Porter’s Five Forces Model, provided by Michael Porter, is an external environmental analysis tool for a specific market. This model emphasizes that in any existing industry, there are five competition forces: threat of new entrants, power of suppliers, power of customers, threat of substitute products, and intensity of competitive rivalry. In addition, these five forces can influence and determine the profitability of the enterprise. Using the five forces model, one can analyze the industry attractiveness and the level of competition, which can then help the company to develop the business strategy. In the real world, strategic analysis and strategy formulations are important for company to gain the profitability. For example, IKEA focuses on operating efficiently and developing new product continuously for their business strategies.
Also, the Five Forces Model has helped IKEA to maintain its low cost and obtain the huge profitability in the furniture industry over the years. The Blue Ocean Strategy takes the view that innovation, innovation that creates new market space, taps into unsatisfied consumer demand that finds uncontested market space in the hope of finding a blue ocean. A blue ocean exists where no firms currently operate, leaving the company to expand without competition.
The core strategy is the value innovation, which means that the company should create new demand and make the competition irrelevant. In short, the company needs to pursue unique product or service differentiation and low cost simultaneously, in order to capture the untapped market. Moreover, it is significant to create new value that can rebuild the buyer value elements and capture new demand. As the number of firms that come into the market, the market is actually expanded, and they are filling an entrepreneurial role in bringing innovation into the market. In pioneering new markets, it is often the followers that cash in. Eg. Microsoft in relation to the computer interface, iTunes in relation to portable music.
These companies were followers and employed adaptive innovation in terms of these new markets.
Most of the firms are innovating in incremental stages. The type of innovation that you have to look at is doesn’t have to be the big, radical, revolutionary type of innovation. It is more incremental & adaptive. The aim is grow demand and pull in new and non-customers into the industry. You stop competing and create products and services and offerings that have no alternative from the buyer’s point of view. In the real world, people usually are not interested in repeated experience. For example, Cirque de Soleil created a brand-new circus performance by reconstructing market boundaries, focusing on the whole situation, and reaching beyond existing demand.
A one time accordion player, stilt walker, and fire-eater, Guy Laliberte is the founder of Cirque Du Soleil, one of Canada’s largest cultural exports. Created in 1984 by a group of 20 street performers, Cirque Du Soleil has achieved a level of revenues that took Ringling Brothers and Barnum & Bailey (the Global Champion of the circus industry) over 100 years to attain. Cirque du Soleil is now a major Quebec-based organization providing high-quality artistic entertainment. The company has close to 4,000 employees, including 1,300 performing artists from close to 50 different countries. Cirque du Soleil has brought wonder and delight to close to 150 million spectators in more than 300 cities in over forty countries on six continents.
Cirque du Soleil’s Blue Ocean Strategy
Cirque du Soleil’s success did not come from taking customers from the already shrinking and structurally unattractive circus industry, which historically catered to children. There was also rising sentiment, fueled by animal rights groups, against the use of animals, traditionally an integral part of the circus. Cirque du Soleil did not compete with Ringling Bros. and Barnum & Bailey. Instead it created uncontested new market space that made the competition irrelevant.
It pulled in a whole new group of customers who were traditionally noncustomers of the industry—adults and corporate clients who had turned to theater, opera, or ballet and were, therefore, prepared to pay several times more than the price of a conventional circus ticket for an unprecedented entertainment experience. Significantly, one of the first Cirque productions was titled “We Reinvent the Circus.” Cirque offered the best of both circus and theater. By eliminating many of the most expensive elements of the circus, it was able to dramatically reduce its cost structure, achieving both differentiation and low cost. How did Cirque du Soleil create new value? They addressed each of the value creation factors:
Cirque du Soleil had followed the Blue Ocean Logic: Create a quantum leap in buyer value and this will dominate the market. Their Blue Ocean Strategy was a success.