I’ve spoken about Blue Ocean markets before, but for the uninitiated, the term comes from the book Blue Ocean Strategy. The core story of the book is that businesses spend a great deal of time competing over the same market share. Over time, this drives prices down, and makes competing harder and harder. Instead, organisations should seek blue oceans, markets void of competition, as a way to grow, innovate, and help as many customers as possible.
- What are the 3 Tiers of non-customers
- Why they matter
- How to identify a blue ocean market for your business
But this is easier said than done. So how does one find a blue ocean they can pursue?
Authors W. Chan Kim and Renée Mauborgne created what they call the three tiers of non-customers. Most organisations focus on growing market share by expanding their customer base, and retaining as many customers as possible. But there is another way.
There are 3 tiers of non-customers. Companies who take the time to fully understand these markets and learn how to unlock them can convert their pains, problems and needs into thriving markets that none of your competition are addressing — because they don’t even consider them customers.
Let’s take Uber as an example. When it launched, Uber’s focus was on ordering black limousines and hire cars for rich people. On the edges of that market were millions of customers who never used black hire-cars, because it was only for rich people and business executives. But by understanding why those non-customers objected, Uber was able to bring some of them into the product — they found a blue ocean. So they made a cheaper version to replace cabs, which brought in the cab market. Uber simply sailed to a place where there were no other boats.
Then, by making an even cheaper version (Uber Pool) to capture users who didn’t mind sharing cabs, as long as it was really cheap. This brought in millions of younger customers who would have thought of on-demand car transport as a lavish expense.
The first tier of non-customers is the closest of the bunch. They sit just on the periphery. They might purchase the service, but are outside of the market for most of the time. They don’t really spend a great deal of time talking about the product, or even needing it, but once in a blue moon they may come across a need and purchase something.
I, for instance, am not a house-painter. But I do have a closet full of house painting equipment from the one time I decided to paint our entire house. I don’t stay up to speed on the latest house painting trends, I don’t really know what new products are coming out, and I don’t really want to know either — it’s not something that I anticipate coming up again anytime soon. But that’s not to say if something didn’t come along that made me rethink that paradigm, I couldn’t be brought back into the market. I am a non-customer for the paint industry, but maybe some new innovation could twist my arm and turn me into a house painting enthusiast?
The second tier is customers who straight up refuse to use an industry offering. They’ve seen the product, they know what it is, but they refuse all the same. If I think about myself here I know there are lots of great cars on the market today, but I refuse to buy one. I simply don’t use a car enough, and when I do, I’ll usually take a car rental, a GoGet, or just use an Uber. For me, they just offer more of what i’m looking for, access over ownership.
The third and final, far away tier is those who have unexplored the market. This group is full of users who have simply never considered the market’s offering as an option. One area I see this a bit is with on-demand car ownership services like GoGet. The service is great. It costs nothing to be a member. The cars are on the street, and if you want to take one, you simply log onto the website, book it for how long you want it, and thats it. You walk over, swipe your card on the dashboard of the car, and drive it away.
What I find interesting about this product is that although it is very popular in the inner city, when I talk to those who live further out in Victorias Suburbs, they could never imagine using that product — most have never even heard of it, or thought to use something like that.
On those occasions when I’ve explained how it works, you can see it’s a real change of mindset.
Capturing the blue ocean
By finding what is common across all three tiers, businesses can identify ways of bringing those users into your product or service. You might invent a single product or service for each group, or a single idea that all three might find appealing.
The hard part is obviously, what could you invent that brings those customers in? This of course is the million (in some cases, billion) dollar question.