Blue Ocean Strategy A Case On Redbus Marketing Essay

Published Date: 23 Mar 2015

Indian bus service industry was extremely unorganized till recently before redBus emerged and took the industry by its neck and brought a sort of revolution never imagined for such an unorganized industry. This was primarily because the information flow and availability in this industry was very difficult and there was a lot of mismatch. The bus ticket industry was highly fragmented with small players active regionally. All these were small small agents competing against each other. Due to lack of any major player there was not much competition for redBus and hence it was able to create a marketspace for itself through entering the bus ticket industry online. By the time redBus entered the horizon there were settled names both in airline and railway ticket booking industry who were operating online. But even for them it was a huge task to enter bus ticketing industry due to the sheer complexity present in the industry and emulating the online model for bus ticketing industry was perceived to be almost impossible even by these major players in e-commerce. This study deals with how a disruptive model can change the scenario of the complete industry. redBus which at the time of its inception was confined in a small flat of 2 rooms is now a 400 million company with over 400 employees and offices across India. Currently it is the only major player concentrating completely on bus ticketing industry with a market share of over 70%. In this research, I have tried to analyze the bus ticketing industry and how redBus identified the opportunities present in this segment and created a value chain which not only gave them a distinct product but also at competitive cost. It is a perfect example of Blue Ocean strategy where entry of redBus changed the entire landscape of the industry. It revolutionized the way the people buy bus tickets in India. One of the unique bus ticketing system of its kind in the entire world, competitors have leaped in this market but none has received success like redBus. This study further covers how redBus has sustained its competitive advantages and what are the challenges and growth opportunities going forward.

As the authors of the book Blue Ocean Strategy, W. Kim Chan and Renee Mauborgne say: Although the term blue ocean is new, their existence is not. They have been a part of business transformation in past as well as in present. If we look back in the past say a century ago, How many of today's industries were then known? The answer will be majority of today's industries were unknown in their current form. Many industries such as automobiles, aviation, health care, and management consulting were unknown or were just beginning to emerge. Now lets look at the industries 3 decades back. Again, multibillion-dollar industries like mutual funds, computers, mobile phones, smart phones, gas based power plants, discount retail, biotechnology, nanotechnology, express parcel delivery, coffee bars, video games, home videos, and CD player and many other such industries were all non-existent in a practical or popular way.

Similarly, lets turn the clock forward a bit and try to look into the future. Lets say after 30 years or say 50 years how many of the now unknown industries will emerge and will exist. If history is any indicator of things to come in future, the answer is there will be many such industries that we cant even think of right now which will emerge.

This is the reality; industries are dynamic. They never remain the same over a long period of time. They change continuously and evolve. The participants, the process, the market and the operations everything changes. Operations improve, markets evolve and grow, and non-customers become customers. History tells us that we have huge potential to change the existing industries and recreate them and not only that it teaches us that we underestimate our capability to create new ones. To have an idea of how dynamic things can get, the 50-year old Standard Industrial Classification (SIC) system, which was published by the U.S. Census, was substituted by the North America Industry Classification Standard (NAICS) system in 1997. The reason being the number of industry sectors that SIC covered were half the number of sectors that actually existed in 1997. The old SIC system covered only 10 industry sectors. The new NAICS system doubled it to twenty sectors to reflect the emergence of new-age industries. For example earlier the service sector included all that is now fragmented into different specialized industries like IT, healthcare, social assistance, etc. Given that these systems are made to ensure stability, continuity and for keeping standards, such a substitution shows the significance of growth of Blue Ocean industries.

Yet the dominant emphasis of strategists has been on competitive strategies also known as red ocean strategies. Part of the explanation for this is that its roots in military strategy heavily influence corporate strategy. Strategy is about fighting different competitors over the same area of land that is constant and not unlimited. Unlike battles though, the history of industry tells us that the universe of market is unlimited and there is a place for everyone; rather, blue oceans have been always in existence. They have continuously been created. To believe and restrict oneself to red ocean is therefore to accept the constraints that are associated with war-limited piece of land and the need to fight and defeat an opponent to succeed-and to reject the unique strength of the business world: the capacity to create new market universe that is uncontested.

Blue Ocean v/s Competitive Strategy (Red Ocean)

Blue Ocean emphasises the importance of value innovation that can completely negate the competition replacing 'competitive advantage' with 'value innovation' as the firm's primary goal thus highlighting the importance of creating demand and exploiting untapped maket rather than risking competition.

There is a debate in the academia and research groups as to which strategy is better suited but all evidences are as case studies on different companies which is not enough to define any one of the two strategies as a clear winner. Rather the two strategies co-exist and should co-exist because a firm on the foundation of Blue Ocean strategy may ultimately have to face competition depending on the imitability of the business model and then before they have more value innovation to differentiate themselves and still remain cost competitive, they must also have a competitive strategy to ensure they do not fall behind of competition.

Research results of researchers like Andrew Burke Andres van Stel and Roy Thurik suggest that the notion that blue ocean makes competition irrelevant may not be true.

When combined, the two provide a more holistic and realistic depiction of economic performance. Thus, in real life the any strategy must be adopted after evaluating the business and market circumstances appropriately as these define the degree of scope for effectiveness of either Blue Ocean or competitive strategy. Furthermore, what emphasis and mix should be given to either form of strategy across short and long-term time horizons is apparent in most innovative companies competing in short term red oceans while significant time and resources are devoted to the long-term goal of developing innovation that creates consumer demand and new markets.

Figure summarizes the basic differences between the two strategies

Blue Ocean and White Space

The term white space has been used in business parlance to mean uncharted territory or an underserved market. But as Mark W. Johnson perfectly writes in "Seizing the White Space" the term is the range of potential activities not defined or addressed by the company's current business model, that is, the opportunities outside its core and beyond its adjacencies that require a different business model to exploit. White space is a subjective valuation: one company's white space may be another company's core.

What matters is that it describes activities that lie far outside a firm's usual way of working and presents a series of unique and perplexing challenges to that organization. It's an area where, relatively speaking, assumptions are high and knowledge is low, the opposite of conditions in the company's core space.

The chance to seize a piece of white space presents a tantalizing opportunity. Success here can bring the transformational growth that so many business leaders seek. Yet understandably, a play for the white space feels risky, and often the numbers don't appear to add up. The market seems too foreign, or core capabilities won't apply. Some executives, having made one unsuccessful foray, just won't risk failing again.

Figure above describes the White Space

Source: Seizing the White Space, Mark W. Johnson

Blue Ocean Strategy and Applied Concepts

The Strategy Canvas

The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy. The horizontal axis captures the range of factors that the industry competes on and invests in, while the vertical axis captures the offering level that buyers receive across these entire key competing factors.

There are two purposes that are served here:

It captures the current state of play in known market space, which allows users to clearly see the factors that the industry competes on and where the competition currently invests.

Then, it propels users to action by reorienting focus from competitors to alternatives and from customers to non-customers of the industry.

The value curve is the basic component of the strategy canvas. It is a graphic depiction of a company's relative performance across its industry's factors of competition. A strong value curve has focus, divergence as well as a compelling tagline.

Four Action Framework

This framework can also be referred to as the Eliminate-Reduce-Raise-Create Grid. To reconstruct buyer value elements in crafting a new value curve, we use the Four Actions Framework. As shown in the diagram, to break the trade-off between differentiation and low cost and to create a new value curve, the framework poses four key questions to challenge an industry's strategic logic and business model.

Which of the factors that the industry takes for granted should be eliminated?

Which factors should be reduced well below the industry's standard?

Which factors should be raised well above the industry's standard?

Which factors should be created that the industry has never offered?

By pursuing the first two questions managers gain insight into how to drop their cost structure vis-à-vis competitors. Rarely do they systematically set out to eliminate and reduce their investments in factors that an industry competes on. The result is mounting cost structures and complex business models. The other questions provide insights into how to lift buyer value and create new demand. Collectively, they allow exploring how to reconstruct buyer value elements across alternative industries to offer buyers an entirely new experience, while simultaneously keeping your cost structure low. Eliminating and creating are vital as they push companies to go beyond value maximization exercises with existing factors of competition. They prompt companies to change the factors themselves, hence making the existing rules of competition irrelevant.

Plan-Do-Check-Act (PDCA)

The PDCA Cycle is a checklist of the four stages, which one must go through to get from `problem-faced' to `problem solved'.

This concept was developed by Walter Shewhart, the pioneering statistician who developed statistical process control in the Bell Laboratories in the US during the 1930's. It was taken up and promoted very effectively from the 1950s on by the famous Quality Management authority, W. Edwards Deming. Consequently, PDCA cycle is also commonly known as `the Shewhart Cycle' and 'the Deming wheel'.

This cycle diagram can be applied in team meetings to take stock of what stage improvement initiatives are at, and to choose the appropriate tools to see each stage through to successful completion.

Here is what we do in each stage:

Plan to improve operations first by finding out what things are going wrong (that is identify the problems faced), and come up with ideas for solving these problems.

Do changes designed to solve the problems on a small scale first. This minimizes disruption to routine activity while testing whether the changes will work or not.

Check whether the small scale changes are achieving the desired result or not. Also, continuously Check nominated key activities (regardless of any experimentation going on) to know what the quality of the output is at all times to identify any new problems.

Act to implement changes on a larger scale if it's successful on small scale. Also Act to involve other persons (other departments, suppliers, or customers) affected by the changes and whose cooperation is needed to implement them on a larger scale.

If the experiment was not successful, skip the Act stage and go back to the Plan stage to come up with some new ideas for solving the problem and go through the cycle again. Plan-Do-Check-Act describes the overall stages of improvement activity, but how is each stage carried out? This is where other specific quality management, or continuous improvement, tools and techniques come into play. The diagram below lists the tools and techniques that can be used to complete each stage of the PDCA Cycle.

CHAPTER-2 LITERATURE REVIEW

Paper 1:

"Blue Ocean Strategy versus Competitive Strategy: Theory and Evidence." Burke, Andrew, André van Stel, and Roy Thurik. ERIM Report Series Research in Management (May 2009)

Theme: Empirical analysis of blue ocean strategy versus competitive strategies based on data assembled from 655 retail shops through 41 shop types in the retail industry in Holland.

Summary: This paper addresses the debate surrounding Red Ocean (competitive strategy) v/s Blue Ocean (New Market) strategy. The authors note that Blue Ocean seeks to emphasise the importance of value innovation that can completely negate the competition replacing 'competitive advantage' with 'value innovation' as the firm's primary goal thus highlighting the importance of creating demand and exploiting untapped maket rather than risking competition. This results in increased profitability in the industry.

There is a debate in the academia and research groups as to which strategy is better suited but all evidences are as case studies on different companies which is not enough to define any one of the two strategies as a clear winner. Rather the two strategies co-exist and should co-exist because a firm on the foundation of Blue Ocean strategy may ultimately have to face competition depending on the imitability of the business model and then before they have more value innovation to differentiate themselves and still remain cost competitive, they must also have a competitive strategy to ensure they do not fall behind of competition.

Research results in this paper suggest that the notion that blue ocean makes competition irrelevant may not be true. To test the superiority of either tools the authors looks at the two strategies from both long term and short term perspectives and outline a theoretical model which suggests that every market will experience new vendors arriving to share the profits that are there on the offering in the industry. Thus the composition of the pie chart of market share will continuously exhibit different set of players with some fading off while others entering the market but only until the saturation point is reached where everyone will break even. Looking at the industry an its players over a period of time in this manner will give us an understanding about whether the new market strategy or the competitive strategy is more viable for the industry. If companies succeed over a long period of time by creating value innovation (new market strategy) as the new companies entered, both the industry profits as well as the firm's profit will grow steadily and so will the number of vendors in the strategy. On the other hand, if the profitability of the blue ocean firm went down with increasing number of vendors in the industry, it would be an indication of the dominance of the firms that followed competitive strategy over the firms that followed new market (blue ocean) strategy. After studying the complete data from 1982-2000 of 655 retail shops over 41 shop types in the Dutch retail industry and after testing and analyzing the premise the authors concluded for half the shop types, the firm profits were directly proportional to the number of firms while the blue ocean strategy was dominant over a long term with number of vendors and firm profitability rising/falling together over all shop types in the whole period under consideration. The authors also concluded that in short term Red Ocean strategies were at work.

The study highlights that the two strategies co-exist and cross each other throughout the industry life and there is no particular choice that any manager prefers.

Paper 2:

"Synthesizing a Blue Ocean." Master Thesis. Vester, Daniel. Aalto University, 2012.

Theme: Applicability of New Market strategy frameworks and techniques in the electronic musical instruments industry for innovating new products.

Summary: In this paper, the author targets to show how value innovation could be used in case of an electronic musical instrument company to add value to their product and create new market space. To explain this, he choses to compare the traditional strategies like competitive strategy, Porter's 5 forces strategy to the blue ocean strategy. Blue ocean strategy is eventually selected for the process of product development of ArturiaMiniBrute, an analogue synthesizer reason being

1) Its attention on constructing new uncontested market space and at the same time targeting lower cost and product differentiation as well; and

2) The ease with which the analytical tools and frameworks in a Blue Ocean strategy could be blended into the product development process and usability of the instrument thus developed.

Blue ocean strategy tools such as the Strategy Canvas, Four Action Framework, Buyer Utility Map and Three Tiers of Noncustomers are applied after quantitative analysis of sales figures in the electronic musical instrument industry for identifying Arturia's closest competitors in various synthesizer markets and to design the strategy for ArturiaMiniBrute.

The author's observations and interpretations show that the Blue Ocean Strategy techniques and frameworks can aid electronic musical instrument firms add value to their instruments/products/offerings and create new market space. Subsequently, the author advocates that companies should shift focus from technical features of the musical instrument to the emotional appeal of the musical instrument, and urges that companies should get out of the traditional mindset, challenge established rules of the industry by eliminating factors that have been ignored and not given due importance but which may be of great value to the customer.

Paper 3:

"The Impact of Blue Ocean Strategy in Low-cost Transport." Å tverková, Hana, Michal ÄŒervinka, and Vlasta Humlová. In 2012 International Conference on Traffic and Transportation Engineering. Belgrade, November 29-30, 2012.

Theme: Applicability of blue ocean strategy theory to Ryanair (air transport industry)

Summary: This paper illustrates how blue ocean strategy can be vital and have an important influence in the low cost aviation sector. The authors chose to analyze the low-cost air transport industry in the European Union. They report that the market is highly competitive and the regional players fight amongst themselves on the base of cost competitiveness. The authors show that a cordial relationship between regional airports and any carrier firm can enable budget airlines to provide distinguished value for airline passengers at a low cost to the companies. The authors also suggests using the case of Ryanair that infrastructure improvement for non-core activities at the smaller airports might be essential to facilitate such relationships between budget airlines and small regional airports.

CHAPTER-3 EXAMPLES OF BLUE OCEAN STRATEGY

iTunes

Apple observed the flood of illegal music file sharing that began in the late 1990s. Music file sharing programs such as Napster, Kazaa, and LimeWire had created a network of Internet savvy music lovers freely, yet illegally, sharing music across the globe. By 2003 more than two billion illegal music files were being traded every month. While the recording industry fought to stop the cannibalization of physical CDs, illegal digital music downloading continued to grow.

With the technology out there for anyone to digitally download music free instead of paying $19 for an average CD, the trend toward digital music was clear. This trend was underscored by the fast growing demand for MP3 players that played mobile digital music, such as Apple's hit iPod. Apple capitalized on this decisive trend with a clear trajectory by launching the iTunes online music store in 2003.

In agreement with five major music companies-BMG, EMI Group, Sony, Universal Music Group, and Warner Brothers Records-iTunes offered legal, easy-to-use, and flexible à la carte song downloads. iTunes allowed buyers to freely browse two hundred thousand songs, listen to thirty-second samples, and download an individual song for 99 cents or an entire album for $9.99. By allowing people to buy individual songs and strategically pricing them far more reasonably, iTunes broke a key customer annoyance factor: the need to purchase an entire CD when they wanted only one or two songs on it.

iTunes also leapt past free downloading services, providing sound quality as well as intuitive navigating, searching, and browsing functions. To illegally download music you must first search for the song, album, or artist. If you are looking for a complete album you must know the names of all the songs and their order. It is rare to find a complete album to download in one location. The sound quality is consistently poor because most people burn CDs at a low bit rate to save space. And most of the tracks available reflect the tastes of sixteen-year-olds, so although theoretically there are billions of tracks available, the scope is limited.

In contrast, Apple's search and browsing functions are considered the best in the business. Moreover, iTunes music editors include a number of added features usually found in the record shops, including iTunes essentials such as Best Hair Bands or Best Love Songs, staff favorites, celebrity play lists, and Billboard charts. And the iTunes sound quality is the highest because iTunes encodes songs in a format called AAC, which offers sound quality superior to MP3s, even those burned at a very high data rate.

Customers have been flocking to iTunes, and recording companies and artists are also winning. Under iTunes they receive 65 percent of the purchase price of digitally downloaded songs, at last financially benefiting from the digital downloading craze. In addition, Apple further protected recording companies by devising copyright protection that would not inconvenience users-who had grown accustomed to the freedom of digital music in the post- Napster world-but would satisfy the music industry. The iTunes Music Store allows users to burn songs onto iPods and CDs up to seven times, enough to easily satisfy music lovers but far too few times to make professional piracy an issue.

Today the iTunes Music Store offers more than 8 million songs. iTunes is the largest music retailer in the US with sales exceeding 5 billion songs. Apple's iTunes has unlocked a blue ocean in digital music, with the added advantage of increasing the attractiveness of its highly successful iPod player.

Strategy Canvas

Curves

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 one 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.

NetJets

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.

CHAPTER-4 EXAMPLES OF BLUE OCEAN STRATEGY IN ASIA

Air Asia

One of the major developments that the airline has experienced has been the evolution of the budget airlines. For instance, emergence of Air Asia in Malaysia is a classic example.

Air Asia have avoided the competitive strategy or the red Ocean (competition against Malaysia Airline and other airlines like Tiger Air, Jet Air and other regional airlines) by considering factors that are important to customers but easily taken for granted by most of the other airlines. With the Four Actions Framework proposed by W. Chan Kim and Renee Mauborgne, Air Asia have ensured they make Malaysia Airline, Tiger Air, Jet air and regional players irrelevant by implementing many important strategic moves explained below.

STRATEGY

Eliminate:

1) OTC booking

2) Seating Class booking arrangement

3) Free breakfast/lunch/dinner on the plane

Reduce:

1) Number of attendants serving on the plane

2) "Luxury" facilities delivered

3) Quality of the seats

Raise:

1) Increased flight hours for their aircrafts: frequency of flight

2) Selected key endpoints/destinations catered frequently

Create:

1) Booking system became online

2) Travel system: point-to-point

Through these strategic moves, Air Asia has been able to concentrate on factors that really matter for the customers like better booking channel, point-to-point travel system, etc. that makes customers' lives simpler and adds value to them. This is a perfect example of Value Innovation, as not only does this help Air Asia increase the value to the customers but at the same time reduces cost for Air Asia significantly - Value Innovation. This also allows Air Asia towards customers who were not traditionally target thus creating a new market space and targeting non-customers in the traditional airline industry.

Current Airline Customers:

1) Corporates and business fraternity in Malaysia or ASEAN region.

2) Those individuals who can afford to buy expensive airline tickets from airlines like Malaysia Airline and other regional players.

Non-Customers:

1) Officers from the government and other government staff

2) Those individuals who cannot afford to buy expensive tickets such as students or recent graduates or lower middle class and rural people.

With effective execution of Blue Ocean strategy, Air Asia has furthered expanded their gamut and has ventured into other businesses like they started Tune Hotel and Tune Money. The model is again towards creating Blue Ocean market space.

Crocs Inc.

Company Snapshot

Crocs Inc. is one of the major players in shoe industry who have been very successful. It designs, fabricates and markets bright-colored, comfy-branded footwear and accessories for all segments men, women and children.

Blue Ocean Strategic Move

Crocs Inc. with its distinctive lightweight clogs created a blue ocean market space in the shoe industry. These types of shoes gave customers a perfect combination of comfort and fashion at an affordable price point. Crocs shoes have mass appeal because not only are they branded but also in a way they are refreshing, they are different from traditional sandals and casual shoes and add a fun element as well as they come in a wide array of bright colors which provide a funky look. Combined with their new crocodile logo on their shoes it also gives them a bold look. Crocs have been a run-away success also because they provide customer what they never even thought of, they satisfy their customers by adding value to their customers' usage by giving features like lightweight, waterproof, ergonomic comfort and anti-microbial and anti-skid.


Success

Founded in 2002 as a new type of boat shoemaker initially, the company has grown into a global sensation in casual footwear industry with sales across the globe in over 90 countries and reaching 1 billion US dollars in 2011.

Crocs Four Actions to create Value Innovation

Source: Frontier Strategy, LLC

Nintendo's Wii

The video game business has a huge market and is a multi-billion dollar industry. Video consoles, which form a big portion of this market, were very recently in the past controlled by two major players: PlayStations (PS1&2 and soon PS3) from Sony and Xbox (Xbox and Xbox360) from Microsoft. Nintendo, however, a distant third player created ripples in the market space with its launch of the Wii. This is an especially interesting case study from a strategy perspective since it's a brilliant example of the so-called blue ocean strategy. The graphic below demonstrates Nintendo's Wii strategy with the help of the strategy canvas and is quite clear.

The graphic illustrates the attributes of Sony's, Microsoft's and Nintendo's consoles.

On giving a closer glance to the above graphic, one will notice that Nintendo is competing on a completely different strategic landscape as the attributes are completely differently focused for Nintendo in comparison with Sony and Microsoft. The Wii is not only affordable for general public, it has no Hard Disk, no DVD, no Dolby 5.1, weak connectivity and comparatively low processor speed, but enthralls the user by its innovative motion control stick. The stick is designed such that it integrates the movements of a player directly into the console of the video game, The user gets an interface where he gets a live feel of himself playing in the screen. With this feature Nintendo not only won the existing customers in the video game world but also brought in a completely new set of customers to the business.

We can again think of the Four Actions Framework in all of the above descriptions of features. I will explain here with a couple of those features:

Reduction in cost through elimination of some features like Hard Drive, DVD, Dolby 5.1 and low processor speed

A raise in demand by creation of motion stick: strong value innovation for new gamers/customers.

These 2 features disregard the traditional belief in competitive strategy of either going for cost leadership or product differentiation and not simultaneously for both. In other words, through this example we see that while Sony and Microsoft are fighting in the same old bloody Red Ocean of existent market, Nintendo created a new market space for itself in the form of Wii and is now sailing calmly in this Blue Ocean that it created for itself.

Story of redBus

One fine evening an electrical engineer in Bangalore planned to travel to Hyderabad to celebrate Diwali with his family but the answer he got from the agents when he reached at bus stands was that all tickets were sold out and he could inquire about the availability from some other agents. Although the person got frustrated but an appalling question was making rounds in his minds; why weren't there other methods to get bus tickets booked rather than moving from one agent to another? He questioned why can't bus tickets be booked online like airlines and railway tickets? The person was Phanindra Sama and his frustration lead way to a revolution in Indian bus industry and redBus was born.

Phani discussed the idea with his friends (Sudhakar Pasupunuri and Charan Padmaraju) and they started working on the idea. Initially they decided to develop an IT based inventory system for bus operators but the idea was dismissed by the operators and agents as the task seemed huge to them. Meanwhile they came in contact with the Bangalore chapter of TIE (The Indus Entrepreneurs) which accepted their venture and mentored the team and guided them with various assignments pertaining to market surveys and market research. The TIE mentorship enabled redBus to get venture capitalist interested in them and a VC named Seedfund funded them with $500000. This is how redBus was born on 18th August 2006, India's first online bus ticketing website, a concept which was in use for airline and railway booking but no one had realized that it could be feasible enough for the bus travel also. Exhibit 1 gives company details.

Exhibit 1

The Team-

Major Milestones-

Exhibit 2

Company Details-

Bus Ticket Industry- Overview in India

The Indian bus travel industry was highly fragmented with a large number of small operators and agents having very little orientation towards technology. Most of the operators were regional players having small fleets of ten buses where few were long route players having 100 or more fleets of buses. Exhibit 2 gives the details of the industry structure.

Long route buses were known as contract carriages and their tickets were to be bought in advance whereas short haul buses known as stage carriers and their tickets were sold in the coach itself. The booking system was agent driven in which each agent had contract with three of four operators and tickets were allocated to them on the basis of quota system by the operators. Each agent used to sell its quota of tickets and all the unsold tickets were informed to the operator before some fixed time of bus departure. No centralized inventory was maintained by either the agents or by operators which led to a lot of inefficiencies in the system as many customers never got tickets because the agents they contacted sold off their quota of tickets resulting in many potential customers not getting any tickets and buses running below their capacities as operators never knew that few passengers never got the tickets.

Another major issue that made industry unreliable was that during festival season, agents use to hike the ticket rates to make more money and each agent used to charge differently for the same coach ticket which created a lot of scepticism in the customer mindset. With the advent of the golden quadrilateral project in the early part of last decade the condition of roads improved and many luxury coaches made inroad in the market which attracted more customers to the industry but the operational inefficiencies never allowed customers, operators and agents to fully exploit the market potential.

After 2008: E-ticketing in India was catching up, approximately 40 per cent of airline ticket sales and 30 per cent of railway ticket sales came from online platforms, though for the bus industry the change had just begun. Bus business was a $2.5 billion unorganized sector with growth of 35-40% p.a. and with the increase in urbanization, the income levels rising, the roads getting better and buses were becoming a popular means of travel.

With increased travel on roads, the consumers were looking for convenient ways to book the tickets and e-ticketing starting to get popular for road travel. This was a huge untapped market and professional players had to move in seeing the size of the industry. Redbus saw it as an opportunity and took the first mover advantage and started organizing the industry. Later other players like Ticketvala.com and Indiabusticket.com and others also started to make their presence felt. Currently, the online channel constitutes 23% of the total tickets sales.

Exhibit 2

The fragmented nature of Market-

Market Profile (Geographic)-

Industry Analysis: Five Forces that shape industry Competition

Threat to new entry is low, as a strong network with bus operators and access to distribution is required. Although entry deterring regulations and product differentiation are low and proprietary technologies are not relevant, however, industry experience and economies of scale are important factors.

Bargaining power of suppliers has drastically reduced as the industry is completely transformed. There is a huge suppliers' availability that too fragmented, with less brand power and comparatively reduced threat of forward integration. Infact, strategic impact of inputs is very less and hence the switching costs of buyers (agents and online booking sites) are very low.

Customers have high bargaining power as buyers are price sensitive in this industry. Companies try to offer more values by providing differentiated services. Since buyers have many alternatives of suppliers and options with low switching costs, this industry is transforming into more customer focused industry.

Threat of substitutes is moderate. Customers can book their tickets offline, through agents or directly through bus operators with negligible switching costs and high accessibility of substitutes. Low relative price performance, and the poor services provided by the substitutes has reduced the threat of substitutes.

Competitive rivalry has always been high in this industry. In offline booking as customers are price sensitive and have option to choose from many agents available, rivalry is still is high. The number of players is roughly equal in size and power, with low product differentiation and slow industry growth. Rivalry in Online segment has increased with redBus capturing almost 70% of the market, with some competitors like makemytrip.com and travelyaari.com trying hard to penetrate in this market. There is a very high rivalry between online v/s offline mediums as online industry growing very fast with better features and services, there are multiple booking options available, customers are less loyal, switching costs are minimal and the competitive rivalry also has price as determinant of competition. Exhibit 3 gives competitive details.

Exhibit 3

redBus and competition-

redBus - a snapshot on how it works

redBus acts an interface between bus operators and travelers. By logging into its website people can book their tickets at their own convenience. redBus has also started booking tickets on phone and payment on delivery system. In a way it has replaced the typical agents who used to sell bus tickets in small numerous counters in bus stand or near neighborhood. By providing a huge depository of tickets from all bus operators it gives a good choice to book tickets well in advance with transparency. The ticket pricing has also been kept on fixed margin basis in order to give maximum surplus to the customers. They have tied up with all major bus operators and carry inventory of their bus tickets to be sold. The agents have separate login system and can buy tickets from redBus at lesser rate and then sell it to their customers. Any tickets unsold are returned back to bus Operator before four hours of bus departure so that the tickets can be sold on the spot by bus operators or other agents.

redBus- The Unique Value Chain

Technology & Product Development

redBus.in - The founders came up with the idea of developing a simple site dedicated only to booking of bus tickets. The website is simple and user friendly with ease of browsing. Both customers and agents have their separate login systems. Owing to its simple content and minimal bulky applications, the browsing speed is very good as compared to its competitors and an ease to low bandwidth internet users. The website is done hosted from Singapore ensuring there is minimal downtime of the servers as optical connectivity from Singapore to India is simpler compared to west coast. The website has many features and filters thus helping a user to select the right bus he/she wants. After entering the departure, destination and travel date, the search engine gives a plethora of options to choose from. For easy navigation various filters have been provided on bus type, sleeper or non sleeper, departing points, amenities, departure time arrival time, fares etc.(Exhibit 4) In addition to this, it is the only website which gives user ratings of the different bus operators which helps in quality and feedback monitoring system. The photos and videos of the bus are also available in the website which helps a customer to make an informed decision.

Exhibit 4

redBus website and its features-

Competitor website and its features-

Exhibit 5

Competitor Website and its features-

Competitor website and its features-

BOSS (Bus Operating Software System) -Since redBus was pioneer in this field, they realized, one of the biggest challenges that they are facing is no real time updation of the tickets inventory. There were many instances tickets were available but the customers could not be served as there was mismatch on the visibility of real inventory. redBus developed software for Bus operators where they could update the ticket inventory online and thus helped redBus and bus operators both to manage inventory well. This software earns additional revenue for bus operators and redBus. It also acts as an entry barrier for new entrants.

SEEZ - This software has been developed by redBus team for the benefit of travel agents. redBus could not afford to neglect agents who were the backbone of the industry. In order to sustain in this business redBus had to develop good relations with agents in addition to bus operators. rebus started the concept of agent login where agents can buy the tickets from redBus instead of buying from bus operator. Although agents lose some part of commission here but redBus gives them a chance to access complete inventory of tickets which they were unable to do so before redBus. They were operating with their own allotted quota by operators and did not have flexibility to sell more tickets. Agents who get registered to redBus need to pay only Rs.4000 as security deposit as compared to previous system in which they had to pay Rs.50, 000 to bus operator. This great reduction in fees has attracted small agents also who were previously excluded from the value chain. Each bus operator has a credit which is deposited in redBus account from which they buy the tickets and keep recharging it as per their sales.

Operations

Offices - For developing relations with local bus operators and market penetration, redBus has gone with the model of opening small offices in all major cities in south India which is currently the main focus area of redBus. Setting example of low cost leadership, redBus offices are located in mediocre commercial locations with very simple office design and no elaborate appeal. The furniture and rooms are simple and just serve their purpose. Currently they have offices in ten cities mainly in southern and western India which they are now planning to expand to North and east India also.

Call center - Since internet penetration is low in India (Exhibit 5), in order to tap more market in this segment, redBus has opened call centers in their offices where tickets are booked on phone. Currently 30% of the total tickets are booked on phone. After experiencing rapid growth in this model, redBus is now planning to give more boosts to this strategy. As functioning of call center is a costly proposition so competitors are currently averse to adopt this model.

Exhibit 5

Major Users of internet across countries (in millions)

Customer Feedback to Bus Operators - After completion of bus journey customers are requested to give detailed feedback about the bus service e.g. punctuality, staff behavior, ambience, amenities etc. redBus takes these feedbacks very seriously and in many cases full money is refunded to the customer and in turn a penalty is imposed on bus operators. Since only redBus has the system for user rating of buses, this serves as a feedback mechanism to bus operators to improve their services or charge premium if they are above expectations.

Cancellations & Refunds - As cancellation and refunds is major challenge for any e-commerce business, redBus came with the concept of redeemable coupon by which customer is assured of payment as soon as he/she cancels the ticket. Payment is refunded to customer within 10 days if they exercise that option. In this way redBus reduced the refund time of customers and it helps in better customer retention.

Marketing

Word of Mouth publicity - In past redBus has spent very less on advertisements or marketing. They developed good network with various IT firms and offices in the city where bulk of their tickets were sold.

Online marketing - As the company is in expansion mode, they have now started advertising through Google ads, social networking sites which is very effective since it targets frequent internet users, while their competitors rely more on costly print and television media.

Radio & Direct Mailers - Continuing with low cost advertisements which are focused on the regional demands redBus has started airing short radio advertisements during office travelling hours.

Indirect promotion through agents - As they also engage with agents for selling tickets, the ticket prints carry the name of redBus. This increases visibility of redBus in agent dominated market and helps them attract more direct customers.

Service

Home Delivery - Indian customers are generally wary of sharing credit card information online and as the credit card and internet penetration is still very low, it makes online payment difficult constraint to grow. Considering this, redBus started cash on delivery of tele-booked tickets which has paved a good market for them.

Helpers at pick up points- One of the problems that customers face, at boarding points is that there is no clear information about the arrival of the bus which makes customers restless and tensed. redBus has now deputed part time helpers on the boarding points to assist customers in boarding buses and update them with information.

Helpline-Unlike competition redBus now provides a dedicated helpline to customers and dive complete information about the status of booking, bus arrival, cancellations etc.

M-ticket & SMS based ticket - For better user interface and service redBus has introduced mobile WAP applications to book tickets. They have also added the option of sms based tickets in lieu of the printouts adding convenience to the customers.

Distribution

Direct to customers - Their main distribution channel is direct selling to customer through direct contact with their own website redBus.in this channel accounts for 60% sales. Exhibit 6 gives details of different channels and their associated features and costs.

Exhibit 6

Data for each channel of sales of redBus-

Agents - They have tied up with 3000 agents in south India who give more visibility to redBus. In the areas which do not have access to internet, these agents give redBus an opportunity to grow.

Partners - In addition to agents, redBus also sells tickets to other online portels like travelyaari, MakeMy trip etc which adds to its revenue growth.

Human Resource

Lean staff - There are no receptionist or secretary in any redBus office. They follow simple mantra of do your own job. The staff is lean and the culture in company is to reduce costs. Most of the staff is young- in their twenties or thirties - with high passion and commitment for hard-work.

Native speakers in call centers - In their call centers, redBus has employed many native speakers who come at lower salaries as compared to English speakers. This strategy not only helps them in reducing cost but also makes them more customers focused.

Competitive Advantage

The five forces framework explained earlier was totally turned in favor of Redbus by one disruptive innovation, which involved both- an innovative product and an innovative value system. If we look at the entire innovation from the canvas of Blue ocean strategies, it seems that the company's strategy suits the framework perfectly.

Four Action Frame Work:

Eliminate: Redbus eliminated information asymmetry which was prevalent in the industry, it changed the way tickets were booked. Customers now plan their travel in a more informed and coordinated way. The price deceptiveness and last minute mad rush for tickets is reduced.

Reduce: The prevalent inefficiencies in the booking system with respect to operators and customers were reduced by the innovative Booking software BOSS-introduced by Redbus. It helped both operators and agents to allocate the bus seats and plan their inventory.

Raise: Redbus has incorporated Call centers and Helpline in their value chain which raised the customer service bars in the industry and helped both customers and operators in making the bus service a joyful experience. Home delivery of tickets also enriched the customer experience. The recent facility center of redBus opened in Mumbai for passenger recreation while they wait for the bus has also raised the bars of customer service in the industry.

Create: redBus first time pioneered a feedback based system which enables customers to raise their voice about any unpleasant experience of bus journey and also help the operators in improving their services. This has changed the way operators used to perceive the power of passengers. The display of service shifted the power of the game in the hands of passengers which in a way has reduced the supplier power and helped redBus consolidate their position further.

The Strategy Canvas:

In the case of Indian road transport industry there can be seven principal factors.

Ease of booking ticket: In the traditional market place, dominated by the operators and agents it was very difficult for the passengers to book their tickets as the surety of getting tickets was almost impossible. Moreover passengers had to move from one agent to another to book their ticket. Redbus has changed the booking scenario where seat selection and booking ticket became a one click affair.

Efficiency for Operators/Consumers: Earlier system was full of inefficiencies with buses running below capacity even when customer still had desire to travel but could not get tickets. This was because of the quota system of allocation to agents and information asymmetries between agents, operators and customers.

Transparency of Prices: When the market place was unorganized and chaos prevailed, agents used to charge their commissions at their will and the situation became more chaotic whenever any festival approached when ticket price were hiked by as much as 50%-60%. redBus changed the scenario with clearly mentioned on its website and this enabled customers to avail tickets at uniform prices.

Value Added Services: The traditional bus booking was devoid of any services to the customers except the bus journey, redBus introduced Call Centre, Bus Helpline, Coach Facility information at their website, and it enabled SMS based booking and m-tickets which eliminated the need of paper tickets.

Travel Quality: With the introduction of bus feedback system and display of coach facilities the quality of travel has improved a lot than it was in the traditional system.

Money Refund: In the traditional booking system when a passenger cancelled a ticket he/she used to get his refund immediately, in case of redBus as the booking is done online, limitations of the payment gateway became a bit hurdle for an instant refund. To overcome this hurdle they introduced the refund coupons, but for the passengers who still insist on the cash refund a delay of 15 days is inevitable.

Ticket Price: As per our study there is still a lot of debate on the prices charged by redBus and by agents. In the majority of the cases the prices were equal but in some cases Redbus seems to charge a premium price.(Exhibit 7)

As per our analysis of Value Chain and the Blue Ocean Strategy framework, redBus has gained a considerable competitive advantage as compared to the agent model and the other online e-ticket portals.

As redBus enjoys the first mover advantage, Mr Praveen Mutyala, South India Director Redbus says that "We are three years ahead of all our competitors in the business". Redbus has gained a significant presence in many parts of India with stronger presence in Southern and Western India. Man