What are the challenges of the Blue Ocean strategy?

This was the main question that Melissa Kwan, the CEO and Co-Founder of eWebinar, covered in her talk at this year’s Product Drive Summit hosted by Userpilot.

Melissa shares her experiences of launching and growing innovative products in new markets and the lessons she learned from them.

Let’s get right into it!

Summary of Blue Ocean strategy with Melissa Kwan

• Blue Ocean is a business strategy where a company brings innovative products to new markets with no competition.
• In contrast, the Red Ocean strategy focuses on saturated markets with lots of established competitors.
• The lack of competitors in Blue Ocean may indicate that the idea isn’t viable.
• Having no competition isn’t ideal because you have to do all the market validation and education work yourself.
• Blue Ocean marketing is challenging because users are often unaware that they have a problem your product solves.
• As you can’t compare your product to others, you don’t know how much you can charge. Also, there’s no ROI data available, so you have to sell on emotions. This is difficult when companies have no budget allocated for such solutions.
• The Red Ocean strategy comes with its own challenges. It’s difficult to compete against well-established products in highly saturated markets.
• As an alternative to the Blue Ocean strategy, Melissa recommends the Purple Ocean approach.
• In Purple Ocean, you take a validated product idea and implement it in a new market where no similar products are used.
• To stand a chance, the product needs to have a 10x feature – one that’s worth switching for.
• Instead of going through the product discovery from scratch, research the market and existing competitors. Then use the insights, to build the product and start monetizing it ASAP.
• Userpilot is a product adoption platform with product analytics, feedback, and user onboarding features. If you’d like to learn how it can help you drive product growth regardless of which strategy you choose, book the demo!

What is the Blue Ocean Strategy?

The Blue Ocean strategy is a business approach that focuses on new markets with little or no competition.

Companies that use this strategy develop disruptively innovative products and create demand for them.

Blue Ocean Strategy vs. Red Ocean Strategy

The Red Ocean strategy is an alternative to the Blue Ocean approach.

Instead of seeking new and uncontested growth avenues, red ocean companies compete with each other for a share of overcrowded markets.

They do it by either developing better products and providing a unique user experience or offering more competitive pricing.

Misconceptions about the Blue Ocean strategy

There are a number of misconceptions about the Blue Ocean strategy which can result in failed product initiatives.

Nobody else has ever thought about it before

One of the key misconceptions is that nobody else has come across their brilliant idea before.

This is a very naive approach.

What’s more likely is that others have decided against pursuing a similar idea because it wasn’t feasible. That’s how you can usually explain a lack of similar products in the market.

No competition is amazing

Start-ups that choose the Blue Ocean strategy often think that being the only player in the market means they have the entire market to themselves.

However, the lack of competition may be a red flag – others may have already tried and failed in the market.

What’s more, no competition means that the burden of educating the market falls solely on your shoulders.

Everyone will find me because I’m the only one

Another common misconception is that customers will naturally gravitate towards your product if it’s the only available solution in the market.

The thing is that if you’re offering something entirely new, people might not even be searching for it. This means they can’t rely on search engine optimization (SEO) to bring in organic traffic.

Consequently, you need to put in a lot more effort to bring the product to the attention of prospective users.

Being first to market makes me the industry leader

Lots of people seem to think that if you’re the first to introduce a product or service, you’ll set the industry standard and be viewed as the leader.

But how can you be a leader if there’s nobody else around offering a similar product?

The reality is that being first means having to break the trail. And once you do this, somebody else can swoop in, capitalize on your hard work, and steal the prime spot.

No competition means less effort

The final misconception is that without competitors you won’t have to work as hard to stand out or differentiate.

In reality, however, the absence of competitors means you have to work harder to prove the value of what you’re offering. You’re not just selling a product but an entirely new concept.

Blue Ocean strategy challenges

Melissa identifies a number of challenges that come with the Blue Ocean strategy.

Lack of market education

When you’re introducing a novel product or service, you’re not just selling that product—you’re educating the market about its very existence and value.

This has two main consequences.

The first one is that going blue can be very resource-intensive. Market education requires a significant investment in marketing efforts.

Longer sales cycles

The second consequence is that the sales cycle can be considerably longer for blue ocean companies.

Why so?

Because you’re not simply trying to convince customers to choose you over competitors. You’re convincing them they need this new kind of product or service in the first place.

No price comparison

Another challenge of the blue ocean strategy is pricing.

As there are no similar products, you don’t know how much you can charge for yours. You could determine your price based on the effort that’s required to build and maintain it, but how are you going to persuade your users it’s worth the money?

The result is that you may never be able to charge for your product as much as you could if there were competitors available.

No data to sell on

One way to convince your prospective customers that it’s worth investing in your product would be to show them the potential ROI.

Here’s the catch though: there’s no data on how much money they could save or earn thanks to your product because nobody has so far.

What’s the alternative?

You can try to sell the product on emotions. You could persuade your users that the product will give the company more prestige. Few businesses, however, make purchase decisions based purely on emotions.

We couldn’t sell on ROI. We could only sell on emotions… This makes your branding look good, makes your company look good. This makes you look more luxurious… When you sell on emotions, you can never get the highest price because you’re not selling on math.

Fighting to be in your buyer’s budget

Another challenge of selling blue ocean products is that companies haven’t budgeted for them.

As they’ve never paid for a similar product, they’d have to divert some of their funds from other tools or initiatives to buy it. This may be a big ask.

Finding product market fit

Finding the product-market fit is the ultimate challenge in blue ocean markets.

Melissa has found that even once her companies secured enough customers to make the businesses profitable, they never felt like they achieved PMF:

…we never felt like we found product market fit in the sense that people never just got it right. When I reached out to someone, they knew what we were selling, but they never just fully understood the ROI. Every single conversation, we had to explain to them why they should invest in it.

How to overcome the challenges

How do you overcome such obstacles? Here’s what Melissa recommends.

Focus on quality, not quantity

The key to success in blue ocean markets is providing an excellent product that will be indispensable to people once they realize its value.

We really just kept focusing on delivering an exceptional product that customers couldn’t live without… We just kept focusing on quality over quantity and making sure that we always built the best product that customers, once they signed on, couldn’t live without…

Partner up with established companies

Another way to increase product awareness and visibility is through partnerships with more established companies.

For SaaS products, this could be in the form of integrations with existing products. In this way, you leverage their reputation and marketing channels to promote your own product.

Build trust and credibility

According to Melisa, to break through in new markets and significantly increase product visibility and awareness is by delivering top-notch customer experience day in, and day out.

We really just hustled our butts off… and we showed up for our customers. We were always there for support… were always first to answer… we just won over one customer at a time by letting them know that they could trust us over anything else. And that if they partnered with us, that we wouldn’t let them down.

Be the second mover

Being the second mover allows you to capitalize on the opportunities of blue ocean markets but is way easier than being the first mover.

Think about it: instead of spending a lot of money and effort on validating an idea that might never work and educating the market, you use the work done by others.

All you have to do is learn from their research, experiences, and mistakes and build a better product.

Is Red Ocean any easier?

If the blue ocean strategy doesn’t look like something for your SaaS, you may be considering the red ocean strategy instead. However, this can be equally if not more challenging.

For starters, the market is very saturated and it may be difficult to carve out a niche for yourself.

What’s more, entering a market dominated by well-established companies can be truly intimidating, especially as their products are often so much better than yours.

What about the Purple Ocean strategy?

As an alternative to the blue ocean and red ocean strategies, Melissa recommends the Purple Ocean strategy.

How does it work?

Basically, the Purple Ocean strategy is a hybrid of the two. You take a proven business model and introduce it into an untouched market or vertical.

That’s what Melissa did in her 3rd start-up – eWebinar.

eWebinar is a B2B product that allows companies to automate the delivery of sales demos, webinars, training, and onboarding.

How did she do it?

Find a successful product to improve

The first step is to identify a product idea that has already been validated.

In the case of eWebinar, this was easy as Melisa had experienced the pain points of existing solutions herself in the previous company.

As she was responsible for delivering sales demos and webinars herself, she knew there was a demand for such products and a gap in the market.

Find the 10x feature

Achieving feature parity with established products isn’t feasible for new companies.

It doesn’t mean you cannot disrupt them.

One way to do it is by developing a 10x feature.

10x feature is a term coined by Jason Lemkin to describe a feature for which companies would be ready to switch to another product.

For eWebinar, this was a robust chat system that allowed participants to communicate in real-time or by email.

Build the product

Once you identify the 10x feature, build the product – without talking to customers.

This could be counterintuitive as we’re constantly told that we need to involve the customers in product discovery and iterative development.

However, this isn’t necessary because all the data you might need is already there. After researching the market and existing products, you don’t need to experiment anymore.

This approach worked a treat for eWebinar. The team was able to convert 80% of the trials into paid customers as soon as the product launched.

The challenges of the Purple Ocean strategy

As there are a lot of people already paying for similar products, it’s possible to avoid a lot of the obstacles of the Blue Ocean.

To start with, you know how much you can charge for the products because there are similar solutions around.

What’s more, they don’t have to fight to be in the budget as there are already other companies validating the product.

However, as you’re entering a new market, the odds are that your target customers have never seen such a product. This means educating customers still requires a fair bit of effort.

Questions to ask before adopting a Blue Ocean strategy

Despite all the challenges that Blue Ocean brings, don’t dismiss it as a valid strategy. Many companies manage to pull it off and it’s often them that drive progress. Just think of Uber or Airbnb!

However, before you dive into the unknown of the Blue Ocean, consider a few questions:

• Why isn’t someone doing this? Is it because it’s not a good product or a business?
• How much time will it take to make the first few sales and then get to meaningful revenue?
• How much money will it take to sustain until then and how do I get that capital?
• Am I prepared for most people to reject me at first?
• Do I have what it takes to change the world?

Conclusion

The Blue Ocean strategy requires substantial resources to educate the market and make them realize the value of the product. Despite its numerous challenges, companies like Uber have successfully used it to drive innovation and challenge the status quo.

However, if you’re not ready to take on the world, why not try the Purple Ocean strategy and bring already-validated ideas to new markets?

If you’d like to see how Userpilot can help you educate your customers, book the demo!