Avoiding red ocean situation in business

In the Nigerian business environment, herd mentality holds sway. Once a company pursues a line of business and seems to record a measure of success in the endeavour, many organizations make a detour from their core businesses and head in that direction.

Eateries, following the huge success recorded by Mr. Biggs, have become commonplace in the country. Almost every corner of all the major cities is littered with a couple and, in most cases, the offerings are indistinguishable, neither are the services. There is even a similitude in the conduct and carriage of the personnel. In reality, a visit to one eatery is as good as a visit to all eateries because one is largely a replica of the rest.

The hit recorded by De United Foods Industries Limited in the noodles business with its Indomie turned out to be a beckon on other companies to contest with it for space in the industry. At the last count, there are 18 companies producing noodles in Nigeria. Saddening though, these noodles brands are not distinct one from another. In most cases, they are patterned after the pioneer; they are all of the same packaging, size, colour and flavours. Hence, some consumers refer to all noodles as Indomie.

With the stride made by Konga, online marketing has become one of the latest attractions of every budding entrepreneur. Every organization with a measure of internet technology skills has suddenly become an online store, offering to sell all sorts of items from cooking utensils to cars and houses.

The herd mentality is not just an issue with startups; it is a bug that has bitten even multinationals. Many of the multinationals in the country produce table water; UACN bottles Gossy, Nestle sells Life, Dana has its own brand and so do Nigerian Bottling Company, Seven Up and a host of others.

The country now swarms with all kinds of alcoholic bitters produced by breweries and distilleries following the phenomenal achievements of Alomo Bitters, which enjoys strong patronage from a section of the drinking public. All the bitters brands parade the same offering; a blend of alcohol, herbs and roots.

The trend is not different in the banking sector. If a bank introduces a particular product, before long others try to do the same. If a bank opens a branch in an area and it seems to be doing well, others buy properties in the area and open their own branches. Hence, the banks flaunt virtually the same services and are concentrated in the same axis. In addition, at the moment, almost every bank in the country runs a pensions company, an insurance outfit as well as its own registrar.

In the media industry, the trend is not different. Most newspapers in the country publish the same type of stories and the electronic stations are not really distinguishable one from another.

In the Nigerian business community, following the trend is preferred to blazing the trail.

 

Danger of herd mentality

Herd mentality is injurious to the well being of the companies and the economy as a whole because rather than new entrants increasing the space and consequently swelling demand, they compete for existing customers with those already operating in the industry. In the process, the industry becomes saturated with the effect that many of the operators are only able to realize a fraction of their potential. The consequence of replication of same products and services under different brand names is the congestion of the operational space and the attendant diminution of players’ profits. As a result, many of the industries in the country parade marginal players. Competition, instead of engendering quality improvement for the benefit of consumers, usually results in a lowering of the standards in the industry because a number of those who join the industry are not motivated by the need to up the ante or improve the quality; they are lured into the business by the perceived profitability of the venture.

 

Blue Ocean Strategy

  1. Chan Kim and Renee Mauborgne, in their work titled Blue Ocean Strategy, published by the Harvard Business Review, argue that in this type of stifling operational environment, “Companies try to outperform their rivals in order to grab a greater share of existing demand. As the space gets more and more crowded, prospects for profits and growth are reduced. Products turn into commodity and increasing competition turns the water bloody.”

They add that “As brands become similar, people increasingly base purchase choices on price. People no longer insist on a particular brand… In overcrowded industries, differentiating brands becomes harder both in economic upturns and in downturns.”

 

Increasing participants, shrinking growth

There are many sectors in the Nigerian economy where players offer indistinguishable products and services. The failure of operators to create new value puts a lid on the expansion of the market and precipitates a glut. The inability of new entrants to bring new products always foists stagnation on an industry because demand remains unchanged despite an increase in the number of service providers or product manufacturers. As new players who are not creating new values get into the industry, the space for each of the operators begins to shrink. Consequently, profit is threatened, new opportunities are few and far between and real value is denied the people and the economy. The likelihood of this engendering underhand dealings is high as operators fight tooth and nail to regain lost customers or stave off the competition so as to stay afloat. This is what turns the space bloody. Not only that, the stifling nature of the environment kills creativity.

 

Head-to-head competition

The effect of an overcrowded industry with shrinking value is head-to-head competition. Head-to-head competition is where a company does not stop at merely seeking to do better than its opponents but goes ahead to prevent the competition from performing well. Since this is usually industry-wide, each organization tries to outsmart and outfox the other. So, operators make value-cost trade-off as a result of oversaturation of the market and this results in a red ocean.

According to Kim and Mauborgne, “Competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space.”

The bottom line, therefore, is that instead of getting glued to an industry experiencing a glut, the right option for a forward looking company is to identify an uncontested territory where it can function even in the same industry.

 

Creating new opportunities

A new entrant, rather than struggling for space in an already crowded industry by trying to snatch customers of existing players in the sector, should endeavour to create new market for itself by bringing to the table hitherto unknown products and services. That is what Konga did when it introduced online stores in the country. Its plan was to sell but it chose to sell through unconventional means; it chose to sell without operating physical shops or malls. That is what Globacom did with its per second billing and Glo Xchange. Glo would have been a laggard, and not a leader it is today in telecoms, if it had just toed the line of its forbears in the industry. Instead of the founders of Twitter coming up with their own version of Facebook, they introduced an entirely new product. With that, they avoided being involved in cut-throat competition and created their own ‘world.’ So, a new entrant into an industry, or even a veteran, will do well to create its own ‘world’ to avoid being asphyxiated by stifling competition.

 

Thinking out of the box

Consider this: About 60 per cent of the intravenous fluids used in Nigeria is imported. The import of this is that there is a huge gap that Nigerian companies can fill in that segment of the market. Therefore, the multinationals that are struggling for a slice in the already saturated table water market would have done themselves, as well as the economy, a world of good had they chosen to invest in the production of intravenous fluid. The technology is similar and the market is ready. In addition to that, the country would have been able to save a lot of resources and generate thousands of employment opportunities had they opted for this instead of treading the beaten path of table water production. All of that is lost now because the companies were only looking in one direction. By their action, they have turned that industry into a red ocean, where stiff competition is the order of the day and companies go for one another’s jugular in order to hold firmly to their shares of the market. Had they chosen to invest in the production of intravenous fluid, they would have created their own blue ocean.

Another scenario and still on the table water-producing multinationals. In other climes, there are all sorts of table water; distilled, de-ionized, sparkling and mineral. In hotels and functions, people are requested to choose the kind of water they prefer. Given that the multinationals cater to the elite class, would they not have done better if they had veered into the production of other categories of table water such as distilled and sparkling instead of repeating what others had done? If they had opted for this, they would have been offering premium service and, as always, premium service attracts premium recompense.

One more scenario. Instead of 18 companies deploying human and material resources to the production of noodles, they should have looked for alternatives to noodles (there are many) in which they could have invested so as to create for themselves a new territory. If they had done that, they would have developed a new market and would have been able to grow a crop of new customers. The effect is that the very hostile atmosphere in the noodles industry would have been avoided.

 

Avoiding the bug of red oceans

Organisations can avoid getting caught in the red ocean trap by doing the following.

 

Challenge the status quo

The major hindrance to breaking new ground is failure to challenge the status quo. Most Nigerians companies are averse to adventure; they have phobia for trying new things. Hence, they choose to do what others have tried and succeeded at. Creating new markets requires trying new things. It was believed in the 1990s that telephone was meant for just the rich and not the poor. But that paradigm was shattered when the poor were tried with telephone. Who could have thought that so many Nigerians would be hooked on telephone two and a half decades ago? When the status quo is challenged, new frontiers are discovered. Companies should regularly subject their beliefs to scrutiny.

 

Invest in Research and Development

Inadequate research impedes the emergence of new markets. Many business decisions are not hinged on sound research findings. Granted that now, many companies have their own research and development (R&D) department but the fact is that people see things as they (the people) are, not as things are. In-house people are sometimes swayed by what they consider to be the body language of management. So, their research findings are often a poor reflection of the true situation. As counseled by Richard Branson, Chairman of Virgin Group, for an ongoing concern, relying solely on the advice of in-house people to veer into a new line of business may be misguided; it is always better to consider the informed position of experts, especially independent researchers from outside the organization.

 

Dump competition, pursue distinction

Flowing with the crowd can obstruct the creation of new opportunities. Oftentimes, companies feel left out if they don’t do what others in the industry are doing. If UACN and Nestle are into table water production, why shouldn’t Nigerian Bottling Company and Seven Up? If Bank A offers a service why shouldn’t Bank Z? Right? Not exactly because oftentimes businesses succeed not because they do what others do but despite refusing to toe the line others have taken. For companies that will grow, dumping competition for distinction is sine qua non. To achieve this, they often have to shun what others are doing and find their own path. To avoid being lost in the crowd, a company has to act differently from the herd. A company that makes it a practice to occasionally turn away from the crowd will be open to a new horizon blurred to the rest.

 

Blaze the trail, savour the gains

Is it really possible to have an uncontested market given that success in a line will readily pull others? Not exactly. However, pioneers have an advantage that others rarely get. They usually cover so much ground in the first few years of operation that those who come later find difficult to match. That is the edge that Indomie has in the industry. Despite the influx of others into the noodles business, it still controls about 70 per cent of the market. That is also the advantage of Alomo Bitters, the huge resources that competing multinationals have to deploy have not dented its market share. That is the reward for blazing the trail.

 

Last line

Opportunities for greatness are missed when the obvious is made the focus.

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