Blue Ocean Strategy
- BLUE OCEAN STRATEGY is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand.
- It is about creating and capturing uncontested market space, thereby making the competition irrelevant. It is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.
- Examples:- Discount Broking, Electronic Vehicle, Ethanol, and Hydrogen Fuel
Red Ocean Strategy
- RED OCEANS are all the industries in existence today – the known market space. In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known.
- Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, profits and growth are reduced. Products become commodities, leading to a cutthroat or ‘bloody’ competition. Hence the term red oceans.
- Examples:- Automobile, Chemicals, and Banking
Major Differences between Blue Ocean Strategy and Red Ocean Strategy
| Blue Ocean Strategy | Red Ocean Strategy |
| Create uncontested market space | Compete in existing market space |
| Make the competition irrelevant | Beat the competition |
| Create and capture new demand | Exploit existing demand |
| Break the value-cost trade-off | Make the value-cost trade-off
|
| Align the whole system of a firm's activities in pursuit of differentiation and low cost | Align the whole system of a firm's activities with its strategic choice of differentiation or low cost
|
Overview:-
Discount Brokers: -
- Discount brokers are those brokerage firms that charge a reduced fee/commission for helping investors purchase and sell on the stock markets. Such discount brokers utilize the best technology to provide a sophisticated trading experience.
Example: - Zerodha, Upstox and Groww
- Zerodha demonstrated the use of the Blue Ocean Strategy to create a discount broking market in India.
- Zerodha was not the world's first-ever discount brokerage company; it was the Charles Schwab Corporation in 1975 in the US, a discount brokerage model which significantly reduces the commission charged for transactions, enabling the masses to invest.
- Zerodha used this already successful solution and customized it to the Indian markets, addressing the pain points of the existing services, and providing an attractive option to investors.
- It also addressed the non-customers of the industry—people refusing to enter the market due to various reasons, including complicated offerings.
Value Innovation
- Value innovation is a process in which a company introduces new technologies or upgrades that are designed to achieve both product differentiation and low costs.
- In 2010, when hardly 1.4% of the Indian population traded in the Indian capital markets, Zerodha pioneered online discount broking in India. It was able to not just cater to the needs of the existing investors, but also create a value offering for the previously untargeted buyer groups. At the same time, it was able to lower the commission charged. This is what is defined to be value innovation
Market Size:-
- The industry clocked a total revenue of Rs. 27,000-28,000 Cr in FY22 over Rs 24,860 Cr in FY21 clocking a growth of 10.5%. This growth is mainly attributed to the first-time investors investing in the market along with the record number of new IPOs hitting the market
- The revenue of the industry is expected to grow to Rs 380-400 bn by 2025 registering a growth of 11.0%-12.0%
Competitive Landscape:-
- Client Acquisition Cost vs Revenue Per Client
Market Share of Different Players
Broker
| Active Clients (Lakh)
| Market Share (%)
|
| Zerodha | 65.9
| 18.6
|
| Groww | 51.6
| 14.6
|
| Angel One | 42.4
| 12.0 |
| Upstox | 38.6
| 10.9
|
| ICICI Sec | 26.8
| 7.5
|
| HDFC Sec | 11.2
| 3.1
|
Key Drivers
- Rise in the number of smartphone users vs Featured Phone. Smartphone penetration is further expected to increase to 68.0% vs 32.0% by FY26.
- Rise in the number of first-time investors. Month on Month (M-o-M) data of new Demat accounts in 2022 shows the interest of first-time investors towards investing.
| Month (2022) | New Account Addition (In Lakhs)
|
January
| 34.0 |
February
| 28.3 |
| March | 28.5 |
| April | 24.3 |
| May | 25.0 |
| June | 23.0 |
| July | 18.0 |
| August | 21.0 |
| September | 21.0 |
| October | 18.0 |
| November | 18.0 |
- Proportion of data subscribers in overall subscribers to increase dramatically over next few years
Key Trends:-
- Favorable Demography:- By 2022, the median age in India will be 28 years; in comparison, it will be 37 in China and the United States, 45 in western Europe, and 49 in Japan. the median age of Indians will jump 10 years to almost 38 by 2036
- Shift in the investors towards equity markets to earn better returns:- In order to grow their money in the inflationary environment, most investors are looking for better opportunities to earn better returns and hence moving to equity markets
- Penetration levels:- Number of people investing in the stock market remain extremely low vis-à-vis US and China. While investing in stock markets has become more popular in India in recent times, overall penetration remains low – only 55.0mn Indian invest in the stock markets, which is around 4.0% of the country’s population. In comparison, over 50.0% of Americans own stocks. Even in neighboring China, the percentage of the population that invests in the stock markets is 7.0%. India’s figure of 4.0% indicates plenty of headroom for India’s stock market penetration to grow
How Zerodha became a champion in the industry
Identifying the Problems in the industry
- Lack of transparency related to costs:- Clients in the industry were charged hidden costs for the trading
- Paying for services not required:- Traditional brokers were offering a complete package of products and clients use to pay for the complete package irrespective of whether they availed the services or not
- Lack of Smooth seamless process:- Customer experience of conventional brokers was not sufficient to cater the millennial investors
Understanding the Customer
Customers in the capital markets can be divided into three categories:-
- First would be the budding investors who were aware of the options but who could not afford the current offerings and those who were trading but were unhappy with current offerings (services provided by various firms) in the industry.
- The second would be the risk-averse ones who have long believed in instruments like fixed deposits
- The last would be the ‘unaware’ ones who do not know anything about investing
Blue Ocean Strategy at Use
- At a time when smartphone penetration was less than 10.0% in the country. Zerodha visualized going into unknown territory and conquering it by putting pieces of puzzles into places. Over the years it has become the undisputed king in the discount broking industry by solving the problems that persisted in the industry.
Unique Selling Proposition of Zerodha
- Reduced Cost:- Moving everything online reduced the costs of offline branches.
- Cutting Edge Technology:- It increased the speed of trading and executions using technology.
- Diversified Product Offering:-
- It started different financial literacy programs like 'Varsity' and 'TradinQnA'—a forum for traders to ask questions.
- It created several new features like automating fund updates and Kite–a self-service booking platform.
- It also brought advanced trading tools like 'Pi' and 'Q' for charting and analysis.
- To solve the problem of awareness, it made a book called Rupee Tales that educated children about financial investments.
