Product Positioning and the Blue Ocean for your Digital Business

If you’re creating a new digital business, rarely you don’t have competition. Most businesses already arrive in markets full of direct and indirect competitors, and the best-known business models are widely copied: products like ‘Uber for veterinarians’, ‘Marketplace for services’ and ‘Airbnb for offices’ are born every day. As if the fact of being in a market full of competitors were not enough, there is still another problem: your product is starting now, and it will compete with products that have been used for ten years and that are much more mature than you. Therefore, in this article, we will discuss some strategies that can help your digital business work in the market, despite the challenges.

Competing in the Digital Market

Let’s say you saw an opportunity in the market and decided to create a new delivery or transportation app.  You plan a Minimum Viable Product, and you intend to take this MVP to market, to find out about the acceptance of your product. However, when you look at your MVP, you compare it to the market leaders. You compare your delivery app with iFood or your transportation app with Uber. In this comparison, you get the feeling that you’re far behind. You’ve worked in an MVP for two or three months, and you don’t even have half of the leader’s features. How are we going to launch? Should we continue developing? Well, first you should know that this is not a realistic comparison. You can’t expect to enter the market, in a few months, and face a leader who started a journey years ago, received millions of dollars of investment, and has a team of hundreds of professionals. At the same time, you can’t get where they are if you don’t start your business somewhere. It’s time to remember why you made an MVP. The objective was to test whether your unique value proposition had market appeal. That is if you managed to create a product idea that can find customers, even though it is inferior to the leaders in several aspects such as features, time in the market, or brand relevance. Now you must be asking yourself: What do you mean by inferior? What do you mean by unique value proposition?

Creating an inferior product is also a strategy

Have you ever heard of the theory of disruptive innovation? It was proposed by Clayton Christensen in the 1990s. For the author, market-leading products tend to exceed the needs of some segments, while ignoring others, thus creating the space for new market entrants to create disruption. For example, iFood is likely leaving some type of restaurant unattended, and Uber certainly doesn’t serve all types of passengers. Furthermore, according to the Ambiguity Zone theory, when leading products reach a certain threshold, they are stuck in incremental improvements and are no longer able to create new things that truly innovate their offering to the market. For example, Uber and iFood release frequent updates, but we rarely see them revolutionize the business itself. Disruptive innovation is the process by which a smaller company with fewer resources can challenge established companies and businesses. The disruptor starts with a very specific focus on a slice or niche of the market that has a need not met by the leader – for example, a type of passenger who is unwilling or unable to use Uber for some reason. The disruptor will try out their solution in that specific niche, and since this was underserved, the product will be very well accepted even if it is generally inferior to the leading product. That is, for a niche that was not served, it does not matter if the product has all the features that the leader has, or if it has the same performance, what matters to users is that they finally have a product aligned with their profile. Another advantage is that being a smaller and simpler product allows it, in most cases, to be cheaper, so the product has two advantages at the same time: it serves a niche that was not served and it has an attractive price. In its niche, the product will start to earn revenue, and thus buy the time it needs to mature so that over time, disruptors can stand up to leaders in other niches, or even in the general market. Eventually, the disruptor’s offering can become so good, and so much more innovative than the leader’s incremental improvements, that people end up migrating to the disruptor product, effectively dethroning the leader.

Blue Ocean and Red Ocean

For Kim and Mauborgne, some markets are red oceans, and others that are blue. In red oceans, all competitors are fighting for the same customers and everyone ends up losing, as this competition leads to pressure to reduce prices and loss of profits, hence the analogy to “bleed”, coloring the ocean red. The blue ocean is where you swim freely, with more space and without constant battles with competitors. For the authors, some factors that help create a blue ocean include:

• Using data to create your digital business (data-driven);
• Finding a gap in the market, looking for overlooked profiles and public needs;
• Considering the functional and emotional motivations of your audience;
• Presenting differentiation and low cost at the same time;
• Maximizing opportunities and minimizing risks by experimenting and validating your business ideas as early as possible.

It is easy to see that the disruptive innovation discussed above is fully aligned with the idea of creating a blue ocean!

The Secret is in the Product Positioning

Competing in the red ocean is never a good idea, regardless of whether you are a large or small company, have a mature product or are still in the making, and have financial resources or not. To escape the open sea, your initial and main focus, the basis of all work on your product, is to position yourself in your market. Understand product positioning as the definition of your ocean. You have product positioning if you know:

• What is it you’re offering, in detail?
• Who are you specifically offering it to? Who will buy it and who will use it? and
• How is it different from competitors?

There is a crucial issue in the answer to these questions: they need to be specific. If I ask you about Nespresso, maybe your first answer is that it’s in the coffee market, and the audience is people who like coffee. Now put it in perspective: Nespresso and Nescafé are both in the coffee market but they don’t offer “coffee”. Each has a unique offer for a specific audience. It affects everything else: the product, the packaging, the brand, the communication, etc. If you don’t know how to answer these questions specifically and clearly, we can’t tell if you’re in the blue sea, the red sea, or in a kiddie pool full of rubber ducks. You are sailing aimlessly.

Defining the product positioning in a Blue Ocean strategy

 You need to first find an underserved niche, with a latent demand, that has a specific problem and think of a product that fits like a glove in that segment. When thinking about this product, you need to be clear about its uniqueness, its differentials to the competition, and the indirect solutions that the market offers. In addition, you can’t just trust your intuition or your reading of reality. It is necessary to test if the product really “fits like a glove” for that niche and problem that you focused on (product-market fit), which is why you will create an MVP. Remember this: you don’t create an MVP to get to market right away, or to use your product partially. The reason to create an MVP is to test your unique value proposition with early adopters in your niche. Surely, your MVP will be simple, and it’s normal for you to wonder how you’re going to take a product to the market that is inferior to the current leader but remember: your niche won’t see him as inferior. In this underserved niche, your MVP is already better than the other options on the market because it offers something that the leaders don’t. That’s what we call a unique value proposition! If you’re not embarrassed by the first version of your product, you’ve launched too late (Reid Hoffman). Also, remember that an MVP is not intended to be a great product that everyone will like. It is a temporary product, with which you will learn a few things from the first users. If the MVP demonstrates that your unique value proposition is interesting for this niche, you keep investing and evolving the product, either to make it more complete and with a better experience that can reach more users, or to gradually include other niches. In addition to testing your product positioning with an MVP, you’ll still have to think about how to communicate it. You need to be able to talk to your specific niche and make people see that your value proposition is consistent with that niche’s underserved needs. Therefore, MVP positioning and testing are subjects that involve both product and business strategy as well as product marketing.

What if my product positioning is inside the red ocean?

If you can’t define or choose a niche, nor can you find a specific problem that is being overlooked by competitors, you’re swimming in a red ocean. When your value proposition is not unique, you are competing directly with the leading products in your segment and you will need to invest much more to be able to enter the market and try to “steal” users for your product. It’s not impossible, but consider that this is a much more expensive path, both product-wise and marketing-wise. You will need to reach the market with a product that is compatible in terms of functionality and still invest a lot more in customer acquisition to convince users who are already used to a product to migrate to another that is similar. You will have to enumerate competitive differentials for users to convince themselves to make this migration. You will also have more difficulty finding people interested in investing in your business, as you cannot explain your differentiator, nor estimate what market share you intend to conquer.

How we help with your product positioning

Here at SoftDesign, we discuss product positioning strategically and with a product marketing bias during Product Conception. We bring market data and facilitate the process so that you can define the market positioning you want to test. With the Experimentation service, we help you test your unique value proposition and get an indication of whether it seems to have market acceptance. Finally, we help you develop your functional MVP, and launch and test it in the market, bringing you the information you will need to decide whether to persist or pivot the business. Come and talk to us about blue oceans and disruptive innovations!

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