Groups here refer to companies within the same industry group that have a very similar strategy. In most industries, the strategic differences among industry players are captured by a small number of strategic groups.
Strategic groups can generally be ranked in two dimensions: price and performance. Each increase in price tends to bring a corresponding jump in some performance measurement.
Most companies are inward-looking
Most companies are focused on improving their competitive position within a strategic group. For example, Mercedes, BMW, and Jaguar try to outcompete one another in the luxury car segment. Economy car makers focus on excelling in their strategic group. Neither strategic group ever pays much attention to the other groups.
To break away from competitors, you need to look across different groups
The key to competing in a Blue Ocean market across existing groups is to break out of this tunnel vision by understanding which factors determine consumer’s decisions to trade up or down from one group to another.
Consider Curves, the Texas-based women’s fitness company. Its growth was triggered almost entirely through word of mouth and referrals. Curves entered an oversaturated market in its inception, gearing its offering to customers who would not want it.
In reality, however, Curves created a new demand in the US fitness industry, unlocking an untapped market if women were struggling and failing to keep in shape through sound fitness. Curves were built under the decisive advantages of two strategic groups in the US fitness industry, traditional health clubs and home exercise programs, eliminating or reducing everything else.
At one extreme were the costly health clubs mainly in the suburbs that catered to wealthy people who could pay $100 a month or more for membership. It had all the facilities they wanted juice bars, sauna instructors, etc. At the other extreme was a group of home exercise programs including exercise videos, books, and magazines which were a small fraction of the cost, and generally required little or no exercise equipment.
What made women choose between the traditional health club and at-home exercise programs? It turns out that most women don’t trade up to health clubs for all the machines, locker rooms, etc., and the chance to meet men. The average female non-athlete does not even want to run into men when she’s working out. She’s not inspired to lineup behind machines in which she needs to change weights and adjust their incline angles. Also, you have to spend one or two hours at a health club several times a week.
It turns out that most women move up to health clubs because, at home, it is too easy to find a reason not to work out. Working with a group is enjoyable and motivating. Plus, working out at home saves time, costs less, and is more private.
Curves built a Blue Ocean strategy by drawing on the distinctive strengths of these two strategic groups, eliminating and reducing everything else. The experience in the Curves club was entirely different. Members could talk and support each other in a non-judgmental atmosphere.
There were few if any mirrors and no men to stare at you. Members moved around the circle of machines in 30 minutes which completed the whole workout. The price was $30 a month. According to Kim and Mauborgne, their tagline could have been “For the price of a cup of coffee a day; you can obtain the gift of health through proper exercise.” Curves created a new market.
What are some of the different groups you could look at?
