Essay: Marvel – Value Innovation and Blue Ocean strategy

Value Innovation is “the simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers” (Textbook, 194). It’s also a key component of blue ocean strategy. An organization develops new approaches to developing a better product while reducing unnecessary costs. Value Innovation de-emphasizes a proscribed competitive market and is instrumental in paving the way for brand new markets by appealing to new customers. “Successful value innovation requires that a firm’s strategic moves lower its costs and at the same time increase the perceived value for buyers” (Textbook, 195). “Lowering a firm’s costs is primarily achieved by eliminating and reducing the taken-for-granted factors that the firm’s rivals in their industry compete on” (Textbook, 195). Value Innovation has to consider lower costs, so firms must ask, “which of the factors that the industry takes for granted should be eliminated,” and “which of the factors should be reduced well below the industry’s standard?” (Textbook, 195). Value Innovation must also focus on increased perceived consumer benefits, asking, “which of the factors should be raised well above the industry’s standard?” and “which factors should be created that the industry has never offered?” (Textbook, 195). A successful Value Innovation and Blue Ocean strategy can be difficult to implement, given how differentiation and cost leadership are often very different strategic positions and approaches that require key trade-offs. It’s difficult for firms to simultaneously increase value and lower cost at the same time using two opposite strategic approaches. For many businesses, cost reductions, when applied incorrectly, can hurt morale and the resources necessary for growth. Buyer value can be difficult to implement, because it requires the organization to create elements that the industry has not offered before. This requires out-of-the-box thinking that may not exist within the business. A consequence of a Blue Ocean strategy going awry is when firms get stuck in the middle – meaning that the firm lacks a neither distinct differentiation nor distinct cost-leadership profile. Firms that are stuck in the middle suffer from worse performance and a competitive disadvantage compared to their rivals.
2. When Marvel Studios was opened in 2006, it was located above a car dealership, with old office furniture, no free lunches or coffee, and office supply orders were slashed to save money. It used lesser-known, inexpensive, but talented actors, locking them in to long-term contracts. By not imitating its more established studio rivals, with their expensive actors and real estate, Marvel was able to focus on cutting costs not directly necessary for movie making. When actor contracts ran out, the actors were replaced with new actors in the same roles, instead of signing the same actors to large raises.  In addition, Marvel edited films to reduce shots that added cost without commensurate buyer value. Scenes that were cheaper to produce and added a level of intimacy with the characters were prioritized. Chase scenes that were initially called for ten trucks were reduced to two in order to save money and create a more realistic storyline. Marvel didn’t re-hire several middle managers during its booming years. This allowed the company to focus on hiring certain actors without having to undergo several layers of permission or risk having decisions vetoed. For example, Robert Downey Jr., the protagonist of the Iron Man series, struggled with drugs and was in and out of rehabilitation several times, and Marvel successfully hired him whereas other companies might veto the choice.  All of these cost-saving approaches enabled Marvel to achieve a 30% cost advantage. Marvel increased perceived consumer benefits by focusing on producing films and comic books rich with narrative and storytelling, where it built characters that were people first and superheroes second. Marvel heroes were portrayed as ordinary people and then transformed, sometimes by accident, into reluctant superheroes (unlike DC’s traditional heroes). Relationships and love stories were often explored. This made them relatable to more people. The Marvel Cinematic Universe developed supporting characters until they were strong enough to support new movies on their own, opening up new storyline opportunities. By building storylines that appealed to non-customers, Marvel grew its customer base from restricted, red ocean waters to larger blue ocean waters, unconstrained by what was once considered a limited, comic-book audience.
3. There was a time where Marvel was “stuck in the middle”. In the mid twentieth-century in Marvel’s early days, the company struggled to make a name for itself among other entertainment groups, like DC. Most Marvel titles in the 1940s were knockoffs of the more popular DC comics, like Superman, Batman, and Wonder Woman. Comic book sales dipped when psychiatrist Dr. Frederic Wertham testified to the Senate Subcommittee on Juvenile Delinquency that comic books were correlated with teenage pregnancy and homosexuality. A lack of innovation and quality content hurt the company. Marvel was also purchased and sold by multiple owners several times, where management would borrow to purchase and then load Marvel with debt. Ronald Perelman, a corporate raider that acquired Marvel, believed in value extraction over value innovation. He raised comic book prices and built a comic book bubble by having Marvel produce multiple versions of every comic book – each with a different cover – to encourage collectors to purchase more volumes. He also reduced distribution from twelve distributors to one as a means of selling comic books directly to the retailers. Marvel also purchased sports card makers Fleer, Skybox, Panini, and 46% of toymaker Toy Biz for the right to produce and sell Marvel characters. The combination of price increases, fewer distributors, lower quality content, underwhelming acquisitions, led to a comic book bubble burst, with Marvel’s revenue badly impacted. By piling on debt, not intelligently cutting costs, and by following a short-term, unsustainable growth strategy,
Marvel was forced to fire one third of its workforce, eventually leading to it filing for bankruptcy in 1996.
4. Ever since the beginning of the Marvel Cinematic Universe films in 2008, Marvel has done consistently well creating high-grossing films revolving around The Avengers franchise. This has enabled them to create a unique brand that has had a resounding crossover effect on the sales of its other businesses, like comic books, trading cards and toys. The Disney acquisition was a good move, in that Disney is a deep-pocketed studio well acquainted with character monetization, maintenance and growth, and demonstrated how far Marvel has come and the potential it has to continuously produce great content.
However, with new ownership by a traditional Hollywood studio, and the departure of the team that developed its successful blue ocean strategy, there will always be the temptation to spend more on movies, hire big-name actors and more people than necessary. We see potential signs of this with the move to fancier offices, the departure of frugal head Perlmutter and the promotion of a more traditional studio head. The Creative Committee, which managed creative continuity, has been dissolved. If less attention is spent on character development, maintenance and growth, Marvel will fall short on innovation. Should former leaders Maisel and Cuneo, the architects of Marvel’s Blue Ocean strategy, leave the board, the risk of a move away from a Blue Ocean strategy will increase. Another risk is the decline of movie theaters as a vehicle for people to watch Marvel’s movies. Marvel needs to ensure that it has good distribution deals for its movies online via outlets like Netflix and Amazon and other home distribution channels. Marvel needs to ensure that there is a consistent and permanent focus on always growing perceived consumer benefits combined with an emphasis on cost management, and not forget the Blue Ocean formula that has led to its current success.