Blue Ocean Strategy – Air Asia Innovation & Blue Ocean strategy targeted non customers

Air Asia did not target the traditional customers of Airlines and did not compete with the strong local player Malaysian Airlines but it focused on the multiethnic population of Malaysia that included Chinese, Indian, Indonesian, Thai, etc. who never traveled or cannot afford the airline fare. Basically traditional airlines never focused on these set of customers, Air Asia founder Tony Fernandes saw a potentially untapped and uncontested market space in this category in South East Asia. There were Southwest Airlines in United States and Ryan Air in Europe that operated on similar low cost model that were hugely successful. Tony Fernandes took over a struggling airline and turned it into a highly profitable brand. The customer segment that Air Asia targeted was first time flyers, middle class flyers, students, laborers going home for vacation and other highly price sensitive customers. Air Asia created a value innovation propositions to the customers by focusing on factors that are of great value to the customers such as point-to-point travel system, easy booking system, no frills, destinations where traditional airlines did not fly, etc. which ultimately aided Air Asia to reduce cost and increase the value to the customers. Air Asia is no frills airline that follows a quick turnaround model and offers low fares to customers. Air Asia grew at a fast pace with good profitability and ventured into other businesses like hotels, etc. Branding is also key to Air Asia’s success – along with its low cost operations.

Air Asia operated to destinations like Bandung, Angkor Wat, Chiang Mai and other small city destinations where no other airlines flew and it not only transported tourists, first time flyers but also the laborers who go home for vacation for whom time is a very critical factor. Most of the Air Asia customers do not need luxury airport lounges or seats in airplanes, food or attendant services as these flights are short haul most of them for only one hour. By eliminating all these services and through highly efficient online ticket booking system without any agent’s involvement Air Asia is able to offer low fares and more frequent flights to high demand locations lead to huge profitability to the company. The frequency of the flights is achieved by short turnaround time. The Air Asia group's philosophy is to make sure the route is profitable within 12 months. If it's not, it will not operate the route. Every subsidiary airline within Air Asia group tailors its operations according to its own individual needs unlike a traditional network carrier. In an interview to INSEAD Knowledge, Tony Fernandes said “What does the market want? Nine times out of 10, when you go for what the market wants, it’s something that’s different. That’s why invariably everything we’ve done is kind of Blue Ocean, except for Air Asia X (Air Asia’s new long-haul operations) which is completely Blue Ocean. But we weren’t the first to invent low-cost travel, we weren’t the first to invent a low-cost hotel. We’ve taken it to another level, but we’ve been a bit Japanese in taking it, and adapting it, and making it better for our part of the world.” This comment shows that attitude of Tony Fernandes who believes that businesses need to constantly innovate and try to create blue oceans that not only bring value to customers but also profitable to the companies.  Air Asia has rewritten the boundaries of aviation industry in the South & South East Asia by creating a new user segment in the industry.

Blue Ocean Strategy – Starbucks Mobile Payments Application, Loyalty Rewards Program & Pre-orders

Starbucks redefined highly competitive coffee shop business and successfully created an uncontested market by turning the simple coffee drinking experience into a way of life experience by drastically redefining the coffee shop environment by adding music, Wi-Fi, relaxed seating and luxurious interiors. Till Starbucks disrupted the traditional coffee shop market most of the focus was on the price, location and quality of coffee shops. Starbucks innovative value proposition includes wide variety of mostly coffee based menu along with other types of drinks that catered to wide range of audience who are willing to pay top buck for the luxurious and relaxed interiors that are perfect environment for socializing with friends and relax. Another important aspect that Starbucks focused was on the quality of customer service with an exclusive aim of maximum customer delight and they meticulously recruited and trained the best talent in the industry that has added huge value to their brand reputation.

Starbucks successfully created an aspirational brand that created highly loyal and delighted customers who repeatedly come to Starbucks for the unique experience it is offering. W. Chan Kim, co-author of the book Blue Ocean Strategy, in an interview with SHRM.org said Starbucks combined the Mom & Pop Coffee shop with the comfort of a modern five star hotel lobby which is the most suitable environment for relaxing and socializing with friends. While it is true that Starbucks sells coffee, “what they are really selling is atmosphere,” he said. By changing the atmosphere in which coffee is sold, Starbucks created an uncontested market and made the competition irrelevant, he said. Starbucks “created and captured new demand,” he said.

For years Starbucks has been successfully maintaining its dominant position in the coffee shop market despite the market becoming the red ocean which is highly competitive with many players offering similar product and service offering of Starbucks. In order to hold onto its competitive advantage and create new value proposition for its customers Starbucks has started to focus on the use of information technology, mobility and particularly social media. One such innovative value proposition by Starbucks is the Mobile Payments Application. Starbucks launched its mobile card app in 16 stores in early 2009 and after customer’s adoption increased, Starbucks expanded it countrywide in United States and the mobile app allowed customers to pay by displaying a barcode that will be scanned in the store.

Starbucks mobile payments system is hugely successful based on the fact that 6 million average weekly transactions worth US$ 1.5 billion in the U.S that accounts for a full 15% of transactions made at the U.S. Starbucks-operated stores despite the fact many digital wallet service providers are struggling, according to BI Intelligence. The innovative mobile app has digital tipping options, dashboard showing the current reward or loyalty points level, points available with current transaction, pick of the week coffee, recent transactions and messages. The App can also integrate with social media sites like Facebook, Twitter, etc. where customers can proudly show case their reward level milestones with their friends and family. This will further add up to their brand reputation and brand loyalty. By simply shaking the phone customers can choose the barcode of the coffee drink they want to buy and pay accordingly. The app itself is modelled on the social media site interface where customers can see their regular purchases of Starbucks coffee and rewards points in a feed-style history and timeline.

Starbucks’ disruptive mobile strategy integrated its highly successful loyalty program called My Starbucks Rewards with payments by customers. Starbucks further incentivizes the customers who habitually buy and pay through mobile app and more reward points are awarded that are redeemed for free drinks and food. The app's success is not due to the ease of payment with a phone compared to cash or debit or credit card but the fact the customer can see the incentives and rewards he is going to get that will further increase his loyalty with Starbucks. In a way Starbucks is locking the customer for near future. Starbucks loyalty program was diligently crafted over the years and it has been the best in the coffee shop industry or any other industry.

With more than 12 million active users in United States and Canada, Starbucks have added one more new feature where customers can preorder their coffee using the mobile app and pick up the coffee later. A prime example of this is our forthcoming mobile order and pay initiative that will allow customers to use their phones and MSR (My Starbucks Rewards) accounts to order ahead of arriving at a store where we plan to pilot in a major U.S. market later this year," said Howard Schultz, Starbucks CEO. Customers wanted this functionality of preorder through mobile for the past few years, particularly since the mobile based cab hailing service Uber huge success.  Starbucks is able to offer this service right now as the company feels its technology and in-store operations are well equipped to handle such requests. Starbucks is also expanding the number of drive through express service outlets that are best suited for preorder system. Starbucks is also talking to partners and other businesses like retail outlets that will also allow the customers to use their mobile application payment system, rewards system and loyalty programs in non-Starbucks outlets.

Through its mobile payment system Starbucks eliminated the need to carry cash, coin change issues, tipping problems, reduced the time spent on ordering and making coffee, understanding the menu and coffee types, offers and rewards available, raised the customer delight, loyalty and rewards, number of visits, new customers and created a new revenue source for the company, helped in acquiring new customers and also created a uncontested space in the digital wallet market. The Eliminate Raise Reduce and Create gird and value proposition proves the fact that Starbucks is successfully defending its blue ocean market and using strategy to maintain its competitive advantage and dominant position in the industry. Starbucks is one Blue Ocean Strategy Book example company that is still maintaining the market dominant position through innovation and disruptive technologies. 

Blue Ocean Strategy – Dropbox disruptive Cloud based file hosting Service

Dropbox is a file hosting service that lets users store photos, docs, and videos from anywhere, from any device like desktop, mobile, etc. and share them easily. Other services apart from cloud storage that the company offers is file synchronization, personal cloud, and client software. Dropbox uses a freemium business model, where users are offered a free account with a set storage size of 2 GB initially and paid subscriptions for accounts with more capacity. Dropbox was founded in 2007 by Drew Houston and Arash Ferdowsi and funded by Sequoia Capital, Accel Partners, and Amidzad. Prior to advent of Dropbox, there were many different ways of storing, moving, carrying and sharing files and data like the hard disk, USB drives, Compact Disks, tapes and even there were websites that compressed and reduced file sizes. Specific websites existed for storing and sharing photos, documents, videos and other content types. Dropbox with its technology and business model has eliminated the need for the users to rely on different websites and technologies for storing and sharing data and content. Dropbox has become critical application for many smartphone, computer and tablet users that allows efficient and effective sharing and storage of data and also proved the fact that users are willing to pay price for this type of offering. Dropbox has more than 300 million users and there is huge speculation in terms of company valuation ranging between US$ 5 – 10 billion.

Dropbox is a blue ocean strategy example where in it created a new market for the cloud based personal storage space for the users and later the company moved beyond personal users and started offering enterprise business offerings. A unique value proposition that is initially based on freemium model with limited storage space and users can increase the storage space by simply purchasing online. Dropbox eliminated the need to have a backup drive, it is maintenance free as it is cloud computing based offering and above all very easy to share and store the content. The reliability of the service in terms of privacy of content, storage security and data safety are some of the other major advantages. The rise in the sales of smartphones and tablets also contributed to the growth of Dropbox as these devices come with low storage capacity and users generally have huge content in terms of music, movies, photos, videos and documents. As the ease of creating content increases, users tend to create more content and they need to have access to storage that is not only safe and secure but also be easily accessible from multiple devices and easily share with others. This justifies the company valuation between US$ 5 – 10 billion.

Dropbox has a large user base with good brand reputation and recall but the company is also facing tough competition from competitors like Box and Google Drive that also offer similar offerings and competitors like Google who offer even more product offerings are very tough to beat. Dropbox needs to further enhance their offerings and need to innovate new features and capabilities to survive in the highly competitive market. With its disruptive offering, Dropbox has created a new market which is now highly competitive Red Ocean and it needs to find a new blue ocean strategy to survive for long time. 

Blue Ocean Strategy – Airbnb – Social Networking Marketplace for Room renting & sharing – Collaborative Consumption

Airbnb is a web site or social networking market place that allows host to list a spare room, apartment, house, tree house or even a private island; and a guest to rent that accommodation. Airbnb business model is also termed as “collaborative consumption” or “Share economy” where people become both consumer and producers. Collaborative consumption is a new economic model that revolves around sharing, where resource consumption is done collectively rather than individually, thereby maximizing efficiency. Founded in 2008, Airbnb connects renters and travelers from around the world at any price point. With more than 500,000 listings in 192 countries and 34,000 cities, it has provided lodging for over 11 million guests. Airbnb blue ocean strategy is based on process innovation as the company does not own any properties but provides the customers and sellers a platform through which they can service one another. Traditionally people relied on lodging facilities like hotels, hostels, bed and breakfasts or couch surfing websites which are mostly preferred by young backpackers looking to party in cities around the world. Airbnb created an uncontested marketplace where in they are providing the best suitable accommodations to their users at the best possible price.

Airbnb is a website for people to rent out lodging where in users of the site must register and create a personal online profile before using the site. Every property is associated with a host whose profile includes recommendations by other users, reviews by previous guests, as well as a response rating and private messaging system. Disruptive Airbnb created not only a new market place but also created new sources of supply and relying on curation for developing quality. In the early stages, the business model is based on volume, as companies seek to get as many new people on the platform as possible. In the case of AirBNB, they make money as an intermediary between the two parties, the travelers and the locals, taking a percentage from both sides:6-12% booking fee (traveler) and 3% successful booking fee (local). It’s free to list your room or your home on the website. The traveller pays AirBnB when the owner agrees on the booking request. The owner gets paid 24 hours after the check in of the guest via AirBnB system. AirBnB also marks up the price loaded by the host and the lister receives 90% of the sales commission, and the renter receives unique, cost-appropriate lodging in locations around the world.

Airbnb’s blue ocean strategy can be analysed using the ERRC grid wherein business model eliminated the hassles of booking hotel rooms, quality of service, locations, excess cost, etc.,, reduced the costs for customers, inconvenience of finding the best suitable place, etc. raised the customer satisfaction levels, raised revenues for listers and hosts and finally created a new uncontested market space based on market place model using the social networking sites and collaborative consumerism. Customers significantly benefit form Airbnb both in terms of costs and also find a place in a most preferred and suitable location. Airbnb offers many locations in any place with innovative experiences. Airbnb users are not limited by the traditional concept of a hotel; they can choose where they want to stay and what they want to experience. Airbnb represents the innovation in the hospitality industry that attracted the family, business and young travelers and an alternative to hotels in saturated markets especially for events.

Another important aspect is that Airbnb created new sources of supply for hospitality and hotel industry that never existed before where travelers have access to an inventory of travel accommodation composed of the houses of people living in the cities. Initially these new sources of supply were inferior and less sophisticated compared to the established hotel industry in terms service quality and pricing. As the supply on these platforms evolved over time Airbnb started competing directly with established competitors. As the platform found greater adoption among consumers, it attracted mainstream producers as well. Airbnb hosts have faced many problems related to local laws, tenants causing damages to properties, illegal drug & sex parties, service conformance and denial issues, etc. Airbnb is making attempts to reduce the risks people by offering to reimburse $1 million worth of property damage. It doesn’t promise to remove risk entirely. Overall Airbnb business model is a unique model that is hugely successful and created an innovative new market space that is advantageous to travelers, hosts and even mainstream hotel industry is also adopting similar model.

Blue Ocean Strategy – Uber (Ridesharing Service) - Disruptive Cab Booking Service

Uber is a ridesharing service that connect passengers with taxi drivers through its own smartphone application and Uber App also allows customers not only to request or book rides but also track their reserved vehicle's location. Uber is headquartered in San Francisco, California, United States and its services are available in 42 countries and more than 200 cities worldwide. Uber's business model and innovative pricing looks pretty much similar to metered taxis, but unlike the regular cab companies all hiring and payment is handled exclusively by Uber through its website or smartphone App and if it is individual drivers they also receive the booking and payments from Uber nothing from customers not even tips are needed. Innovative Billing where in the customers are charged on distance basis only if the Uber car is travelling at a speed greater than 11 mph (18 km/h) or else the price is calculated on a time basis and the customers are charged to their credit card a complete fare that includes distance basis and time basis at the end of a ride. Uber has said its high prices are the premium that the customers pay for a cab service that is not only reliable, but also punctual and comfortable.

Uber’s Blue Ocean Strategy can be analyzed using the ERRC Grid where in the company eliminated the hassles of booking taxi, paying the driver exactly or change problems, tipping issues, arguments & denial of services, reduced the problems of drivers too along with customers by matching the rides and Uber just takes 20% or less from total fare and rest goes to drivers, drastically raised the customer service levels and comfort levels and created a new market by using the latest technologies and devices . Even though the services are premium customers were so satisfied and happy the company clocked revenues of US$ 750 million in 2013 and expected to cross $1 billion in revenues in 2014. Uber created a new market which in initial stages was uncontested market space but in the growth stage competitors flooded the market but most of the competitors are irrelevant to Uber as the company is not only dominating the market but also fast expanding across the globe. In India the company has expanded into 10 cities with its flagship line Uber Blacks, premium cab service and priced 25-40% lower than Uber Blacks, UberX claims to be cheaper than even a radio cab with a base fare of Rs 50 and per km charges in the Rs 14-15 range. UberX is already present in Bangalore, Delhi and Hyderabad with future launch in Chennai, Mumbai and Pune.

Ryan Graves, head of global operations at Uber, in an interview with Times of India said that UberX was growing "incredibly faster" compared to the more expensive Black service across cities where both options were present. "UberX is accessible to a much larger population because it's affordable," he said. Graves said when Uber makes a price cut, that means drivers are making more money as more trips are done. "It helps the health of the market as riders are happier, there are more drivers on the system and we become a dependable alternative versus being used on special occasions. Uber is classical Blue Ocean Strategy example where in the company tried to differentiate itself from the regular cab companies and in turn developed low cost business model that generates good revenues for drivers and company. Founded in 2009 in San Francisco by Travis Kalanick and Garrett Camp with a seed capital of $200,000 and company received funding of US$258 million from Google Ventures in 2013 and US$ 50 million in funding from other small investors.

Uber does not project itself as luxury car service but as reliable car service and the company is facing not only facing tough competition from its competitors like Lyft, Hailo, etc. globally and even in India also from local App based cab booking services like Ola Cabs, Taxi For Sure, etc. but also facing many regulatory hurdles in different countries and complaints from the local cab service and taxi players. In India it is facing problems in terms of RBI regulations related to payment mechanisms like in India there has to be payment verification process which is a multi-step process. Uber payment process is credit card based and single click without verification process. Despite all these the company is valued at close to US$ 3.5 billion dollars and is expected to continue its growth globally. Uber is one of the best recent Blue Ocean Strategy examples I have found.

Source of Business Model Picture: Contributed by Aswath Damodaran, Professor Stern School of Business, New York University to Forbes.com