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Using the Blue Ocean Strategy for Profitable Growth

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Using the Blue Ocean Strategy for Profitable Growth

by Linda Carlson

How can publishers grow—and grow profitably? By focusing on people who don’t buy books: by creating what these people need but can’t currently get, or by making them want something that neither you nor your competitors are currently selling.

That’s the conclusion of W. Chan Kim and Renee Mauborgne, based near Paris at the French graduate business school INSEAD and authors of Blue Ocean Strategy, a bestseller from Harvard Business Press. Erin Brown, director of marketing and publicity, reports that the book has sold more than 1 million copies worldwide, in more than two dozen languages, and that “it is our fastest-selling title ever.”

Too many companies—of all kinds—engage in head-to-head competition within their industry, the authors say; in a world where supply almost always exceeds demand, too many of us are fighting for a “shrinking profit pool.”

Kim and Mauborgne were not available for interviews, but BlueOceanStrategy.com points out that most of us market hardest to our company’s, or at least our industry’s, existing customers. This strategy, they observe, may lead to greater tailoring of products. “As companies compete to embrace customer preferences through finer segmentation, they often risk creating too-small target markets,” says the Web site.

Instead, Kim and Mauborgne say, companies need to look beyond current customers to increase the customer pool. But doing this is a huge challenge, because few of us can identify our noncustomers or ways to market to them.

Tomorrow’s Customers

To help us, the Blue Ocean Web site identifies groups of people the authors believe can be transformed into customers. (There is no indication whether there are people who cannot be transformed, and if so, who these are.)

The potential customers are:

Minimal purchasers. Closest to your market, and willing to increase their purchases if they perceive a significant increase in value, people in this group are already buying your industry’s products—in our case, books—but only out of necessity. They would quit buying if they found acceptable substitutes. Kim and Mauborgne describe these buyers as a source of huge potential, or “unlocked latent” demand.

People who have chosen to not buy books. The Web site defines this group as “buyers who have seen your industry’s offerings as an option to fulfill their needs but have voted against them.”

People who don’t see our products as an option. Described as “noncustomers who have never thought of your market’s offerings as an option,” this is the hardest group to reach. The authors say that if we focus on “key commonalities” between these noncustomers and our existing customers, we will understand how to make them customers. (Presumably, this group includes noncustomers who have nothing in common with our customers and thus cannot be converted to buyers.)

Applications for Our Industry

Hard to imagine how this all applies to publishing? Although I knew that the heads of two well-known publishing houses were excited about blue ocean strategy, I struggled with the concept until I had the opportunity to touch base with several long-time industry insiders.

Let’s start with the minimal purchasers.

One significant innovation in publishing that has “unlocked latent demand,” in the words of the Blue Ocean Strategy authors, is the Kindle reader. As John Mutter points out, one of the most important ways the Kindle increases value, especially for younger readers, is with instant gratification. Mutter—editor since 2005 of Shelf Awareness, a daily email newsletter oriented to booksellers—notes, “Kindle’s means of accessing information is innovative: it’s wireless and you can immediately get whatever content you want.” Although the e-reader concept is not new, this lightweight device backed with Amazon.com’s marketing muscle seems to appeal to people who are “willing to increase their purchases if they perceive a significant increase in value.”

Ashley Grayson believes Apple is another company that has done an excellent job of executing blue ocean strategy. Grayson runs the San Pedro, CA–based Criteria, which provides such services as market research and market-entry advice. Apple’s iPod “opened the little recognized blue ocean of consumers who wanted a simple environment to rip and mix their music and make it available everywhere they went,” he observes. “Not only did Apple succeed in prospering in this blue ocean, it filled it so completely that no one else can get in. Now Apple has leveraged the iPod into the iPhone to open the blue ocean of consumers who want the whole Internet in their pocket.”

Publishers have also added value for readers with books that are out of print, copyright-free, and available either online or as bound volumes, often through print-on-demand. Project Gutenberg (gutenberg.org), the oldest source for such collections, now claims 25,000 books available online in more than four dozen languages. Better yet, the books are free.

Phil Zuckerman, at Applewood Books in Carlisle, MA, doesn’t work with volunteers as the Project Gutenberg crew does, so he doesn’t give his books away. He has, however, found a ready market for vintage titles about American life—another example of a product people, including minimal purchasers, didn’t know they wanted or didn’t believe was available. Some industry observers expect that the Espresso Book Machine, which will allow us to walk into bookstores and order a bound copy of a public domain or licensed title for immediate delivery, will further expand this market.

For an example of the downside potential in the group of people who “would quit buying if they found acceptable substitutes,” just look at what has happened to newsmagazines and many daily newspapers. The original Life magazine lost its value when photos from around the world became common in newspapers and when television gave us even more images. For years, daily newspapers have been losing ground to television; and now, with the immediacy of online news, waiting for tomorrow’s paper to get today’s news is as quaint a concept as waiting for next week’s issue of Life for pictures of this week’s world events.

John Mutter offered an example of publishers reaching the second group, people who have seen books as an option for fulfilling their needs but have chosen not to buy them. When Mutter was an editor at Publishers Weekly, he wrote about how audiobooks, then on tape, were selling in truck stops across the country. Truck drivers, who were aware of books but previously unable to read many, were enthusiastic about this opportunity to be entertained as they worked.

A distribution innovation expanded this market further: some of the audiobooks could be rented rather than bought —picked up in one truck stop and dropped off in another thousands of miles away.

What about people in the third group, those who don’t consider books as an option? My best example is large-print publications. They have truly expanded the market. Visually impaired individuals, including sizable numbers of older people, are far more likely to buy books when large-print editions are available; libraries will buy both conventional and large-print editions.

Where Do Publishers Start?

Suppose you want to try the blue ocean strategy. What do you do first?

“Hit ’em where they ain’t,” wrote Joe Wikert last summer in his Publishing 2020 Blog (A Book Publisher’s Future Visions of Print, Online, Video and All Media Formats Not Yet Invented).

“In other words, rather than competing in an overcrowded space where all participants suffer from reduced market share and profits, why not build a new business where none currently exists?” said Wikert, whose day job is general manager of the O’Reilly Technology Exchange.

Sounds great, right? One huge challenge is determining what new business will attract enough customers to be profitable. How do we do this? By focusing on alternatives rather than on our competitors, Wikert says, and—reiterating the blue ocean strategy—on those who don’t buy rather than on existing customers.

“If you think about great new product developments of the past,” he says, “I’ll bet most of them weren’t created so much to beat a competitor as they were to establish a new industry.”

The Wikert advice I like best: “Noncustomers tend to offer far more insight into how to unlock and grow a blue ocean than do relatively content existing customers.”

Getting information from noncustomers is no easy task, but publishing veterans have recommendations.

Look outside publishing, suggests Julie Trelstad, formerly a Taunton Publishing acquisitions editor and now the proprietor of Plain White Press, a White Plains, NY, startup. “With so much competition, it’s going to be easier (and more fun and satisfying) to find one or two narrow, yet compatible, markets and create products that knock their socks off in unexpected ways. This requires persistence, lots of listening, and paying attention to successful companies that are not in the publishing biz,” she believes.

Trelstad also advocates a Web 2.0 style of branding, which she describes in terms of the customer personally identifying with either the author or the publishing house. The blue ocean, she predicts, “will be entered by publishers who can develop a unique niche and a loyal following.”

Publish for the Passionate

As an example, Trelstad points to Newtown, CT–based Taunton, which she identifies as using blue ocean strategy because the publisher aims to meet the needs of consumers rather than to support a business model. Taunton created periodicals, such as Fine Woodworking, Fine Homebuilding, and Fine Gardening, that were “uniquely authentic and had wildly enthusiastic readers,” she reports, and “its early books, especially those sold via direct mail, had much higher prices and margins than current industry norms.”

Like many other magazine publishers, Taunton repackages its editorial to reach different audiences in different retail settings. “Their first books were hardcover collections of magazine articles sold to new subscribers,” Trelstad continues, “and then they printed those same books as paperbacks to sell in hardware stores and home centers—always focusing on audience needs.”

A similar story comes from Jaime Guthals, the publicist for the Loveland, CO–based Interweave Press (interweave.com), which publishes both books and such craft and hobby magazines as Handwoven, Spin-off, Knit, and Cloth Paper Scissors for people who might otherwise fall into Blue Ocean Strategy’s categories of “minimal purchasers” or “noncustomers.” Interweave has also created new publications to lead “minimal purchasers” into more crafts, and thus more purchases.

“Most of our revenue comes from consumers, not advertisers,” she told me. “Our readers are passionate.” They are also active in several of the company’s channels: they watch the television programs, and hundreds of thousands of them register on the Web site to receive a blog three times a week, to participate in forums, and to download free patterns.

Multiplatform May Be Key

Guthals credits much of Interweave’s success to supplying targeted customers with magazines that have never been duplicated. First issued about 35 years ago, Handwoven remains the only U.S. weaving magazine, and the company’s second magazine, Spin-off, is the country’s only spinning monthly. Today, however, she believes Interweave remains successful in part because it has aggressively pursued a multiplatform approach to its target market. Besides magazines, books, and the Web site, it last summer launched Knitting Daily, the only knitting program on public television, and the only one available to those without cable. It also runs workshops and other events, and produces videos and CDs.

“When we began work on the television series, we had to begin thinking of ourselves as a media company,” she says. “We use television, the house ads in the magazines, and the advertising in the back of every book to drive people to the Web page, which has become the hub of our operation. From there we want them to order books, magazine subscriptions, and our special-interest annuals.”

Satisfy Reader Craving for Recognition

One of the ways that both Taunton and Interweave are generating sales is by meeting the customer’s desire for recognition. Both have always used reader submissions in their publications, and for two new publications, Interweave has worked still harder to generate interaction with publishing staff.

A publisher that takes even greater advantage of this desire is Stampington & Co. Describing itself as “Your One-Stop-Shop for Creativity,” the Laguna Hills, CA, company sells products for craftspeople, including rubber stamps, papers, paint and tools, and the magazines in which finished projects are featured. Its submission instructions remind readers that the company “offers everyone the opportunity to be published” in one or more of its 17 monthly and special-interest publications. Many of the samples in these publications are provided by readers, who are compensated with a voucher good for a single issue of the magazine, which retails for $7.99. (They make the samples, ship them to Stampington at their own expense, and pay the return postage.)

Pointers on Product Development

As Joe Wikert points out, “Most of your noncustomers don’t even know you exist.” This means you have to create awareness as well as determine what new products these individuals or businesses want.

One quick way to measure awareness and get product development information at the same time is to give something away. Last summer, Seattle publisher Parenting Press received 1,200 damaged copies of a 32-page picture book that helps young children avoid sexual abuse. Because the printer replaced the books at its expense, the press donated the books to social service agencies across the United States. Each package went out with a simple postage-paid survey. Of the 66 agencies that received books, 32 returned surveys. More than half of the respondents indicated they had never previously heard of Parenting Press. Many replied to the open-ended question about subjects they wanted to see covered in print, listing homelessness, sexual abuse of a sibling, mental illness, and other topics that are seldom covered in the children’s section, even in bookstores with broad selections.

How large are the niche markets for such books? That’s a question that Parenting Press must ask, and a question that many other publishers will also ask as they identify potential in the blue ocean. It’s also an issue that the Blue Ocean Strategy authors address. Although they point out the risk in creating products for too narrow a market, their research shows that it’s more profitable to launch products that have no direct competition.

In studying the new products from 108 companies, Kim and Mauborgne discovered that 86 percent of them were line extensions, that is, products that improved incrementally on existing products. (In publishing, an example might be a condensation or annotated edition of a previously published book.) Such extensions accounted for only 39 percent of total profit. By contrast, the other 14 percent of new products were innovative, and designed to meet—or create—new needs or desires. These generated 61 percent of total profits, even after all marketing expenses were considered.

Now Hear This

In short, what value does the blue ocean strategy have for independent publishers? Most important, it’s a wakeup call: In a stagnant, possibly shrinking, market, we cannot afford to publish only the same kinds of titles for the same kinds of readers, manufactured and promoted in the same way and distributed through the same channels.

We cannot afford to assume that the people who have always wanted our books will continue to want them, or be able to afford them. In fact, one of the key points of the blue ocean strategy is that we can’t afford to assume anything. We must look at who doesn’t buy our books, determine why, and try to develop new products that will attract new customers and increase purchases by existing customers too.

Linda Carlson writes for the Independent from Seattle, where she spent 10 years publishing job-search guides for a market that eventually migrated to a blue ocean innovation, the Internet.

About the Oceans

Popularized in a bestselling book, workshops, consulting, case studies, and reviews of all these, the “blue ocean” concept is based on the theory that the market is composed of two types of oceans: red and blue, as the Harvard Business Press explains.

Authors W. Chan Kim and Renee Mauborgne describe “red oceans” as all the industries, companies, and products that now exist, which are increasingly characterized by intense competition. This cutthroat competition results in a bloody red ocean of rivals fighting over a shrinking profit pool.

Lasting success, the authors argue, comes from creating “blue oceans”—untapped, and thus uncontested, new markets. Such strategic moves, which the authors call “value innovation,” create value so significant that rivals may need more than a decade to catch up.

For more information, see Harvard Business Press (harvardbusinessonline.hbsp.harvard.edu) and Blue Ocean Strategy (blueoceanstrategy.com).

 

 

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