Using Their Scale
In the food manufacturing industry, General Mills’ scale allows them to operate at a lower cost, and to leverage marketing practices across many brands. This will allow them to offer product benefit at a higher relative level than competitors for the same price point. For General Mills’ customers, paying a premium for a General Mills product is worth it because they get so much more benefit than a competitor’s product even at a slightly lower price!

Favorable Macro Trends For General Mills
General Mills’ brands are sitting at the intersection of many macro trends which are favorable to them. These translate into value for consumers; especially relative to their other food consumption options. The first major trend that bodes well for General Mills is that people are eating out less because typical American consumers have less money to spend due to the economic slowdown. The second major trend in the U.S. is that Americans are moving to eating healthier. This trend is impactful, and has moved people from seeking fast food to cooking healthier items at home. General Mills has many brands which can leverage this shift.

How They Can Dominate Their Categories
General Mills’ portfolio of brands is strong, and would grow to unprecedented category dominance using some the Blue Ocean Strategies mentioned in the last two articles. These are ways to win in any economic environment. With commodity prices up, consumer spending down, and value being the spending criteria of customers, General Mills and all food manufacturers must change strategy to maintain margins and combat revenue shrinkage. The good thing about General Mills is their marketers don’t remain in a silo – and their marketing efforts are holistic. They must use this pervasiveness of marketing to seek out and stay on top of consumer benefit preferences. These benefits must be linked to features – and translated into relevant messages for given targeted groups in effective media. Equally as important, General Mills should use its muscle and reach to leverage and provide disproportionate benefit for its customers – and that alone is enough buffer them from this recession and any economic downturn.

Lower Profitability
General Mills and its portfolio of strong brands are feeling the squeeze on their profitability as a result of high raw material commodity prices and recent peaks in energy costs. They are still reporting sales gains as they pass these costs to consumers by raising prices to offset these higher costs. According to MiamiHerald.com (December 17, 2008 post), earnings in the quarter ending Nov. 23 fell to $378.2 million from $390.5 million last year. However, revenue rose 8% to $4.01 billion from $3.7 billion last year during the same period. This is a clear indication of the effect that high commodity prices (such as those for grain) are having; these costs are narrowing their margins and causing them to raise prices to consumers. This is all happening in the midst of a troubled economy where consumers are spending less. Even given this scenario, the Wall Street Journal writes in the December 18th, 2008 edition that “most analysts view General Mills as a company well-positioned to weather the slowing economy because of its strong brands and a focus on cost-cutting.”

General Mills’ Marketing Strength And The Direction They Should Head
A major driver of General Mills’ strong brands and its success is their strength in marketing. Now, the pressure is on their marketing personnel to generate sales in an economy which is characterized by consumers spending dramatically less and scrutinizing purchases more tightly. General Mills marketers think in terms of reaching customers at various “touch points” and providing them with relevant messages. It is critical that they link their product’s features to key benefits for their targeted consumer audience. They must demonstrate lucidly and powerfully the link between the features of their products, such as natural ingredients, and increased healthiness. In addition, they must continually seek to understand which benefits are most important and relevant to consumers, and tie them to product features. In Blue Ocean Strategy terms, General Mills must seek to raise and create features which are directly relevant to profiled and targeted customer groups.

Why Online Presence Should Be Key
This messaging must be backed up with the selection of relevant media for a given group. General Mills should examine its online presence to reach a younger and more educated demographic. It is becoming cliché among astute marketers to leverage social networking media online – it is in its growth stage and actually can yield very substantial and positive results when executed effectively. The reason social networking media are important is because they allow a two-way conversation between consumers and a company. A marketer can gain invaluable information about what benefits customers value most – and the features which best provide these benefits. Social networking media also provide marketers with real and mostly unbiased feedback on how a product is performing, and what consumers really think about it. If a company gets all these things right, they will create customer “evangelists” who will create buzz for their products online. And, where do most consumers go first to get “real” information about a product or service nowadays? – online! This is the new “word-of-mouth” channel, and it’s exponentially explosive.

Database To Track Strategic Buyer Groups
An advanced marketing strategy for small retailers is to focus on key strategic buyer groups within their industry. This can be done readily by leveraging a small retailer’s localness to stay close to key buyer groups. Concretely, a data base of buyer preferences must be maintained and updated regularly. In this database, a retailer should record the following information about each customer:
1. All Merchandise Purchased
2. Any Special Treatment Given or Requested
3. Family and Friends Mentioned or Who Are Current or Potential Buyers
4. Relevant Changes In Living Situation
These pieces of information will help retailers identify and target groups of buyers willing to trade up, or more importantly for this economy, maintain the price for performance balance. For most small retailers, it is important for them to stay away from trying to entice Wal-Mart preferring buyer groups. They usually can not compete on price – and should not waste resources targeting buyers who trade down on price for lower quality, service, or performance.

How To Effectively Lower Prices For Maximum Profitability
There is a case where lowering prices for small retailers is effective and desirable – but without trading down price for performance. A retailer can maintain the price performance proportionality by offering small samplings of items or services for proportionately lowered price points. This accomplishes several objectives:
1. Increases Opportunistic and Incremental Sales
2. Allows Sampling of Higher-Priced Product Offerings
3. Obtains Price-Conscious Buyers W/O Competing Directly With “Big Box” Retailers

Small Retailer Example Of Lowering Price Points
Surfin’ Seafood, a Seattle-based seller of freshly caught seafood, is a great example of a small retailer offering a sampler type package to price-conscious customers. They expect to lose about 50% of their sales this holiday season as a direct result of corporations in the area cutting back on their discretionary expenditures of packaged seafood as holiday gifts for employees and customers. To regain some of this projected loss, they introduced a $50 gift package with fewer pieces versus their typical packages which sell for between $85 and $195. Surfin’ Seafood’s offering is a classic example of moving down price points to capture substantial incremental sales without disproportionately sacrificing performance, perceived quality, and the reputation that a small retailer has achieved. This kind of move can be highly beneficial and profitable – but it is tricky and must be done strategically and with care!

Three Characteristics Of Good Blue Ocean Strategy For Small Retailers
In the final analysis, for a small retailer there are three Blue Ocean characteristics of a good strategy. First, diverge from targeting price-elastic buyer groups, and understand the key dimensions of high utility for your customers – record key information about them and all customers. Second, focus on buyers willing to maintain and continue buying in a given price range even in this economic downturn – leverage your localization advantages such as closeness to key customer groups and understanding many aspects of the local market. Lastly, develop a tagline or brand motto which concisely differentiates your offerings in the market – and more importantly, among your key buyer groups. Small retailers can do better than just survive using these strategies – their businesses can prosper as their nimble boats sail the Blue Ocean Seas unfettered.

Find New Channels of Potential Business – Blue Ocean Spaces
Small retailers are going to have to look for Blue Ocean Spaces, and find new channels of potential business. While these businesses are too small to own a marketspace, they can certainly carve out profitable niches. There are three areas which small retailers can focus on to develop new business: geographic, demographic, and usage (both occasion and type). They can carry merchandise and services centered around a locale – and have offerings which are highly relevant to a given community. This is a Blue Ocean which large national chains will find very difficult to follow because many are very centralized in structure. As a smaller craft in the Blue Ocean Seas, local businesses can more adeptly cater merchandising, marketing, and operations to uniquely fit communities, towns, cities, and regions.

Look Beyond Current Buyers Demographics
Small businesses can also look outside of the demographic profile of current buyers to target additional customer groups. This can be done effectively by evaluating alternative or complementary industry buyer groups. Small retailers can look for synergic “hooks” to fulfill the needs for either of these groups. A business mentioned in the WSJ article, Charles Mayer & Company, is an up-scale boutique seller of china, crystal, and decorative accessories in Indianapolis. An example of them targeting a complementary buyer group would be to develop an interior design service which shows home- and condo-owning customers the appropriate matches of various pieces to rooms and homes being re-modeled or built. This look across industries would also yield very synergistic opportunities to bundle with partner companies. To further extend our previous example, Charles Mayer & Company could join with an interior design firm outright to provide pieces for a price discount or items which are exclusive to the given designer.

Blue Ocean Spaces Through Alternative Usage For Product Or Services
The third way a small retailer can discover or create a Blue Ocean Space is through alternative usage for their goods or service offerings. This can take the form of different types of usage for their offerings, or different or varied occasion usages for their goods and services. Possible variations on usage fit well with the previously mentioned opportunities to bundle with other goods and services. Alternative uses for a small retailer’s goods or services can be uncovered by looking at a buyer’s experience with related products or services. These retailers should observe and evaluate these buyer’s experiences before, during, and after a given product or service is used. This will yield rich insight into how to extend, alter, or retract their offerings in terms of recommended uses for their given products and the services they offer around them. For example, small auto repair shops have observed the success of “oil change only” shops such as Jiffy Lube, and now include even more discounted oil change services of their own as a front-end bundled offering when repairing other parts of a customer’s car. In this case, the usage occasion was changed from a scheduled maintenance item to an upfront service and opportunistic sale for a small retailer.

Brazil’s Air Transportation Infrastructure and Its Implications For Azul
All airliners in Brazil face challenges in their domestic airports and air-traffic control infrastructures which need improvement. To improve Azul’s profitability and long term rate of return, Brazil is going to have to eventually upgrade these structures. Azul can form a coalition with other Brazilian airliners to help subsidize and push the government to improve Brazilian airports and air-traffic control infrastructure. This coalition needs to lobby hard for improvements, because it has a direct effect on all of their operations. For all Brazilian airliners, it will help raise margins, lower costs, and more importantly, improve safety. Because Azul seeks to compete with bus routes in smaller and mid-size towns, it is critical that small and localized airports have the appropriate infrastructure to accommodate Azul’s jets. For towns which were previously mainly accessed by buses and cars, a substantial amount of resources must be invested in the airports.

Mimic Southwest’s Best Practices
There are also other ways that Azul can access Blue Oceans like Southwest does. It can make sure it sticks to Southwest’s point-to-point routing throughout Brazil, and avoid using hubs. Neeleman can establish a brand personality. This can be done in a way that’s appropriate to Brazilian culture, but friendliness like Southwest’s is universal and would likely be a “hit.” It can keep costs down with a no- frills feature and service approach. Also, and less obvious to customers, is to “hawkishly” maintain low operational cost. This is absolutely vital margin maintenance.

Why Azul Will Succeed
Although we are in difficult economic times in the U.S. and Brazil, Azul has overcome financial and logistic challenges to begin operations. It has a solid business model and value proposition for its customers. But what is most compelling about Azul and David Neeleman is the fundamental Blue Ocean marketspaces which they seeking to create in the domestic Brazilian travel market. Just the creation alone should be enough for them to prosper; couple this with better macro-factors in the future, with even merely competent management, and Azul will be able to ride out this initial turbulence to become a leading Brazilian airliner.

Azul Like JetBlue – Seeks Blue Ocean Space
David Neeleman, founder of JetBlue Airways, has launched his fourth low-cost airline in Brazil, called Azul. According to The Wall Street Journal’s December 16th issue, it started service Monday with four jetliners and plans to acquire four more by next month. Azul is a lot like JetBlue; even its name means blue in Portuguese, and it offers low fares with two-by-two leather seats in all economy cabins. Planning for Azul began early this year with $150 million from investors in the U.S. and Brazil, and firm orders totaling $1.4 billion for 36 118-seat E-195 jetliners from Brazil’s Embraer. Azul’s competitors are TAM Linhas Aereas SA and Gol Linhas Aereas Inteligentes SA, which combined have a 90% share of the local market. Given this coverage already, it would seem that Azul is headed into a red ocean – but given their strategy, this is not true. As Neeleman did with JetBlue, he is creating Blue Ocean space, and moving away from Brazil’s current red ocean airlines marketspace.

Emulating Southwest’s Blue Ocean Strategy
Azul Airlines is seeking to create Blue Ocean marketspace by emulating Southwest’s Blue Ocean strategy. Azul is not attempting to compete directly for Brazil’s TAN and Gol Airlines’ customers. It’s emulating Southwest’s strategy of competing with the car and long distance buses in Brazil. For example, the bus ride from Campinas to Salvador de Bahia is 33 hours compared to a two-hour flight for 209 reals or $87. This is a classic Blue Ocean strategy of offering differentiation along the key dimension of time savings/speed of travel, while offering relatively low costs. It also is a Blue Ocean strategy by creating a new marketspace of travelers trading up performance with a slight shift in price.

Another Uncrowded Marketspace: Brazilians Who Don’t Travel
David Neeleman is creating a new dual marketspace by offering an affordable price point for air travel to Brazilians who don’t normally travel! Azul is enabling Brazilians to travel the country at low price points, thus creating a huge market which did not previously exist – and more importantly, creating a space which competitors will find hard to follow. While this is not a classic Blue Ocean strategy “create” factor, it accomplishes the same objective – competitors can not effectively follow them into this lowest price point space for air travel in Brazil. The essence of what Neeleman is doing with Azul is raising the speed dimension, while lowering the cost dimension for the Blue Ocean Strategy Value Canvas.

Dual Focus of Accessing Two Ripe Marketspaces
Azul is pursuing a dual focus to fully access both these marketspaces. They are both relatively close to each other in that they are low-cost-oriented. Neeleman has identified two types of buyers in Brazil’s domestic market. To synergize resources in a duality strategy, map the utility of both buyer profiles along key airline and industry offering dimensions. Azul should maximize resources along the dimensions which converge toward high feature/benefit desirability for both these types of customers.

Revenue Portfolio: “Real Stars”, “Potential Stars”, and “Cash Cows”
Nordstrom should also look to increase the number of its Nordstrom Rack Stores which offer discounted and discontinued merchandise. Its sales are increasing, and the Rack Stores’ lower-priced merchandise is allowing it to weather the recession well. The Rack Stores are “stars” within Nordstrom’s portfolio of revenue-generating entities – they are growing and kicking off substantial cash flow. Capital expenditures for “real stars” should increase, but for “potential stars” – good growth rates but less cash flow – hold off increases in funding until 2010. Nordstrom should focus capital allocation more to its “cash cows” – areas which are kicking off substantial cash flow but not necessarily growing rapidly.

Focus On Value – But Keep-Up Differentiation Qualities
Nordstrom’s profits are down and growth is receding – but so is everyone else in retail – they shouldn’t feel badly! Even in this adverse retail climate, Nordstrom can raise profitability and achieve some growth. Unlike many competitors, they are still profitable, and have kept their loyal core customers. With chains positioned below them, like Target adjusting its focus to value over “fashionability,” Nordstrom should follow this trend in the market – but maintain its value proposition and differentiating qualities. This article has revealed the Blue Ocean strategy for accomplishing this. Nordstrom’s current tagline should read: “Our Value: Great Fashions and Legendary Service without Breaking You.”

Nordstrom’s: Subtract, Then Maintain and Add Features
Well – what can Nordstrom do to combat this flight and return to higher profitability? On the F3Q08 Earning Conference Call, Blake Nordstrom, President of Nordstrom, said, “Even affluent customers, typically more resistant to economic malaise, are shopping less and are making more deliberate purchases.” Macro factors are hurting Nordstrom’s core value proposition and business model. Nordstrom can directly combat the shift to buying based on value along with seeking lower price points on various purchases. They should implement the specialized Blue Ocean Strategy which was outlined in my previous two articles of “Blue Ocean Strategy in a Recession Series.” Examine what current Nordstrom shoppers perceive as less important in their shopping experience. Then, reduce or eliminate that factor. The object is to lower costs across a set of items with low utility features. To maintain or even raise perceived value to customers, Nordstrom must select elements of its high quality services practice which customers especially like or can’t do without and maintain the resource investment in them. They can even use the newly available resources from the “selective resource reduction” to add to valued features and benefits. This practice of subtraction, then addition, will encourage the perception of Nordstrom as a place with a value orientation, while maintaining the loyalty of its “regular” or core customers.

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).

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.