In marketing, we are all told to clearly identify our ideal customer. We segment, differentiate and profile the people who we think are most likely to buy from us. Typically in any single industry, we have identified the same group of people as our competitors. That’s how it happens right? We all do the analysis and find the people who are buying what we sell – and then we start the process of differentiating.
According to the authors of Blue Ocean Strategy, there is another group that could potentially yield far greater returns – the non-customer.
The idea is that the same companies in any industry are fighting for the attention of an ever decreasing group of target customers. The competition becomes fierce and the margins start to fade away. But if we can find a market that is on the boundaries of our existing target – one that to-date has not been reached, then we can open up new markets for the business.
According to the book, there are three tiers of “non-customers”. The first tier consists of existing customers (or target audience) who are looking to leave the industry. The second tier consists of those who consciously decide against your products or service. The third tier contains people who are in “distant” markets.
(source Blue Ocean Strategy)
The “blue ocean” is an untapped market that has an opportunity for growth and higher levels of profitability. The existing, crowded market (aka the “red ocean”) is characterised by having a value-cost trade off that results in either high-value, high costs or low-value, reasonable costs. The “blue ocean” seeks an alternative to this and “breaks” this value-cost trade-off to achieve greater value and lower costs simultaneously.
The authors used Cirque du Soleil as an example of how success can be achieved by looking for “non customers”.
The circus industry consisted of two types – large, big name shows (such as Ringling Brothers) with high value and high cost; and small regional touring circuses that offered a less impressive show, but at a lower price. There were two major contributing factors to this dichotomy – the high costs of circus animals (40% of circus overheads) and “big name” talent.
Cirque du Soleil looked at the existing market and determined that they could eliminate the parts of the circus that were most expensive (animals, big name talent, etc) and improve on other elements that made a circus successful – acrobats, story, themes, show business, etc. They looked at other, related industries ( an important step in the process) to see what they can adapt to their own industry.
The success of Cirque du Soleil was not achieved by competing in the already crowded and shrinking circus industry but by creating a new market where the competition were absent. They broke the mindset and made the constraints of running a “traditional circus” irrelevant. The result was that they reached a completely new group of customers – beyond the family to adult and corporate customers – those who were prepared to pay a much higher price.
So if your getting tired of operating your business in a crowded and squezed market, start thinking more like Cirque du Soleil and to where your “non-customers” mind be found.