Blue Ocean Strategy - Research Paper Example

? Blue Ocean Strategy Michael L Donaldson/3135620 American Military Table of Contents Table of Contents 2 0.Introduction 3 2.0.Eliminate-Reduce-Raise-Create Grid 3 2.1.Eliminate 3 2.2.Reduce 4 2.3.Raise 4 2.4.Create 5 3.0.Three characteristics of a good strategy 6 3.1.Focus 7 3.2.Divergence 7 3.3.Compelling tagline 7 References 8 1.0. Introduction The Four Actions Framework in the Blue Ocean Strategy (BOS) is used to reconstruct buyer value elements in order to craft a new value curve for a given industry (Kim & Mauborgne, 2010). The Eliminate-Reduce-Raise-Create Grid is a tool that is used together with the Four Actions Framework to drive companies to actions of eliminating and reducing as well as raising and creating new factors that shall underlie their blue ocean. 2.0. Eliminate-Reduce-Raise-Create Grid Table 1. Eliminate-Reduce-Raise-Create Grid (ERRC) for Nintendo Wii  Eliminate Raise Game expansion packs Purchaser influence Simplicity / easy to play Reduce Create Gaming technology Health & lifestyle benefits Family experience 2.1. Eliminate Here BOS advances that Nintendo Wii has to look for those factors in the gaming industry that the industry has been competing on that can be done away with. Traditionally, in the Red Ocean, game expansion packs are utilised as a customer lock-in strategy. They are used to extend the gamers interest beyond the original version of the game. Nintendo Wii, unlike its competitors, does not offer expansion sets and this has enabled it to develop new value in two ways. Firstly, expansion sets lead to an extra cost to both manufacturer and users. By eliminating these expansion packs Nintendo Wii is able to save costs on production, distribution, promotion and sales. Secondly, these expansion sets needs serious gamers who are focused on extending their gaming experience beyond leisure. Expansion packs are also seen in some quarters as being as an unethical way of increasing customer loyalty through promotion of addiction (“Why are Video Games Addictive - Reasons & Theories,” 2011). The Wii targets the casual gamer who does not have that urge for an extended gaming experience. In fact, the Wii could use this to promote itself as the non-addictive gaming choice. 2.2. Reduce According to the Four Actions Framework at this juncture the Wii needs to determine whether products or services have been overdesigned in the race to match and beat the competition. Wii’s big competitors, Sony’s PlayStation 3 and Microsoft’s Xbox 360, have concentrated on differentiating their products through over-serving customers with provision of cutting-edge technologies such as increased graphics and HD. The benefits that these companies obtain through this strategy are marginal in comparison to the costs they incur. Kim and Mauborgne (2005) referred to this as increasing cost structure for no gain. PS3 and Xbox 360 are forced to provide cutting-edge game play because they are fighting over the same market of demanding, die-hard gamers. On the other hand, the Wii opted to focus on the three groups of noncustomers: those people at the market edge who are undecided, those that flat out refuse to purchase a Wii because they are committed to another system like the XBox 360, and the unexplored, who may not know about the Wii or possibly cannot afford it. Nintendo reduced their costs by going low tech and increased the value of the Wii by instead focusing on making it easy to understand, fun to play and highly interactive. According to Scott (2008) Nintendo expanded the market by making video games simpler and more accessible. 2.3. Raise As stated above the Wii utilised a strategy that was different from its rivals, focusing on raising the simplicity, fun and interactivity of its games as its customer value proposition rather than using superior gaming technology as its value proposition. This is in line with the third action of the BOS Four Actions Framework which seeks to identify factors that need to be raised well-above the industry standards (Kim & Mauborgne, 2010). The Wii identified and exploited two factors that it used to differentiate itself from the major rivals: simplicity and purchaser influence. According to Kim and Mauborgne (2010b) simplicity is one of the ways that a company could use to unlock utility for its customers. Wii games are designed as easy to play applications running on simple technologies so as to accommodate for the casual gamer. Secondly, the Wii opted to target purchasers and influencers e.g. parents and physicians rather than user / gamers through development of products that are family-friendly. 2.4. Create The fourth action of the BOS Four Actions Framework helps an organization to discover entirely new sources of value for its buyers and to create new demand and shift the strategic pricing of the industry (Kim & Mauborgne, 2005). The new offerings that Nintendo Wii came up with as depicted in the strategy canvas shown below are family experience and health / lifestyle benefits. Before the Wii gaming was seen as an activity largely for male youths but with offerings such as the Wii Fit, Nintendo has become wildly popular with girls, families, and seniors. Also the design of Wii Healthy category of products, which ensures that physical activity is carried out while playing, has been hailed as a health and wellness proposition by doctors and critics alike. This has busted the myth that gaming is bad for health because it encourages a sedentary, isolated lifestyle. 3.0. Three characteristics of a good strategy According to Kim and Mauborgne (2005) an effective blue ocean strategy needs to have three complementary qualities without which a company’s strategy will likely be muddled, undifferentiated, and hard to communicate with a high cost structure. These complementary qualities are focus, divergence, and a compelling tagline. Nintendo Wii created a blue ocean by breaking the trade-offs nonconsumers had to make between getting an activity that could be shared by all members of the family, the fun of playing electronic games and the cost of purchasing these games. By eliminating and reducing certain factors shown in the ERRC Grid (Table 1) as well as by raising and creating other factors, the Wii was able to offer unprecedented utility for electronic games and achieve a leap in value with a “competing against non-consumption” strategy. 3.1. Focus Nintendo Wii emphasizes factors affordable, multi-age group and wellness-promoting games. By removing expansion sets and reducing gaming technology the Wii has been able to lower the costs of both its games and gaming consoles. By designing highly interactive games that require physical movement of the user the Wii has also been able to attract a diverse age-group and promote health through its product. 3.2. Divergence The Wii has pioneered in the development of health and wellness promoting electronic games which has enabled its value proposition to cut across the age-divide of the gaming industry. 3.3. Compelling tagline Kim and Mauborgne (2005) state that a good way to test the effectiveness and strength of a strategy is to look at whether it contains a strong and authentic tagline. A good tagline enables the organization deliver a clear and truthful message on its offering to its customers. Nintendo Wii’s tagline could be “simple, fun and affordable video games for the whole family” References Kim, W. C., & Mauborgne, R. (2005). Blue Ocean Strategy. Boston, MA: Harvard Business School Press. Kim, W. C., & Mauborgne, R. (2010). 4 Actions framework. Blue Ocean Strategy. Retrieved August 13, 2011, from http://www.blueoceanstrategy.com/abo/4_action.html Kim, W. C., & Mauborgne, R. (2010). Buyer Experience Cycle / Buyer Utility Map. Blue Ocean Strategy. Retrieved August 13, 2011, from http://www.blueoceanstrategy.com/abo/BEC.html Scott, A. (2008, April 30). Nintendo Wii’s Growing Market of “Nonconsumers.” HBR Blog Network. Retrieved July 5, 2011, from http://blogs.hbr.org/anthony/2008/04/nintendo_marches_on.html Why are Video Games Addictive - Reasons & Theories. (2011, August 13). TechAddiction. Retrieved August 13, 2011, from http://www.techaddiction.ca/why_are_video_games_addictive.html  Read More