Even In Recession – The Key Elements of a Good Strategy

Three Keys to The Lowering Price Strategy
If the Chanels, Versaces, and Chloes of the world really feel compelled to lower prices as a response to the economic downturn, they need to incorporate three elements into their strategy. First, they need to focus on the lower price customers who have “traded down” to target critical masses of strategic consumer groups which have shifted their behaviors away from higher price points. Secondly, they must diverge from groups completely out of the lowered price range. Avoid wasting effort targeting groups buying at substantial lower price points, and ultra-premium buyers purchasing items above their products’ offerings. As mentioned before, it is advantageous to differentiate the product features when lowering the price. Lastly, to capitalize and leverage the brand – which is critical for luxury items – develop a unique new tagline.

Use A Functional Orientation Shift To Differentiate Your Product
A great way to differentiate a product when lowering costs is to use the Blue Ocean Strategy of more functional orientation in less important features of the product or brand. Do not reduce the features and benefits for which customers have strong emotional ties or reactions. This a slight variation of Mike Bolden’s “selective feature reduction” strategy in which less important items are chosen to take costs out along with the elimination of unimportant extras. Although the lower-priced item is differentiated, it’s still associated with the brand, so it is key to determine the right price point “prestige threshold” level. To gauge this point, observe and access:
1. Competitors in the same marketspace
2. Competitors above and below your product/brand’s marketspace
3. Range of spending for like items by your customer base

Downward Shift To A Different Marketspace
In lowering the price point for a luxury-goods item, it is critical for a manufacturer to avoid shifting its market position in the price-performance vertically “straight south” without differentiating the product, and moving laterally “left” or “right.” By shifting downward to the left by reducing or changing product features or to the right by adding or altering features, a goods-maker is entering a different marketspace, and the Blue Ocean strategy means the water’s fine!

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.