Business Strategies and Cost Leadership

Blue Ocean Strategy

The primary purpose of the Blue Ocean strategy established by Chan Kim and Renee Mauborgne is to allow a company of any size, whether small or large, is focused on creating a valuable space on the market, putting an emphasis on the bigger picture, reaching beyond the limits of the demand that exists, and making right strategic decisions. Since the current economy requires constant competition in any field of the market, the blue ocean strategy encourages companies to break free from the competition that strangles the opportunities and gets all the attention and time away from understanding how to offer value to prospective customers.

Many companies deem the structure of an industry a set framework that cannot be modified. The blue ocean strategy, on the contrary, shows how the strategy of an existing company can modify to create new spaces on the market. With the belief and persistent actions of players in the industry can reconstruct the limits and boundaries in the existing market (Kim & Mauborge, 2015, p. 14). Furthermore, the blue ocean strategy is targeted at combining analytics with the human aspect of the business. It underlines the essential importance of incorporating the mind of people with new strategies so that every employee goes beyond the compulsory execution of corporate tasks and put their maximum efforts into cooperation and achievement of a corporate goal.

Tesla Differentiation Strategy

Tesla Motors was established in 2003 in Palo Alto, California. The company was set up with the initial goal and commitment to developing fully-electric vehicles, unlike any others on the automotive market. The CEO of the company Elon Musk has been one of the main factors for driving success for Tesla Motors (Moonis, Manish, Nikhil & Harsh, n.d., p. 3).

Since innovation is the primary objective of Tesla Motors, giving value to the customer or differentiation is a strategy that is most applicable to the company. However, apart from giving value to customers, the blue ocean strategy also suggests pursuing low costs that can go along with the differentiation strategy. A company’s value innovation can be accomplished by combining the cost structure with the offered value to customers.

For example, the cost savings are successfully made when the company eliminates particular factors of industry competition. The customer value is achieved by creating new elements of the industry that never existed previously. Thus, better value innovation is being created over time with cost reduction as well as offering new elements for the company’s customers (Kim & Mauborge, 2015, p. 17).

A differentiation strategy implemented by Tesla is explained by the fact that the company’s customers are from the middle and upper levels of income. Thus, to fit this niche of customers, the company is focused on offering creative and luxurious electric cars that ensure top performance (Liu, Kang, Wu, Chen & Hon, 2014, p. 3).

It is commonly known that Tesla is often called the “Apple of automakers” because of the loyal customers that think forward and look for a reliable alternative in the world of vehicle production (Mangram, 2012, p. 11). Thus, branding is one of the aspects of the company that helps expand the existing market as well as uniquely differentiate its products so that customers are satisfied. Because Tesla is quite a new brand that has a lot to bring to the table, building its brand identity is vital for success and a sustainable competitive strategy. Nevertheless, despite the differentiation approach also used by Apple, Tesla Motors has gone through a long route development to achieve the same level of success.

Currently, Tesla is fully focused on implementing the differentiation strategy by offering a unique customer experience in terms of selling its products directly to end customers without taking the long route of the dealership. Within such a differentiation strategy, a client can make the vehicle customizable before even making a purchase. There are only fifty Tesla stores around the globe, and with complete control over the process of selling cars, Tesla can fully maintain the same levels of service in each location (Moonis, Manish, Nikhil & Harsh, n.d., p. 10). The maintenance of such customer service levels is an intangible advantage that rivals in the industry are not able to easily imitate. Furthermore, to imitate the customer experience model created by Tesla, competitors will have to pay significant costs.

The differentiation strategy implemented by Tesla significantly affects its competitive advantage of being able to use the existing technologies most efficiently and innovatively possible. The company has differentiated itself from the automotive industry rivals by making the revolution in the sphere of lithium batteries that are now able to sustain more charge thus ensuring longer operation time in comparison to hybrid cars. Furthermore, apart from the revolutionizing the batteries, the company has created a unique value chain ecosystem that offers significant value along with the end-user experience to their loyal and new customers (Moonis, Manish, Nikhil & Harsh, n.d., p. 8).

Since the blue ocean strategy advises to break free from the competition and offer the services and attributes rivals, have failed to offer to the market Tesla is catering to a niche market of customers that have been underserved by other companies. Instead of competing with low-end hybrid cars, Tesla began to manufacture luxurious vehicles that have become a breakthrough in the sphere of automotive engineering and manufacturing.

Nintendo Focus Strategy

For every company, there is always a question about how to align the process of strategic planning in a way to focus on a bigger picture and apply new ideas thus ending up with a blue ocean strategy. The question is hard to answer because compelling strategies are being articulated very rarely, executives are always occupied with muddle within the company, and employees have no idea what the company’s strategy is.

This is where the principle of focusing on the big picture and not the numbers comes in. This principle is instrumental in mitigating the risks linked to planning and implementing the strategy. Within the focus on the big picture, the company is not preparing a simple document that outlines the new strategy but creates a strategy canvas that can unlock the creativity of any employee within the company (Kim & Mauborge, 2015, p. 84).

The gaming industry has been stuck in a read ocean where the main focus is put on battling with a potential competitor. The blue ocean strategy, as mentioned before, focuses on creating new demand in areas where there is no demand thus expanding the market instead of fighting for a spot. With the launch of the Wii, Nintendo has taken significant steps toward the result of making gaming industry competition insignificant (O’Gorman, 2008, p. 97).

The following case of the Nintendo focus strategy will illustrate that if companies want to meet the demands as well as creating stable growth, it should learn from the non-customers. If Nintendo continued to compete with X-Box and PlayStation, it becomes marginalized in the market of video gaming. Instead of doing so, Nintendo has focused on getting insights from the niche non-gaming consumers to understand why they shy away from computer games. Once getting the insights from concerned parents, the elderly, and very young children, Nintendo has begun reconstruction of market elements to develop a gaming console that is simple, functional, and interactive. Furthermore, the company has understood the necessity of creating new games with high utility for the non-gamers (Chan, Mauborge & Hunter, 2015, para. 2).

The Nintendo Wii case shows that for the company to capture new slots on the market, it should redefine the existing problem and focus all attention on the sphere on the demand. Since there are far more non-customers than customers of a company, it should look far beyond the boundaries that exist and rebuild the value elements that relate to the supplier, market, customer, and industry barriers to establish new market positions with new levels of generated customer demand (Chan, Mauborge & Hunter, 2015, para. 3).

With the appearance of Nintendo Wii, the company has evaluated the past mistakes and decided to put some changes into its focus strategy:

  1. New customers. Because of the past mistake of only focusing on the young gamer audience, Nintendo has created a target to go beyond the regular target groups and cater to the new dimension of non-gaming customers. This change encouraged “people around the world to play video games regardless of their age, gender or cultural background” (O’Gorman, 2008, p. 100).
  2. Playability. The playability change in the strategy relates to the step away from the technological advances and focus on the user-oriented software. Thus, instead of pursuing better graphics, the company decided to provide a fun experience for the users without any burden of highly advanced innovations.
  3. New approach. Overall, Nintendo has re-entered the industry with its new focus strategy that offers a holistic approach toward video games. With Wii appearing on the shelves, gamers are now can play with their non-gaming family members or friends, not alone at night (a stereotypical perception of gamers until Wii) (O’Gorman, 2008, p. 101).

Southwest Airlines Cost Leadership

Southwest Airlines’ marketing strategy positions the company as a low-cost airline that provides a convenient and fun traveling experience. Since the very beginning of the company’s development, its advertisement was focused on making fun of the competition within the airline industry and putting an emphasis on convenience and low prices. The company began its development with putting forward the following notion: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares and make darn sure they have a good time doing it, people will fly your airline” (Low-cost Airline’s Strategy Model Analysis: Southwest Airlines, 2011, para. 3).

The impact of the company on their customers as well as competitors was called the “Southwest effect” as the airline was able to maintain low costs and avoid strict competition through focusing its primary expansion on secondary airports in large cities as well as airports in medium-sized cities (Singh, 2010, p. 1).

The pricing structure consisted of low fares for every seat in an airplane every day. This is the primary differentiating aspect for the company, as the low price on airplane tickets is something the public always wanted to have the freedom to fly as frequently as possible. Low prices are also important in a niche market of short-hauling travelers that have an alternative to ground transportation with the appearance of Southwest Airlines. Travelers associate low costs with the company thus contributing to the unarguable advantage on the market of air traveling (Kalita, 2009, p. 3).

Thus, the success of Southwest Airlines was established based on its signature combination of low costs, frequent flights, as well as quick expansion (Mouawad, 2010, para. 11). Through the means of introducing low fares along with persistent advertising, the company was able to start a market war on the market thus encouraging overall demand for lower prices on the market. The low fares offered by Southwest Airlines are often fifty percent less than existing fares offered by other airline companies and are also competitive with prices on bus tickets and driving costs. The cost leadership strategy offered the company to expand the overall demand and fill the gaps in the market by further expansion of the cities. The cost leadership strategy coincides with the blue ocean strategy principle of combining cost-effectiveness with offering value to potential clients that demand low prices on airplane travel.

References

Kalita, A. (2009). South West Airlines. Web.

Kim, C., & Mauborge, R. (2015). Blue Ocean Strategy. Boston, MA: Harvard Business Review Press. Web.

Kim, C., Mauborge, R., & Hunter, J. (2015). Nintendo Wii. Lessons Learned from Noncustomers. Web.

Liu, Y., Kang, Y., Wu, H., Chen, C., & Hon, E. (2014). Tesla Motors Inc. Case Synopsis. Web.

Low-cost Airline’s Strategy Model Analysis: Southwest Airlines. (2011). Web.

Mangram, M. (2012). The globalization of Tesla Motors: a strategic marketing plan analysis. Routledge, 20(4), 289-312. Web.

Moonis, A., Manish, A., Nikhil, R., & Harsh, S. (n.d.). Tesla Motors Inc. Competitive Position Analysis & Future Growth Strategy. Web.

Mouawad, J. (2010). Pushing 40, Southwest Is Still Playing the Rebel. Web.

O’Gorman, P. (2008). Wii: Creating a blue ocean the Nintendo way. Palermo Business Review, 10(2), 97-108. Web.

Singh, N. (2010). Cost Leadership Strategy at Southwest. Web.