1. Please analyze how to potentially avoid Red Ocean Traps using a hotel, retail, restaurant, healthcare, or entrepreneurship example.

Using a fast food example, how would they avoid each of the five red ocean traps as in the article.

TRAP ONE

Seeing Market-Creating Strategies as Customer-Oriented Approaches Generating new demand is at the heart of market- creating strategies. It hinges on converting non- customers into customers, as Salesforce.com did with its on-demand CRM software, which opened up a new market space by winning over small and midsize firms that had previously rejected CRM enterprise software.

The trouble is that managers, especially those in marketing, have been quite reasonably brought up to believe that the customer is king. Its all too easy for them to assume, therefore, that market-creating strategies are customer led, which causes them to re exclusively stick to their focus on existing customers and how to make them happier.

This approach, however, is unlikely to create new markets. To do that, an organization needs to turn its focus to noncustomers and why they refuse to patronize an industrys offering. Noncustomers, not customers, hold the greatest insight into the points of pain and intimidation that limit the boundary of an industry. A focus on existing customers, by contrast, tends to drive organizations to come up with better solutions for them than what competitors currently o erbut keeps companies moored in red oceans.

Consider Sonys launch of the Portable Reader System (PRS) in 2006. The companys aim was to unlock a new market space in books by opening the e-reader market to a wide customer base. To gure out how to realize that goal, it looked to the experi- ence of existing e-reader customers, who were dissat- is ed with the size and poor display quality of current products. Sonys response was a thin, lightweight de- vice with an easy-to-read screen. Despite the medias praise and happier customers, the PRS lost out to Amazons Kindle because it failed to attract the mass of noncustomers whose main reason for rejecting e-readers was the shortage of worthwhile books, not the size and the display of the devices. Without a rich choice of titles and an easy way to download them, the noncustomers stuck to print books.

Amazon understood this when it launched the Kindle in 2007, offering more than four times the number of e-titles available from the PRS and mak- ing them easily downloadable over Wi-Fi. Within six hours of their release, Kindles sold out, as print book customers rapidly became e-reader custom- ers as well. Though Sony has since exited e-readers, the Kindle grew the industry from around a mere 2% of total book buyers in 2008 to 28% in 2014. It now o ers more than 2.5 million e-titles.

TRAP TWO

Treating Market-Creating Strategies as Niche Strategies The eld of marketing has placed great emphasis on using ever ner market segmentation to identify and capture niche markets. Though niche strategies can often be very e ective, uncovering a niche in an ex- isting space is not the same thing as identifying a new market space.

Consider Song, an airline launched in 2003 by Delta. Deltas aim was to create a new market space in low-cost carriers by targeting a distinct segment of i- ers. It decided to focus on stylish professional women travelers, a segment it gured had needs and prefer- ences di erent from those of the businessmen and other passengers most airlines targeted. No airline had ever been built around this group. After many focus group discussions with upwardly mobile and professional women, Delta came up with a plan to cater to them with organic food, custom cocktails, a variety of entertainment choices, free in- ight work- outs with complementary exercise bands, and crew members dressed in Kate Spade. The strategy was intended to ll a gap in the market. It may well have done that successfully, but the segment proved too small to be sustainable despite competitive pricing. Song ew its last ight in April 2006, just 36 months after its launch.

Successful market-creating strategies dont fo- cus on a finer segmentation. More often, they deseg- ment markets by identifying key commonalities across buyer groups that could help generate broader demand. Pret A Manger, a British food chain, looked across three di erent prepared-lunch buyer groups: restaurant-going professionals, fast food customers, and the brown bag set. Although there were plenty of di erences across these groups, there were three key commonalities: All of them wanted a lunch that was fresh and healthful, wanted it fast, and wanted it at a reasonable price. That insight helped Pret A Manger see how it could unlock and aggregate untapped de- mand across those groups to create a commercially compelling new market. Its concept was to offer restaurant-quality sandwiches made fresh every day from high-end ingredients, preparing them at a speed even greater than that of fast food, and deliv- ering that experience in a sleek setting at reasonable prices. Today, nearly 30 years on, Pret A Manger con- tinues to enjoy robust pro table growth in the new market space it established.

TRAP THREE

Confusing Technology Innovation with Market-Creating Strategies R&D and technology innovation are widely recog- nized as key drivers of market development and in- dustry growth. Its understandable, therefore, that managers might assume that they are also key drivers in the discovery of new markets. But the reality is that market creation is not inevitably about technological innovation. Yellow Tail opened a new market (in its case, for a fun and simple wine for everyone) with- out any bleeding-edge technologies. So did the chain Starbucks and the performing arts company Cirque du Soleil. Even when technology is heavily in- volved, as it was with market creators Salesforce.com, Intuits Quicken, or Uber, it is not the reason that new o erings are successful. Such products and services succeed because they are so simple to use, fun, and productive that people fall in love with them. The technology that enables them essentially disappears from buyers minds.

Consider the Segway Personal Transporter, which was launched in 2001. Was it a technology innova- tion? Sure. It was the worlds rst self-balancing hu- man transporter, and it worked well. Lean forward and you go forward; lean back and you go back. This engineering marvel was one of the most-talked- about technology innovations of its time. But most people were unwilling to pay up to $5,000 for a prod- uct that posed di culties in use and convenience: Where could you park it? How would you take it with you in a car? Where could you use itsidewalks or roads? Could you take it on a bus or a train? Although the Segway was expected to reach breakeven just six months after its launch, sales fell way below initial predictions, and the company was sold in 2009. Not everyone was surprised. At the time of the products release, a prescient Time magazine article about Dean Kamen, Segways inventor, struck a cautionary note: One of the hardest truths for any technologist to hear is that success or failure in business is rarely determined by the quality of the technology.

Value innovation, not technology innovation, is what launches commercially compelling new mar- kets. Successful new products or services open mar- ket spaces by o ering a leap in productivity, simplic- ity, ease of use, convenience, fun, or environmental friendliness. But when companies mistakenly as- sume that market creation hinges on breakthrough technologies, their organizations tend to push for products or services that are too out there, too complicated, or, like the Segway, lacking a necessary ecosystem. In fact, many technology innovations fail to create new markets even if they win the company accolades and their developers scienti c prizes.

TRAP FOUR

Equating Creative Destruction with Market Creation Joseph Schumpeters theory of creative destruction lies at the heart of innovation economics. Creative destruction occurs when an invention disrupts a market by displacing an earlier technology or existing product or service. Digital photography, for example, wiped out the photographic lm industry, becoming the new norm. In Schumpeters framework, the old is incessantly destroyed and replaced by the new.

But does market creation always involve destruc- tion? The answer is no. It also involves nondestruc- tive creation, wherein new demand is created with- out displacing existing products or services. Take Viagra, which established a new market in lifestyle drugs. Did Viagra make any earlier technology or ex- isting product or service obsolete? No. It unlocked new demand by o ering for the rst time a real solu- tion to a major problem experienced by many men in their personal relationships. Grameen Banks cre- ation of the micro nance industry is another exam- ple. Many market-creating moves are nondestructive, because they o er solutions where none previously existed. Weve also seen this happen with the social networking and crowdfunding industries. And even when a certain amount of destruction is involved in market creation, nondestructive creation is often a larger element than you might think. Nintendos Wii game player, for example, complemented more than replaced existing game systems, because it attracted younger children and older adults who hadnt previously played video games.

Con ating market creation with creative destruc- tion not only limits an organizations set of opportu- nities but also sets o resistance to market-creating strategies. People in established companies typically dont like the notion of creative destruction or disrup- tion because it may threaten their current status and jobs. As a result, managers often undermine their companys market-creating e orts by starving them of resources, allocating undue overhead costs to the initiatives, or not cooperating with the people work- ing on them. Its critical for market creators to head this danger o early by clarifying that their project is at least as much about nondestructive creation as it is about disruption.

TRAP FIVE

Equating Market-Creating Strategies with Differentiation In a competitive industry companies tend to choose their position on what economists call the produc- tivity frontier, the range of value-cost trade-offs that are available given the structure and norms of the industry. Di erentiation is the strategic position on this frontier in which a company stands out from competitors by providing premium value; the trade- o is usually higher costs to the company and higher prices for customers. Weve found that many man- agers assume that market creation is the same thing.

In reality, a market-creating move breaks the value-cost trade-off. It is about pursuing differen- tiation and low cost simultaneously. Are Yellow Tail and Salesforce.com di erentiated from other play- ers? You bet. But are Yellow Tail and Salesforce.com also low cost? Yes again. A market-creating move is a both-and, not an either-or, strategy. Its impor- tant to realize this difference, because when com- panies mistakenly assume that market creation is synonymous with di erentiation, they often focus on what to improve or create to stand apart and pay scant heed to what they can eliminate or reduce to simultaneously achieve low cost. As a result, they may inadvertently become premium competitors in an existing industry space rather than discover a new market space of their own. Take BMW, which set out to establish a new mar- ket in urban transport with its launch of the C1 in

2000. Tra c problems in European cities are severe, and people waste many hours commuting by car there, so BMW wanted to develop a vehicle people could use to beat rush-hour congestion. The C1 was a two-wheeled scooter targeting the premium end of the market. Unlike other scooters, it had a roof and a full windshield with wipers. BMW also invested heavily in safety. The C1 held drivers in place with a four-point seat-belt system and protected them with an aluminum roll cage, two shoulder-height roll bars, and a crumple zone around the front wheel.

With all these extra features, the C1 was expen- sive to build, and its price ranged from $7,000 to $10,000far more than the $3,000 to $5,000 that typical scooters fetched. Although the C1 succeeded in di erentiating itself within the scooter industry, it did not create the new market space in transportation BMW had hoped for. In the summer of 2003, BMW announced it was stopping production because the C1 hadnt met sales expectations.

TRAP SIX

Equating Market-Creating Strategies with Low-Cost Strategies This trap, in which managers assume that they can create a new market solely by driving down costs, is the obvious ip side of trap ve. When organizations see market-creating strategies as synonymous with low-cost strategies alone, they focus on what to elim- inate and reduce in current o erings and largely ig- nore what they should improve or create to increase the o erings value.

Ouya is a video-game console maker that fell into this trap. When the company began selling its prod- ucts, in June 2013, big players like Sony, Microsoft, and Nintendo were o ering consoles connected to TV screens and controllers that provided a high- quality gaming experience, for prices ranging from $199 to $419. With no low-cost console available, many people would play video games either on handheld devices or on TV screens connected to mobile devices via inexpensive cables.

An attempt to create a market space between high-end consoles and mobile handhelds, the $99 Ouya was introduced as a low-cost open-source

microconsole offering reasonable quality on TV screens and most games free to try. Although people admired the inexpensive, simple device, Ouya didnt have the rich catalog of quality games, 3-D intensity, great graphics, and processing speed that traditional

gamers prized but the company had to some extent sacri ced to drop cost and price. At the same time, Ouya lacked the distinctive advantage of mobile handheld devicesnamely, their play-on-the-go functionality. In the absence of those features, poten- tial gamers had no compelling reason to buy Ouyas. The company is now shopping itself to acquirerson the basis of its sta s talent more than the strength of its console businessbut as yet hasnt found one.

Our point, again, is that a market-creating strat- egy takes a both-and approach: It pursues both di erentiation and low cost. In this framework, new market space is created not by pricing against the competition within an industry but by pricing against substitutes and alternatives that noncustomers are currently using. Accordingly, a new market does not have to be created at the low end of an industry. Instead it can be created at the high end, as Cirque du Soleil did in circus entertainment, Starbucks did in co ee, and Dyson did in vacuum cleaners.

Even when companies create new markets at the low end, the o erings also are clearly di erentiated in the eyes of buyers. Consider Southwest Airlines and Swatch. Southwest stands out for its friendly, fast, ground-transportation-in-the-air feel, while stylish, fun designs make Swatches a fashion state- ment. Both companies offerings are perceived as both di erentiated and low cost.