This case describes how Blue Origin evolved from one entrepreneurs' dream to explore space to a fully-fledged player in an industry dominated by household names like Boeing, Lockheed Martin and Airbus. The Internet tycoons are the new breed of space entrepreneurs propelled by visionary dreams, deep pockets and business acumen the world has seldom seen. In the process, the new space companies have disrupted an industry that enjoyed lucrative government contracts and large scale projects that were often initiated on the back of national pride more than commercial viability. The internet space entrepreneurs rewrote the business model for unmanned launch vehicles and have set their sights on manned flights as far as to Mars.
From the core business strategy perspective, there is a need to know if "Can Blue Origin keep the momentum going in an environment of rising competition from other space entrepreneurs and increased market adaptation by established players?" and "Is Blue Origin a sustainable and commercially viable business?"
Penetration costing and cost skimming are two business promotion strategies that can be used when firms venture into new technological goods or services. Skimming creates extra costs for consumers because it promotes upfront costs. Penetration pricing has the goal of lowering costs on goods and supplies. The rationale is that giving the consumer market low prices increases sales volume, Blue Origin can lower its cost of doing business by large-scale single sourcing from distributors to take advantage of bulk discounts. In turn, it can make its new product of commercial space flights cheap while still maintaining reasonable amounts of revenue generation.
Penetration pricing prevents legacy aeronautic organizations from beating Blue Origins with lower prices. These legacy businesses have a long history of doing business with the American government in the field of aeronautics. Their costs of operations are usually heavily subsidised by the taxpayer. Penetration pricing empowers Blue Origins to lower its upfront cost without compromising on the quality of service they are offering to the public. If Blue Origins had taken advantage of being a pioneer in commercial spaceflights by using skimming, legacy firms would be capable of offering lower prices than Blue Origin's prices that reduces the latter's ability to make a profit from the first generation consumers of the technology.
Hence penetration pricing is the way to fulfil Blue Origin goal of facilitating humans living off-world on other planets. It will attract an adequate contingent of purchasers away from competing brands to kick start the process of interstellar migration. The core business strategy of using profitable flight packages at an inferior price to beat the competition is not possible if the practice of skimming is deployed. Skimming is more justified when a product is reserved for a niche market of extremely selective purchasers. Commercial space flights do not fall in this category.
Three analytical tools were considered in developing core business strategy for Blue Origins. The first is to generate an analysis by evaluating Threats, Opportunities, Weaknesses, and Strengths (TOWS). A TOWS analysis does not limit itself to exploring the internal environment of an organization. It analyzes these internal organizational factors with how they interact with the outside world. Thus, the TOWS analytical tool seeks to answer the following questions.
- How to mitigate and manage the internal and external threats facing the organization?
- The methods that can be used to capitalize on the opportunities?
- How to best circumvent the weaknesses?
- The methods for maximizing both internal and external strengths?
The second tool considered as the PESTLE analysis model. This analytical tool limits itself to top the macroeconomic environment a firm operates in. It is mostly used by business organizations to evaluate (1) the financial viability of introducing a new product; or (2) the profitability of a new market segment (e.g. commercial space flights). Thus it looks at the political, economic, social, technological, legal, and environmental factors at play that directly impacts profit margins.
The most appropriate analytical tool for Blue Origins is Porter's five forces model. It is an analytical framework for evaluating the competitive strength of a business company. The following are Porter's five forces.
Supplier Power: An assessment of the capacity of suppliers of raw materials to push the prices up
Buyer power analyses the power of consumers to come together and drive prices down
Competitive rivalry refers to the number of competitors in the market and the level of product differentiation
The threat of substitution analyses whether there are close substitutes in the market
The threat of new entry explores whether there are market barriers which would hamper the entry of new firms.
Using it, I developed a core business strategy that Blue Origins' commercial spaceflights need to be accessible to middle and low-income consumers. This is because their huge numbers create a market segment that presents the most viable opportunities for profitability.
Legacy Firms Entry
Commercial space flight is a new consumer market that will always be disrupted by new players. Currently, Blue Origins' main competitors are from Europe such as France's Arianespace (partially owned by Airbus), International Launch Services (a U.S.-Russia joint venture) using the Russian Proton launch technology, and TsSKB-Progress. NASA and companies in the aeronautic industry that have historically been contracted by the state to develop advanced military air strength are a potential competitor. They have to choose to be a disruptive or sustainable innovator in that market. This is the so-called "Innovator's Dilemma."
In recent years, many new companies have emerged and outperformed companies that have long engaged in business in their industry. These new companies come up with offerings of goods or services that have unique advantages over their competitors. This uniqueness is part of the disruptive innovation that results in changes in consumer market behavior. Changes in market behavior are influenced by technological developments and the need for greater efficiency and effectiveness of today's lifestyles. The changing lifestyles of society lead to different demands, and when demand from markets changes, innovation will be a factor affecting the success of the competing firms in the market. The very high competitiveness of these new companies caused existed business players in the market to be disturbed. Not infrequently the new companies are causing conflict with existing business players.
For instance, from the 1970s onwards, IBM and Kodak used the strategy of direct completion with Xerox that had pioneered the high-speed copier business. These companies are much bigger, but they fail to beat Xerox in sustaining technology competition. Canon is the company that managed to beat Xerox with a victory that begins with a disruptive desk copier strategy. Similarly, RCA giants General Electric and AT & T failed to paralyze IBM's sustaining technology in mainframe computers. Despite the many resources they threw at IBM, they could not change IBM's position. In the end, the personal computer maker bothered that beat IBM on the computer, not the big companies who chose the fight and maintained the direct innovation
A sustainable innovator creates new things which improve existing products that can then be sold at a higher price. Disruptive based innovation creates a unique and cheap product that attracts customers away from existing players in a market. While disruptive innovation seems natural for a start-up company, sustainable innovation is something that existing players can use to maintain a competitive edge when a new (disruptive) product changes the dynamics of a market.
Sustainable innovation basically makes the product better and attractive. Starting a new company with sustainable innovation is not a bad idea: New, focused firms can sometimes develop new products faster than larger companies because the wider environment often creates conflicts and distractions.
Disruption theory suggests that entrepreneurs who have engaged in sustaining innovation must sell to one of their industry leaders when these entrepreneurs have developed and established the viability of their flagship product. If successfully implemented, they can become more advanced than the leader in the sustaining innovation curve. If they then sell quickly then they can instantly generate an attractive financial return. This is a common practice in the health care industry and is a well-known mechanism by which Cisco Systems is outsourced, financed with equity capital rather than money costs, and much of the development of its supporting products in the 1990s.
Building a new business by using a sustaining technology strategy is not the right way. Existing competitors in the marketplace will choose to confront new entrepreneurs who make and try to sell better products to the market with the aim of chasing customers from existing competitors rather than escape. This advice applies when a participant is a large company that has more funds than an existing competitor. Legacy aeronautic companies should ride the wave of disruption by adapting sustainable innovation whereby, rather than competing directly with Blue Origins, they make components that improve any product the latter makes. For instance, after Blue Origin entered the lucrative rocket motors sector of the private rocket launch industry, it chose to work with legacy aeronautic firms like Boeing and Lockheed Martin under the "United Launch Alliance" to develop the technology that will make commercial space flights possible in the future.
Core Business Strategy
I considered the following five core business strategies. Then I developed one for Blue Origins.
Customer Driven Approach: The focus out here is a business-driven approach which looks after the customer and understands their main problem. I had to consider it because of the leadership style of Jeff Bezos. Bezos management philosophy is characterized by (1) a focus on customer satisfaction rather than beating the competition; (2) taking risks for market leadership; (3) ethical corporate leadership; and (4) creating a positive work environment for employees. The customer-driven approach to developing a core business strategy would align with Mr Bezo's leadership style.
Core Competency Development: A strategy developed using this model uses the amount of inventories and the supplies that a company has to determine its stand in the market. The Core Competency Model rejects the basic assumption in all analytic business tools that the nature of a market and consumer preferences dictate the products business should produce. Instead, this strategy uses an "inside-out" approach whereby, the path to long-term competitive advantage is achieved by having the ability to cheap and innovative products at a lower-cost and faster than competitors. In the 21st-century business environment, this dictates that companies have to get a competitive advantage by combining technology, skills, and processes in an efficient, but cheap, way. The rationale in the core competency model that unique and competitive products gain you an advantage in the marketplace aligns itself with Jeff Bezo's unique vision of making money from humans being an interplanetary species.
Competitive Priorities: In this strategy, the needs of consumers or market trends determine the products of a business. The thinking is that as long a firm is responsive to the consumer market, the company's profit margins will always be high as it adapts to what...
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