Fast changing consumer desires, the growing population of business organizations, and market opportunities that continuously change push these firms to come up with the best of the bests marketing strategy. We are now living a in a borderless dimension, though the visible dimension is still kicking and alive, e-business is no doubt, more patronized by both consumers and sellers today. Anything can happen with this limitless market. Despite certain safe and security issues it brings, people are still doing electronic business, simply because it makes things a lot easier, way more convenient and economical than the traditional way. Because of this increasing number of firms online, intense competition is also rising among them. So what do you think is the best marketing strategy to adapt to, so to be on the top of the chart, as far as electronic business is concerned? The competitive one that dominates existing markets or the innovative strategy that looks for opportunities to create new markets? Exciting, eh? I know. So let’s get down to business.
Let’s focus on two of the business-world’s trending marketing strategies for electronic market space today- Blue Ocean vs. Porter’s Five Forces Strategy.
Porter’s Five Forces Strategy
Porter’s Five Forces is a very competitive marketing strategy. It views long-term competition as the main concern that business people should be dealing with. This is what they consider as the main challenge in the business today. In this context, even if firms adopt significantly innovative strategies that will lead to better performance, the advantages brought by this competitive strategy will only be temporary, because in the long run, this will surely be imitated and improved by other firms, which then creates another competition. In the competitive strategy framework, avoiding competition has something to do with a resource based view of the firm (Penrose, 1959) where unique resources limit imitation and create a sustainable competitive advantage and enhance profits (Barney, 1991, Amit and Schoemaker, 1993, and Peteraf, 1993). It is not surprising if other firms try to imitate what was once a unique resource. Since electronic business is a borderless dimension, change in market opportunities constantly occur, unless a firm keeps on acquiring new unique resources, and new sustainable competitive advantages. Furthermore, the faster this imitative process happens, the faster and more intensely firms find themselves in a situation leading to reduced profits. Porter (1980, 1985) argues that this process happens quickly. In fact, it is sufficiently fast that the main concern of strategic management ought to be survival and winning inter-firm competition. Put differently, innovation can offer temporary solution, but in the long-term imitation forces firms to engage in and win competitions with close rivals.
Here is Porter’s Five Forces Framework
(Source: 2011 – 2013 tmg-strategy-facilitation.com.au)
One has to defend against or take control (if possible) over these market forces to succeed in this borderless dimension of electronic business. So, take all these things into consideration and expect that in the long run there will be a negative relationship among the number of firms in an industry and the profit levels. Basically that is one fundamental effect of the Five Forces. The more competing firms in e-business, then the lower the profitability of the market. Although profitability declines with competition, it still serves as a gateway to fulfilling an entrepreneurial role in bringing innovation. If it takes about a longer period for an industry to push an innovation’s profits back down to a very basic level, then that means that the profit gains from innovation, in an existing market, are a lot more than previously expected. This means that companies should pay close attention to their existing markets when looking for opportunities for innovation. So, as the number of firms has come into the market, the market has expanded, drawing in more consumer expenditure.
Blue Ocean Strategy
Blue Ocean is a strategy of innovation in new market space where competition does not exist. It is a great way to mobilize thinking around new differentiators (value creation). By identifying untapped (or at least less tapped) product markets where unique buyer segments and needs can be identified and satisfied, Blue Ocean Strategy results to lesser or zero competition. Therefore, a firm’s profitability doesn’t have to be negatively related to the increasing number of firms in its industry, for these firms can multiply their profits without competition through new markets. Just like Starbucks and Dell which are blue ocean’s enthusiasts, are just some of the successful firms which hold into uncontested territory, attracting new customers into the market. In contrast to Porter’s Five Forces, the main strategic concern of firms is not managing competition but managing innovation, once barriers to imitation are put up and if firms continue to find uncontested markets or create new consumer demand through innovation.
Here is Blue Ocean’s Four Actions Framework
(Source: 2011 – 2013 tmg-strategy-facilitation.com.au)
This Four Actions Framework helps identify both low value current differentiators and new, previously leveraged differentiators. A combination of these will help create new value that may appeal to current customer demand especially to new customers into the market. So in determining the different effects of the two strategies in both short and long-term, something popped in my mind, “What if these two strategies are combined?” If Blue Ocean strategy dominates in the short-term while Porter’s Five Forces dominates in the long-term such that profits are positively related to the number of firms in the short-term but negatively related in the long-term, that would imply that innovation by new firms generates short-term competitive advantage with associated higher profits but through imitation and simultaneous competition the long-term effect of an increased number of firms would result to lesser profitability. But if Porter’s Five Forces Strategy dominates in the short-term with Blue Oceans emerging in the long-term, this would show a scenario where innovation driven strategies take time to bear fruits, could be because of inherent commercialization time delay – so that in the short-term more firms compete over a given market but in the long run ‘value innovation’ will create new markets so that a positive relationship between the number of firms and average profits per firm exists.
What I am trying to point out is that if businesses want to consider a blend of the two approaches, then by slowing down profit erosion with an effective competitive strategy (Porter’s Five Forces) for an existing market, this would multiply the funds available for Blue Ocean investments as well as their chances of finding an untapped market with plenty of consumers.
So why not combine the two trending marketing strategies? After all, inventing is a combination of brains and materials. The more brains you use, the less material you need.
Tata! 🙂
Sources:
TMG Strategy Facilitation. Traditional Five Forces plays Blue Ocean in Strategy Stakes. (2010, November). Available from http://tmg-strategy-facilitation.com.au.
Amit, R, Schoemaker, PJH. 1993. Strategic Assets and Organizational Rent, Strategic Management Journal, 14, 33-46.
Barney, J. 1991. Firm Resources and Sustained Competitive Advantage, Journal of Management, 17, 99-120.
Penrose, E. 1959. The Theory of the Growth of the Firm, London: Basil Blackwell.
Peteraf, MA. 1993. The Cornerstones of Competitive Advantage: A Resource-based View, Strategic Management Journal, 14, 179-191.
Porter, ME. 1980. Competitive Strategy, New York: Free Press.
Porter, ME. 1985. Competitive Advantage, New York: Free Press.
E-Commerce & Internet Marketing 