Blue Ocean Strategy in Recession Series: Key Costs Lowered – Now Differentiate

How To Differentiate
Now, here’s how to differentiate using Blue Ocean Strategy, while maintaining or minimizing costs. It’s all about the key benefits of your product and/or the key customer touch points for service-oriented businesses – these have the greatest effect on perceived satisfaction or quality. It is vital to understand the perception of key benefits of your product or service – and the features which relate directly to them. Look to maintain these features during any economic climate, especially a recession. But, use the strategies of cost reduction previously discussed, to drop costs for certain “over-supplied” features.

Combat Recession – Eliminate Low Utility Features
During this recession, an interesting but predictable shift in spending habits has occurred with U.S. consumers. They are rapidly trading down in the retail categorization, out of mid-range or up-scale stores or food providers. McDonald’s sales were up last quarter, as consumers are spending less at mid-range and premium restaurants. So, what can the mid-range and premium product and service providers do? Again, use the lower costs strategy. Offer products or services which eliminate – not just lower — cost, and eliminate low utility features and/or benefits. Look at dimensions which can be gotten rid of altogether. This will lead to developing lower cost products which focus on “low cost” or “value” consumers. This will expand the reach of your consumer base, and should offer increased sales and revenue.

Innovation With Lower Costs Products
This optimized “dipping” will lead to either new products or services, or line extensions – both options have solid benefits. The key for either new product development or line extensions is to retain the important features and benefits of the mid-range or premium product and brand. It allows your products and services to remain branded which is key because your products will likely be competing against private label goods. If your company can innovate a new product while maintaining key benefits with lowered costs – that is optimal. Avoid “me too” line extensions if you can, and extend products consistent with the brand but with some differentiable qualities. This will raise your product or service’s utility above private label products and other lower-cost brands.

Innovating With A Reduced Budget
An important aspect of this strategy is that it allows a business to innovate with a reduced budget and lower revenues. The key differentiating features of your product or service must be maintained – and even enhanced and further developed. The costs that are taken out of production, distribution, and/or customer provision and service delivery, balances the up-keep or selective addition of expenses in critical customer high-utility areas. Executives and managers – focus on the key elements of the customer experience for your product or service. This allows your product or service to stay true to the brand, and more importantly affirms customer expectations and perception. Remember, it comes down to this for your product or service’s feature dimensions: prioritize, select, and augment (by developing or enhancing).

Blue Ocean Strategy in Recession Series: Converge To Lowering Costs While Still Differentiating

Main Street, Wall Street: Both In Recession
It’s no secret to anyone on Main Street and especially on Wall Street that we are in a recession. Long-established financial institutions are failing and disappearing before our very eyes. For the people on the streets of America, the economic slow-down has featured massive job losses and falling home values. Given this double “whammy,” consumers have substantially cut spending since the government stimulus checks were issued in the Spring. Equally telling, manufacturer’s orders have dried up in the most recent months even with an export-favorable weak dollar. Most importantly, the incomes of the majority of Americans have flatlined and wealth has declined with home values and investments plummeting. This has affected every aspect of the economy and businesses in all major vertical sectors.

Select Product Features To Lower
Business people are asking, “What can my business do to weather this perfect storm?” You are probably wondering, “How can Blue Ocean Strategy help me in this environment?” Well, Blue Ocean Strategy still works in this environment, and can be optimized with some modification to its front-end diagnostics – let me show you! Let’s focus our initial attention on non-luxury goods and services sectors. This is where most of the economy lives for the majority of Americans most affected by the recession. For the Blue Ocean Value Canvas, we must look to focus the features and benefits on the dimensions which can be lowered or eliminated. In other words, look at where customer utility or industry norms are lower than your product or service’s offering along that dimension. Then, reduce or lower your offering along that feature. Your business needs to focus judiciously on eliminating features which offer relatively non-valued benefits to customers. Through this lowering and eliminating process, your business will reduce costs for you and, simultaneously, for your customers without substantially changing their perceived benefits and utility.

How To Become A Lower Costs Provider
This reduction in features which offer “minimize-able” perceived benefits is particularly critical to industrial products manufacturers and sellers along with any other commodity-like product or service providers. It’s all about utility optimization and costs minimization – and in a recession where price sensitivity is heightened, lowering costs is paramount. Essentially, the previously outlined practice focuses on taking costs out without reducing perceived or actual value. While this obviously is the essence of Blue Ocean Strategy in any economic climate, the focus on “lowering” dimensionality in a recession is critical – this can not be emphasized enough! Through this selective cost reduction and the “cherry-picking” of lowering features without impacting overall, aggregate benefit, an executive or manager can become a low-cost provider relative to their marketplace or industry.

This Specialized Blue Ocean Strategy’s Benefits
Through this strategy a company or organization can realize the following benefits:
1. Increase Volume and Market Share
2. Widen Margins
3. Maintain Margins in spite of High Raw Material and Transportation Expenses
4. Maintain Real and Perceived Overall Product Benefits

“Selective Feature Reduction”
During a recession or downturn in business, it is important for executives and managers to resist the temptation to shave costs on key utility benefit features. Don’t do it! Do not touch your key features connected to the benefits that customers value. Keep up these features and pay the expenses associated with them – they are critical to the brand, and are your source of revenue. These features differentiate your product, and they are why people buy what you offer. This specialized Blue Ocean Strategy of “selective feature reduction” takes costs out, while maintaining overall perceived utility. Our strategy of selective feature reduction actually increases the relative value of your product or service. You win by subtraction.

The Ultimate Blue Ocean Strategy; U.S. Steel Needs To “Decommodize” Steel

Adapt Strong Service Model
U.S. Steel can innovate this commodity market, and differentiate itself from other steel manufacturers by wrapping strong servicing around supplying various niches. They can start with usage consultants to interface with customers on the best way to use their steel products – and/or to customize various production order batches. This may even lend itself to individualizing processing of steel products for a customer or set of buyer types. Not only does this allow differentiation, but it will allow U.S. Steel to charge a premium and widen margins. Because U.S. Steel is vertically integrated, its production and supply chain structure might have to be “flexed out” to focus on economies of scope versus scale. Dedicated resources will have to be focused on production and production types, and not on massive production scales. The fact that U.S. Steel supplies its own iron ore and a significant amount of coke can be good and bad in this economy-of-scope scenario. It’s bad if it remains geared toward massive production units. It’s advantageous if you scale into individualized production applications and units, and focus with smaller–but yet substantial–amounts of supply.

Industrial Branding For U.S. Steel; “We Know Steel”
USS can also differentiate itself by developing an “industrial branding” campaign – and really develop a brand. Again, the object is to move their steel products, and move the company away from being a commodity supplier. They should be a building solutions provider!!! They should actively pursue certain industry verticals, and seek to own these spaces. U.S. Steel needs to be the expert in steel building construction, application and usage. A branding value proposition might be, “We Know Steel.” They need to build the perception of U.S. Steel away from an “old line” company into a “new line” company which does seminars and has speakers at targeted industry vertical conferences and, of course, steel and construction conferences. U.S. Steel has a rich history along with a compelling story – and it can be a great marketing and branding tool to tell it. Think Anheuser–Busch.

Focus, Own, and Adjust; Applied Blue Ocean Strategy Playbook
In looking at what U.S. Steel can do to negate a likely, increasingly-difficult macro-environment, they need to focus, own, and adjust. They must focus on growing steady market niches based on usage and industry verticals. Then, they must seek to own spaces within them through differentiation and branding; these are a means toward an end. And, to profitably enable harvesting healthy rents, U.S. Steel must adjust its supply chain and production focus and structure to economies of scope. U.S. Steel knows steel, but the rest of world must know it – and value it!