Products or services that have different forms but offer the same functionality or core utility are often substitutes for each other. Take the example of Intuit’s Quicken.
To sort out their personal finances, people can buy and install a financial software package, hire a CPA, or simply use pencil and paper. The software, the CPA, and the pencil are largely substitutes for each other. They have very different forms but serve the same function: helping people manage their financial affairs.
Instead of benchmarking the competition Intuit created a blue ocean by looking to the pencil as the chief alternative to personal financial software to develop Quicken software. Intuit focused on bringing out both the decisive advantages that the computer had over the pencil – speed and accuracy; and the decisive advantages that the pencil had over computers – simplicity of use and low price – and eliminated or reduced everything else.
With Quicken’s user-friendly interface resembling the familiar chequebook, it was faster and more accurate than the pencil, yet almost as simple to use. The program eliminated the accounting jargon and the sophisticated features traditional financial software offered, offering only the few basic functions that most customers use.
Moreover, simplifying the software cut costs. Quicken retailed at about $90, a 70% price drop. Neither the pencil nor other software packages could compete.