereas a flight from Washington, D.C., to Sacramento would take 10.5 hours on a commercial airline, it is only 5.2 hours on a NetJets aircraft; from Palm Springs to Cabo San Lucas takes 6 hours commercial, and only 2.1 hours via NetJets. NetJets offers substantial cost savings in total travel time.

Perhaps most appealing, your jet is always available with only four hours’ notice. If a jet is not available, NetJets will charter one for you. Last but not least, NetJets dramatically reduces issues related to security threats and offers clients customized in-flight service, such as having your favorite food and beverages ready for you when you board. By offering the best of commercial travel and private jets and eliminating and reducing everything else, NetJets opened up a multibillion-dollar blue ocean wherein customers get the convenience and speed of a private jet with a low fixed cost and the low variable cost of commercial airline travel.

Blue Ocean Strategy

Blue Ocean Strategy^[1] is a corporate strategy and bestselling business book written by Professors W. Chan Kim and Renée Mauborgne, of INSEAD. The book offers examples of how successful businesses captured uncontested market space, and thereby made competition irrelevant. This was formerly described as "Value Innovation," in 5 articles for the Harvard Business Review by Kim & Maubourgne before they released the book in 2005. Blue Ocean Strategy is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000).

Concept

The "ocean" refers to the market or industry. "Blue oceans" are untapped and uncontested markets, which provide little or no competition for anyone who would dive in, since the markets are not crowded. A "red ocean", on the other hand, refers to a saturated market where there is fierce competition, already crowded with people (companies) providing the same type of services or producing the same kind of goods.

Their idea is to do something different from everyone else, producing something that no one has yet seen, thereby creating a "blue ocean". An essential concept is that the innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. The authors critique Michael Porter's idea that successful business are either low-cost providers or niche-players. Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost.

Examples

Some examples of companies that may have created new market spaces in the opinion of Kim and Mauborgne include Cirque du Soleil (unique circus format) and Home Depot (offering the prices and range of lumberyard, while offering consumers classes to help them with DIY projects). A current example of this strategy is the success of the Nintendo Wii, which Nintendo designed to target audiences not traditionally known to play videogames.

Criticisms

While the professors offer approaches to finding uncontested market space, at the present there are few if any success stories of companies that applied their theories. This hole in their data persists despite the publication of Value Innovation concepts since 1997. A critical question is whether this book and its related ideas are descriptive rather than prescriptive. Kim and Maubourgne take the marketing of a value innovation as a given, assuming the marketing success will come as a matter of course. ^[2] The authors present many examples of successful innovations, and then explain from their Blue Ocean perspective - essentially interpreting success through their lenses.^[3]

Zobel gets highest alumni award from Harvard

JAIME AUGUSTO Zobel de Ayala, chair and chief executive of Ayala Corp., has become the first Filipino to receive the highest achievement award for a graduate of Harvard Business School.

Zobel is also the youngest alumnus to receive the Alumni Achievement Award from Harvard Business School, which gives the award annually to "distinguished graduates who have contributed significantly to their companies and communities while upholding the highest standards and values."

According to the award-giving council, "the outstanding men and women who receive this most important honor represent the best in the alumni body and inspire all those who aspire to have an impact on business and society.

Zobel received a Master of Business Administration degree from Harvard Business School in 1987. He had graduated from Harvard College in 1981 with a bachelor's degree in Economics, cum laude.

In between those years, he worked overseas before joining the Ayala group of companies, where he held several line positions.

Today, together with his younger brother Fernando, who serves as president and chief operating officer of Ayala Corp., Zobel is credited for the Ayala group's successes in telecommunications and water distribution as well as its continued successes in real estate development and financial services.

Recipients
The first to receive the Harvard Business School Alumni Achievement Award was Robert McNamara, in 1968, when he was president of the World Bank. Other outstanding recipients since then have included Daniel Burke, chair and CEO emeritus of Johnson & Johnson; Dr. Daniel Vasella, chair and CEO of Novartis AG; Ratan Tata, chair of India's Tata group; Louis Gerstners Jr., former chair and chief executive of IBM; Phillip Yeo, chair of Singapore's Agency for Science, Technology and Research; and Minoru Makihara, former chair of Mitsubishi Corp.

To Zobel and this year's four other recipients, the awards were presented at Harvard on Sept. 27 in a ceremony hosted by Prof. Jay O. Light, dean of Harvard Business School.

The other recipients were Donna Dubinsky of Numenta, an intelligent-computing software firm; A. M. Mixon III of Invacare Corp., the world's leading manufacturer and distributor of home healthcare products; Sir Martin Sorrell of global advertising company WPP Group PLC; and Hansjoerg Wyss of Synthes Inc., manufacturer and distributor of orthopedic implants and instruments.

Ideal candidate
To Zobel, Professor Light said: "The impact you have had through Ayala Corp. makes you an ideal candidate. This award is a symbol of Harvard's appreciation of the standard you have set."

That standard has deep roots in the Ayala group--in the values and principles it stands for, as much as in its history and track record.

It is reflected in a remark Zobel made when he accepted the Management Man of the Year award: "Success is not measured by quick and one-time gains but by enduring beliefs and created by a disciplined approach to creating value. Second, success also entails combining profitability with a broader contribution to society."

The business successes of the 173-year-old Ayala group are well known, as are its wide-ranging contributions to social development. But not always seen are the ways it has affected countless Filipino lives and many communities.

While Ayala has always chosen to engage itself actively in the national development process, it continues to take this step further by finding solutions to various socioeconomic challenges. Many enterprising Filipinos--from merchants and service providers at the Ayala malls, to microfinance institutions through Bank of the Philippine Islands, and to small entrepreneurs that rely on Globe Telecom Inc. and Manila Water Co. Inc. for their livelihood--are able to nurture their dreams through the Ayala group.

Similarly far-reaching are the group's sustained actions to promote education in training student leaders, providing elementary education and spearheading the multisector initiative called Gearing up Internet Literacy and Access for Students, or Gilas, which helps to provide Internet access and basic computer literacy programs for students in all Philippine public high schools.

For certain, these social development contributions wouldn't be possible without the business successes, but the correlation between the two is deliberate, and has been rooted in the Ayala group's nearly two-century Philippine heritage.

Zobel calls Ayala's social development work "promoting the public good through the benefits of excellent professional management."

That is a well-appreciated statement of underlying characteristics that exhibit the conglomerate's long-term vision and commitment to national development.

The public's trust
The corporate professionalism and the social commitment have given Ayala a most solid reputation for integrity, and over many decades earned the public's trust for the Ayala brand.

"Building on trust has enabled us to mobilize talent and to bring together the best people to cater to an increasingly diverse array of customer needs," Zobel says.

It has also enabled Ayala to build capital and bring in some of the world's most respected corporations--including Mitsubishi Corp., Singapore Telecom and Development Bank of Singapore, among others--as strategic partners.

With its "human capital"--a highly empowered organization--and strong, global partners, the Ayala group today includes four listed corporations (Ayala Land, Bank of Philippine Islands, Globe Telecom and Manila Water) and accounts for about one-third of the Philippine Stock Exchange index.

For the corporate and other triumphs, Zobel pays tribute, first, to his father, Jaime Zobel de Ayala--who was voted Management Man of the Year in 1987--for decentralizing the group management structure in the 1980s and building the management foundations of present-day Ayala.

Second, he cites the leadership sharing he has with his brother, Fernando--"in an arrangement that it not very common in public, private or family institutions...The Ayala of today would not be where it is without the leadership Fernando has provided on myriad fronts and for his equal participation in decisions I have made."

And he acknowledges the group's organization--and the macro context in which it functions.

"Leadership," he says, "depends on the corporate context, economic history and organizational capability of any institution."

"Beneath the bright surface of performance of any business leader is the solid substance built by a longer history of a larger community of talented, motivated and disciplined executives that made such performance possible," he adds.

The Ayala group "collective wisdom, drive and vision shape and constantly refresh my own," Zobel says. "At the most senior level, we take pride in working as colleagues and partners, whether one works at the holding company or at the operating level.

"We like to encourage a spirit of collegiality, sharing and constructive criticism. The best ideas that flow out are certainly not always mine and the many backgrounds and experiences of our executive rank are too valuable to be kept limited in specific roles."

Ayala's evolution
The Ayala group itself has changed in character over the years, Zobel observes. In the past century, what had started as an agriculture- and trading-based group grew into a major Philippine manufacturing and services concern.

The Ayala group started investing in sectors that have become its core businesses well before Zobel joined it in 1981. It pioneered in real estate development in 1960 and modern banking in 1970. It went into telecommunications in 1974 and electronics manufacture in 1988. As its platform for social development contribution, it established in 1961 what has become Ayala Foundation.

And then, "the world changed on us," Zobel recalls. "Competition in real estate exploded. The banking and telecom sectors were liberalized and new markets were created by the resurgence of new technologies. Globalization altered most of the landscape ... And corporate social responsibility moved into the center of business concerns."

"History is not destiny," Zobel says. "The challenge for a company with a long history is how to keep fresh the energies on which it was founded while retaining the enduring values that define it. For the Ayala group, the challenge has been how to keep succeeding in changing times by building on the fundamental strengths with which we began."

Today the Ayala group focuses on three major businesses--real estate, financial services and telecom--plus emergent businesses in electronics manufacturing, technology investments, water distribution, automotive dealerships, international real estate markets and business processing outsourcing.

Zobel is also chair of Globe Telecom, Bank of the Philippine Islands and Integrated Microelectronics Inc.; vice chair of Ayala Land Inc.; and co-vice chair of Ayala Foundation. He is a member of the JP Morgan International Council, Mitsubishi Corp. International Advisory Committee, Toshiba International Advisory Group, Asia Business Council, Harvard University Asia Center Advisory Committee and the board of trustees of the Asian Institute of Management.

He also serves on the national council of the World Wide Fund for Nature (WWF-US), and chairs WWF Philippines.

The involvement in the environmental movement is one of the ways Zobel demonstrates his personal profound concern for the planet and future generations. And among underprivileged children in the Philippines, is perhaps the most recognizable face of Children's Hour, of which he is a trustee.

In all likelihood, it is a concern that the Harvard Business School award-giving council shares.

Lifestyle center stirs up Naga City’s commercial devt

Banker Fidel L. Cu, chairman of the G7 Holdings Corp., has changed the landscape and stirred new trends in commercial development here when he built and opened in 2006 the Avenue Square, a commercial enclave designed as a lifestyle center.

With a 65-room, four-star designed hotel and a mix of bars, spas, diners, fitness and wellness center in its 2,000-square-meter commercial spaces and 600-person capacity function hall, Cu’s Avenue Square has not only changed the city’s landscape but their lifestyle as well.

A website literature defined the lifestyle center as “a shopping center or mixed-used commercial development that combines the traditional retail functions of a shopping mall but with leisure amenities oriented toward upscale consumers.”

In the Naga City setting, the lifestyle center Cu built is a high-end place where businessmen and associates can meet, transact business or just enjoy the amenities.

New trend

Engineer Emeterio Aman, real estate developer in Naga City, said the commercial development Cu pioneered made him revise some components of the real estate development plan of one of his subdivision projects.

He said that instead of a two-story building that would provide hotel services in his project Hacienda de Naga, he would instead build cabanas and fully furnished hotel-like apartments to complement Avenue Square’s lifestyle center.

Aldolfo Olivan of the Metro Naga Chamber of Commerce and Industry and the Filipino-Chinese Chamber of Commerce and Industry acknowledged that Cu’s pioneering initiative has set a new trend in commercial development here.

Olivan said Avenue Square has become instrumental in bringing in new experience because of its leisurely ambiance and comforts brought about by the architecture and interior design.

“Magayon baga” [“It’s beautiful”], he said.

Impressed by the impact of the Avenue Square on the thriving commercial strip of Magsaysay Avenue here that changed the Naga City’s beat after a year’s operation, Olivan decided to develop his adjacent property following designs of commercial buildings that harmonize with Cu’s lifestyle center.

Citations from city

Wilfredo Prilles, chief of the Naga City Planning Office, said that Olivan had originally planned to put up warehouses in the property in front of the Avenue Square but changed his plan when advised that this would destroy the ambiance of the whole area and violate city zoning ordinance.

Prilles said they were happy Olivan heeded their advice.

He said one reason why the Avenue Square thrives is the large segment of the city’s middle class while its poverty incidence is the lowest in Bicol, with only 1 out of every 5 households living below the poverty line.

Prilles noted the decisive role of the business sector in shaping the socioeconomic and socio-cultural scenes here.

He said the city government has not anticipated the private sector’s track of commercial development in Magsaysay Avenue, far from the city governments’ designated Central Business District II, that has yet to be developed, even though the SM group plans to put up a mall there.

In his inaugural policy statement upon assumption to his last term of office, Mayor Jesse Robredo noted that Avenue Square has perked up the economic activities in the city and made the city more vibrant and tourist-friendly.

Cu’s business achievements have earned recognition from the local government unit here when the city council passed Resolution 2007-260 that commended his “exemplary accomplishments and remarkable contribution to the business community that has brought sustainable growth and development of Naga City.”

Last year, the Metro Naga Chamber of Commerce and Industry also bestowed to this banker and developer the 2006 Halayao (archaic Bicol word for merchant) Award as Bicolano Businessman of the Year.

At the helm of the Avenue Square’s operation is Cu’s son Allan, the president of G7 Holdings Corp., while daughter-in-law Gwen is its managing director.

Vegetarian restaurants win health buffs in Baguio

The weather and its vegetables are among the top draws of the country's summer capital.

But while Baguio is a major outlet of vegetables produced in Benguet and Mt. Province, only a handful of vegetarian restaurants thrive in the city.

These restaurants, however, survive the intense competition among local food outlets because they serve a steady and loyal market among health buffs and members of various groups who avoid meat in their diets.

Ed Joel Carlos, owner of the Azotea Greens, said that he wants to promote a vegetarian diet in a community known to be predominantly "meat eaters" to advocate a healthy lifestyle.

"We do not belong to any spiritual movement which promotes vegetarianism but they inspire us, they are part of our market," Carlos said.

He said he and his wife Ave became vegetarians eight years ago because they wanted to live healthier. They were co-owners of the '70s Bistro, a popular music joint and bar in Quezon City.

Carlos said it would take a lot of creativity to prepare a dish using only vegetables.

He said they had to make their dishes appealing to their clients and even to those who are not strictly vegetarians so they prepare popular Pinoy dishes like adobo, afritada, nilaga, kaldereta and ginataan using "vegetable meat."

Carlos said they use "veggie meat" made of soy, wheat and corn protein and carageenan (edible seaweed) as substitute for real meat.

He said Azotea Greens became popular for its "mushroom sisig," a family recipe made of minced button mushrooms, tofu and spices. Aside from Filipino dishes, Azotea Greens also serves Italian and Chinese vegetable dishes. The restaurant is located at the second floor of the La Azotea building on Session Road.

'Heaven on Earth'
The Heaven on Earth Vegetarian Center, at the fourth floor of Abanao Square on Abanao Street, serves another set of clients for its vegetarian fare.

Rafael Wasan, Heaven on Earth owner, said his membership to the spiritual movement Ananda Marga helped him embrace a healthier lifestyle.

"We would like to provide a choice...that was why we put up this place," he said.

Wasan and his wife Rose said since becoming vegetarians in the 1980s when they joined the Ananda Marga, they rarely get sick.

He said eating "just vegetables" would not make one's body weak as vegetables could provide the required dietary needs even without meat.

Heaven on Earth serves a complete meal, consisting of two viands and a cup of brown rice, for P39. It serves Filipino adobo, afritada, sisig and other dishes using veggie meat and tofu.

Wasan said they do not use dairy products--milk, butter and eggs--and avoid garlic and onion in their dishes.

He said they use herbs (basil, oregano) and other spices (turmeric) in their dishes because these are healthier.

"What we are doing is more of an advocacy than profit," he said.

Bliss Café
Now on its third year, Bliss Café remains popular among Baguio residents and tourists looking for fine dining experience.

Located at the second floor of Munsayac Inn on Leonard Wood Road, this vegetarian restaurant prepares "slow food" because all meals are cooked as ordered.

Shanti Isla and Jim Ward, owners of Bliss Café, said they wanted their clients to enjoy the food and ambience of Bliss Café.

"From a business standpoint, we are categorized as fine-dining restaurant that is why the food costs higher. More than 70 percent of our clients are tourists," Ward said.

"We love what we are doing, but it is still an uphill battle to get Filipinos [accept a] vegetable diet. I think there should be more education on proper diet," he said.

He said Bliss Café is a place where one can meditate. The scent of incense and images of Buddha would greet clients at the art gallery and dining area. Books on vegetarianism and Buddhism are available for clients.

Bliss' "mock-duck" adobo curry style is among the favorite dishes. The "duck meat" is made of special gluten and is served with pasta and eggplant.

The "Mexico set" (burritos filled with red beans, corn, cabbage and cheese) and Indian set (paneer or Indian white cheese sauteed in curry and cumin seeds, potato and basil) are also popular among customers.

The restaurant also serves pasta, vegetable salad and sandwiches. It also hosts art exhibits, poetry reading sessions and film showings.

OMG!
To say that "Oh My Gulay" is a vegetarian restaurant is an overstatement.

The restaurant is one of the features of the Victor Oteyza Community Art Space (Vocas) run by filmmaker Kidlat Tahimik at the family's La Azotea building on Session Road.

Tahimik describes his restaurant as "semi-fine dining" where meals are "not cheap and not expensive."

"We are a restaurant with no ideology in a nonmeat enterprise. We do not have any expectations in terms of profit. We put up the restaurant to support the activities of Vocas. With its modest profit, [we hope] it can support the art space," Tahimik said.

Vocas' interior design and its art space filled with paintings and woodcarvings of local artists draw clients to the place and eventually to the restaurant, said Tahimik.

Oh My Gulay offers a choice of pasta dishes, salad, sandwiches and beverage that uses the freshest vegetables and fruits from the local market. A dish costs at least P90.

Their pasta putanesca (playfully called "Anak ng Putanesca") usually elicits laughter from clients browsing the menu.