Blue Ocean strategy captured the imagination of the for-profit world almost as soon as the book of the same name by W. Chan Kim and Rene Mauborgne was first published in 2005. An expanded edition was republished in 2015. The book offers a framework and set of tools designed to enable agencies to identify how to grow exponentially and innovatively. (To find out more about these tools and frameworks, see this download from my colleagues at =mc.) But its only in recent years that Blue Ocean strategy has been applied in the nonprofit and NGO world.
One aspect of Blue Ocean strategy is about creating new demand in an untested market space with a specific focus on non-customers. This is very different than Red Ocean strategy, where you compete head-to-head for customers in existing market space. This approach has led companies like Nintendo to sell games to grannies and for Australian wine companies to sell wine to beer drinkers.
Let’s consider the microcredit nonprofit Kiva. Kiva Microfunds was founded in October 2005 by Jessica Jackley and Matt Flannery in hopes of combating the problem of finding start-up funds by small local entrepreneurs in developing countries. Their original inspiration for microfinance came from a lecture in 2003 given by Muhammad Yunus from Stanford Business School. Yunus received the Nobel Prize in 2006.
Although microlending and similar money-sharing groups have been around for centuries, with Flannery’s expertise in technology, Jackley and Flannery felt they could simplify the process used by larger institutions and engage the masses in the funding process. They tested their idea in Kenya with seven loans totalling $3,500 in early 2005, and by September, all were repaid. They fully launched the concept in October as a charity with the name Kiva, which means “unity” in Swahili.
By its first anniversary, Kiva had already facilitated loans of $1M, primarily due to the leveraging of well-known entrepreneurs and businessmen such as Premal Shah from PayPal (he actually joined the staff) and Reid Hoffman, co-founder of LinkedIn.
A tool that can be helpful in creating blue oceans is examining the three tiers of non-customers (in fundraising, think of non-donors). The first tier is comprised of potential customers who are closest to your current market or donor base. They are using a similar product, either out of necessity or they’re simply waiting to jump ship to a better alternative. The good news is that if you can give them what they’re looking for, you will unlock enormous latent demand.
Kim and Mauborgne describe the creation by Calloway Golf of the Big Bertha club as an example of this tier one group. The larger head club created a new customer base with people who found the game easier to navigate than their historic perceptions. At the same time, sales increased from frustrated long-time enthusiasts, even those who had always accepted the game’s difficulty, once they realized the club increased their enjoyment and improved their score.
In terms of potential new tier one customers, Kiva could focus on the following groups:
- People who are frustrated with the overhead of traditional charities: They want to see 100 percent of their money go directly to the beneficiaries. Right now, these prospects may be reluctantly supporting traditional charities.
- People who wand more control of where their support is going: They want to choose the specific individuals, rather than support vaguely defined groups or communities. Right now, these prospects may not be participating in traditional philanthropy; they might be giving cash to beggars.
- People who specifically want to support women’s issues: 81 percent of Kiva’s loans are made to women, especially in developing countries where patriarchy and division of labour dominate societal norms. Right now, these prospects might be contributing to various women’s charities or economic empowerment charities, but might not have discovered the alternative of combining the two.
The second tier of potential customers are the refusing– they are aware of your product but consciously choose against it. Potentially they do not understand its benefits, or they prefer a different alternative. “Blue Ocean Strategy” uses the example of JCDecaux, a French outdoor advertising company that created the concept of street furniture in 1964. Why? Traditional billboard space was being viewed as transitory by many companies, especially newer companies that felt people didn’t spend enough time with billboard ads to understand and desire their products. JCDecaux created outdoor furniture spaces, like bus stops, where more explicit advertising panels could be displayed. Today, JCDecaux remains the global leader in the street furniture-based ad market.
For tier two, Kiva could focus on the following groups:
- People who don’t think their donation amounts are large enough to make a real difference so they don’t bother.
- People who seek a direct connection with a beneficiary and are potentially looking for an alternative to child-sponsorship organizations.
- People who are interested in the hand-up — as opposed to the hand-out — concept and who may be concerned that philanthropy can, at times, be paternalistic (giving just enough to sustain the beneficiary) and perpetual (beneficiaries will still need help tomorrow).
The last tier, tier three, is defined as the unexplored or those who have never considered the market’s offerings as an option. A great example from the book has to do with the process of tooth whitening. For years, the market and oral care companies believed that dentists were the only ones who could provide that service. That all changed when the oral care companies created their own whitening products that were safe, high quality, and much lower in cost. The companies quickly discovered a huge demand from people who didn’t have a dentist or couldn’t afford these services in a dental office.
For tier three, Kiva could look to create customers beyond those typically associated with supporting charities:
- Businesses that could support the process with technology enhancements. PayPal was the first significant tier three supporter when it agreed early on to waive its processing fee for loans, saving the lender processing fees.
- Executives of large entrepreneurship businesses, including the aforementioned Shah from PayPal and Hoffman from LinkedIn.
- People who are not familiar with microlending as a concept, or who are unaware that individual lenders could participate in the microlending process.
Blue Ocean thinking starts with forgetting about your current consumers and your competition. In fundraising, we’re always thinking about how to move our name and brand to the forefront. Typically, we do that by focusing on what’s working with our current donor group (or what’s working with our competitions donor group!). We may even tweak our current strategy to become more donor-focused and think we’re being innovative. Nothing wrong with that. But if we don’t move focus beyond our current donor base, then we are likely being eincrementally innovativeand not changing ocean colours. Blue oceans create something radically different of value that allows you to massively expand beyond your current donor or customer set.
Red Ocean and Blue Ocean strategies are not mutually exclusive. Effective fundraising requires that you continue to do well those things that keep your current donors happy – they are your existing market. But if your goal is to swim in blue water, then you must identify what will be appealing to your non-donors/customers.
And no sooner than you create the most amazing Blue Ocean strategy, your competition will be working on ways to replicate what youve done – and you’ll be headed towards red again!
Editor’s note: Interested in learning more about Blue Ocean fundraising? Alan will co-present a masterclass on the subject at IFC 2017, happening 17-20 October in the Netherlands.