Aurore

Blue Ocean Strategy:
UBER

Let’s use Uber to walkthrough the Blue Ocean Strategy tool and help us understand how they created a new, differentiated solution in the taxi and passenger transportation market.

What is a blue ocean strategy?

The goal of a blue ocean strategy is to differentiate in a highly competitive environment to create a new market, new buyer values, and new demand.

Essentially, blue ocean strategy uses (1) differentiation or (2) potential to lower cost to create a unique solution in a highly competitive market. That highly competitive market is a red ocean. The new market is a blue ocean.

In this framework, the first three steps help us determine the current competitive landscape, and the final two steps guide us to creating our blue ocean strategy.

Step One:
Buyer value Factors

What are buyer value factors?

Buyer Value Factors, also referred to as Buying Criteria, are the elements of a solution that a buyer considers when making their purchasing decision.

In the Blue Ocean framework, our first step is to identify the most important criteria to the buyer, then prioritize them on order of importance.

The list on the far right is a suggestion box to help you consider the wide range of buyer value factors.

Uber example:

In the taxi (passenger transportation) market, we determined the following as the most important factors for buying:

Trustworthiness (Safety), Reliability, Friendly service, Ability to reserve a ride, Easy to use, Expert drivers, and Luxury.

Step Two:
Market Performance

How well does the market perform on the buyer value factors?

After selecting the top four competitors in the market, evaluate their performance on the buyer value factors using the rubric to the right.

Uber example:

The Industry Performance score at the bottom shows the market tendencies. In this case, luxury and the call-ahead capability is not a priority for most of these companies, but trust and expert drivers have high marks.

As it stands, this data alone doesn’t tell us a whole lot. But, as we continue, we can combine this with other information to determine the buyer value factors that our company should compete on, and we’ll identify exactly which ones Uber decided to raise and which ones they decided to eliminate.

Spoiler: They abandoned expert drivers.

What is the average cost to execute?

The average cost to execute indicates how much it costs to execute and perform on a buyer value factor.

If the cost to execute is high, but the importance is low, we should consider reducing or eliminating that buyer value factor.

Uber example:

In the taxi (passenger transportation) market, we identified that luxury and expert drivers have the highest associated costs.

The Industry Performance Cost Score is a metric used to measure the value provided versus the costs required. A simple rule of thumb is that a score greater than 1 means that the value provided from that factor is less than it costs to perform and execute.

In this case, Luxury has high cost to execute and provides low value for the customer.

Step Three:
Relative Attractiveness

Why do we need to evaluate the ability to differentiate?

To create a blue ocean, we’re looking for two opportunities: (1) the ability to differentiate and (2) the potential to lower cost.

The most pivotal tactic of a blue ocean strategy is identifying the buyer value factors that can be differentiated on. We are trying to compete on uniqueness rather than attempt to out-perform the market.

Uber example:

The capability to reserve a ride has the highest ability to differentiate. It’s tricky to understand up close, but we can distill this idea down to it’s core: technology.  Whether it’s an answering service or an app, technology has the highest ability to differentiate among all of these factors.

how do we evaluate the potential to lower cost?

The goal of creating a blue ocean is not only to raise buyer values, but to reduce company cost.

Our objective here is to identify which of these factors has the long-term potential to reduce costs for our company.

 

Uber example:

The technology capability is once-again the number one in the category. Advancements in technology, don’t always equate to lowering costs, but in this market, the capability has the highest potential to lower costs.

The chart here couples the ability to differentiate data with the potential to lower cost data to provide a quick look at the Value-Cost Score. We’ll get into the details later, but note that Reserve a Ride is high on the upper-right quadrant and Expert Drivers are on the lower-left.

Step four:
Creating a blue ocean

Understanding the red ocean

The red bubbles highlight the current industry performance on each of the buyer value factors.

The VCS score on the bottom is a metric that indicates how easily it is to add value or lower company cost. A 1 is the best VCS score and correlates to high value added for low cost.

Uber example:

The red bubble are data points from the red ocean activities.

Uber’s goal is to determine which of these factors they want to perform at better than the competition, and more importantly, which factors they want to eliminate and create.

creating a blue ocean

We create a blue ocean by raising, reducing, creating, and eliminating buyer value factors.

Typically, we want to raise factors that add value to the customer for the lowest possible cost. Subsequently, we want to reduce or eliminate factors that don’t add much value relative to their high costs.

The VCS at the bottom provides a rank order of the best values.

 

Uber example:

Uber remains unchanged in the Trustworthiness and Reliability. The company raises it’s performance on Easy to use. Friendly service, and the Reserve a ride capability.

What you’ll notice is that they eliminated the Luxury and Expert drivers, which had the two lowest VCS’s, in order to maximize value.

Obviously, in Uber’s model, they didn’t simply replace expert drivers with inexperienced drivers, but it allowed them to think about passenger transportation without a need for an expert behind the wheel.

Additionally, they used the capability to reserve a ride as an advantage coupled with created factors, Driver Ratings and Ride Types, to utilize technology and give passengers more autonomy.

next steps:
Plan and execute

What's next?

This chart provides insights about the blue ocean strategy you chose. 

As we’ve learned, there is an associated cost and value shift with a blue ocean strategy, where the goal is to reduce cost and/or add value.

The next steps are to develop a strategic plan to actually raise, reduce, create, and eliminate factors. Analyze your current capabilities compared to the capabilities required to execute the strategy. If capabilities are lacking, determine how you can build, buy, or partner to support the new costs.

Uber example:

The total shift column highlights the benefits that Uber has in their blue ocean. For example, by eliminating expert drivers, they gained two points of value.

The numbers here are relative, and don’t equate to cash or market opportunity, but within the framework they are helpful indicators of whether the blue ocean strategy will be effective.

With a focus on ease of use and advancing technology, Uber recreated the passenger transport market and successfully built a ride-share platform in their own blue ocean.

0