A Car for the Great Multitude
A Case Study in Blue Ocean Strategy
At the end of the nineteenth century, the automobile industry was small and unattractive. More than 500 automakers in America competed in turning out handmade luxury cars that cost around $1,500 and were enormously unpopular with all but the very rich. Anticar activists tore up roads, ringed parked cars with barbed wire, and organized boycotts of car-driving businessmen and politicians. Woodrow Wilson caught the spirit of the times when he said in 1906 that “nothing has spread socialistic feeling more than the automobile.” He called it “a picture of the arrogance of wealth.”
Instead of trying to beat the competition and steal a share of existing demand from other automakers, [Henry] Ford reconstructed the industry boundaries of cars and horse-drawn carriages to create a blue ocean. At the time, horse-drawn carriages were the primary means of local transportation across America. The carriage had two distinct advantages:
- Horses could easily negotiate the bumps and mud that stymied cars — especially in rain and snow — on the nation’s ubiquitous dirt roads.
- And horses and carriages were much easier to maintain than the luxurious autos of the time, which frequently broke down, requiring expert repairmen who were expensive and in short supply.
It was Henry Ford’s understanding of these advantages that showed him how he could break away from the competition and unlock enormous untapped demand.
Ford called the Model T the car “for the great multitude, constructed of the best materials.” The Ford Motor company made the competition irrelevant. Instead of creating fashionable, customized cars for the weekends in the countryside, a luxury few could justify, Ford built a car that, like the horse-drawn carriage, was for everyday use. The Model T came in just one color, black, and there were few optional extras. It was reliable and durable, designed to travel effortlessly over dirt roads in rain, snow, or sunshine. It was easy to use and fix. People could learn to drive it in a day. Ford went outside the industry for a price point, looking at horse-drawn carriages ($400), not other autos.
In 1908, the first Model T cost $850; in 1909, the price dropped to $609, and by 1924 it was down to $290. In this way, Ford converted buyers of horse-drawn carriages into car buyers. Sales of the Model T boomed. Ford’s market share surged from 9% in 1908 to 61% in 1921, and by 1923, a majority of American households had a car.
Even as Ford offered the mass of buyers a leap in value, the company also achieved the lowest cost structure in the industry. By keeping cars highly standardized with limited options and interchangeable parts, Ford was able to scrap the prevailing manufacturing system in which cars were constructed by skilled craftsmen who swarmed around on workstation and built a car piece by piece from start to finish. Ford’s revolutionary assembly line replaced craftsmen with unskilled laborers, each of whom worked quickly and efficiently on one small task. This allowed the Ford Motor company to make a car in just four days — 21 days was the industry norm — creating huge cost savings.
(Excerpt from “Blue Ocean Strategy” by W. Chan Kim & Renee Mauborgne)
The logic behind blue ocean strategy is counterintuitive:
- It’s not about technology innovation.
Blue oceans seldom result from technological innovation. Often, the underlying technology already exists — and blue ocean creators link it to what buyers value. Compaq, for example, used existing technologies to create its ProSignia server, which gave buyers twice the file and print capability of the minicomputer at one-third the price.
- You don’t have to venture into distant waters to create blue oceans.
Most blue oceans are created from within, not beyond, the red oceans of existing industries. Incumbents often create more blue oceans within their core businesses. Consider the megaplexes introduced by AMC — an established player in the movie-theater industry. Megaplexes provided movie-goers spectacular viewing experiences in stadium-size theater complexes at lower costs to theater owners.
To apply blue ocean strategic moves:
- Never use the competition as a benchmark.
Instead, make the competition irrelevant by creating a leap in value for both yourself and your customers. The Ford Motor Company did this with the Model T. Ford could have tried to best the fashionable, customized cars that wealthy people bought for the weekend jaunts in the countryside. Instead, it offered a car for everyday use that was far more affordable, durable, and easy to use and fix than rivals’ offerings. Model T sales boomed, and Ford’s market share surged from 9% in 1908 to 61% in 1921.
- Reduce your costs while also offering customers more value.
Cirque de Soleil omitted costly elements of the traditional circus, such as animal acts and aisle concessions. Its reduced cost structure enabled it to provide sophisticated elements from theater that appealed to adult audiences — such as themes, original scores, and enchanting sets, all of which change year to year. The added value lured adults who had not gone to a circus for years and enticed them to come back more frequently — thereby increasing revenues. By offering the best of circus and theater, Cirque created a market space that, as yet, has no name — and no equal.
About Jose L. Cruz:
Jose is the founder and managing director of Integrated Projects, a global building intelligence firm partnering with owners and operators to digitize, design and depict their commercial portfolio.