Blue Ocean Strategy Chapter 6: Get the Strategic Sequence Right

1. Blue Ocean StrategyChapter 6: Get the Strategic Sequence Right Team 3 Sarah Ellens Coleman Crook Ashton Davis Jessica Crumpton Kevin Levesque

2. The Right Strategic Sequence Buyer Utility Price Cost Adoption

3. Steps • Utility- is there a reason to buy it? • If no, Park idea or rethink • Price- price should not determine purchase • Should still attract buyers • These two address revenue side of a business model and ensure a leap in buyer value • Buyer Value=Utility-Price

4. Steps cont. • Cost- can you produce the product at target cost and still have a healthy profit margin? • Strategic Price= Price easily accessible to the mass of target buyers • Cost should not drive prices, change idea or innovate • Adoption hurdles- done in the beginning to ensure success • Key because of significant departure from red oceans

5. Testing for Exceptional Utility Phillips CD-I –”imagination Machine” video machine, music system, game player and teaching tool Do not assume leading technology equals sales (Virgin space flight) Value innovation does not mean technological innovation

6. Buyer Utility Map Outlines levers companies can pull to deliver exceptional utility to buyers as well as experiences can have with the product or service Identify range of spaces product of service may fill

7. Buyer Utility Map

8. Six Stages of the Buyer Experience Cycle From purchase to disposal Each stage managers can ask a set of questions to gauge quality of experience Purchase- how long to find? Placement? Secure transaction environment? Timely? Delivery- Time? Unpack/Install difficulty? Arrange delivery/difficulty? Use- Training? Storage? Effective? Bells and whistles? Supplements- Need other parts/costs? Time? Pain? Maintenance- Required? Upgrade easy? Cost? Disposal- Create waste? Disposal easiness? Legal issues? Cost?

9. The Six Utility Levers Utility Levers: the ways companies can unlock exceptional utility for buyers.

10. The Utility Levers Customer productivity Simplicity Convenience Risk Fun and image Environmental friendliness

11. Stages of Buyers experience cycle The Buyer Utility Map The buyers experience broken down into six stages. Purchasing Delivery Use Supplements Maintenance Disposal

12. Southwest Airlines • Purchase online, over-the-phone, at the airport • How close is the airport? • Delivery – among the largest airline companies Southwest had the 2nd best on time record • Use – Product requires pilots and service crew

13. Southwest Airlines continued… Supplements – gas, airport, and human resources Maintenance – product needs continual check-ups Disposal – Planes need space and time

14. The Price Corridor of the Mass

15. Identify the Price Corridor of the Mass • Different form, Same function: • Many companies that create blue oceans attract customers from other industries who use a product or services that performs the same function as the new one but takes a very different physical form. • Different form and function, Same objective: • Listing the croups of alternative products and services allows mangers to see the full range of buyers they can poach from other industries as well as from nonindustrial.

16. This provides a straightforward way to identify where the mass of target buyers is and what prices these buyers are prepared to pay for the products and services currently in use. • Southwest Airlines has a prices corridor of the mass covered the group of people paying, on average, $400 to by an economy-class short-haul ticket to about $60 for the cost of going the same distance by car.

17. Specify a Level Within the Price Corridor Degree to which the product or services is protected legally through patents or copy rights Degree to which the company owns some exclusive asset or core capability, such as an expensive production plant, that can block imitation.

18. From Strategic Pricing to Target Costing To maximize the profit potential of a blue ocean idea, a company should start with the strategic price and then deduct its desired profit from the price to arrive at the target cost.

19. From strategic pricing to target costing Addresses the profit side of the business model Strip out costs Model T – Assembly line Three principal levers to hit the cost target

20. First Principal Lever Streamlining operations Introducing cost innovations from manufacturing to distribution Swatch

21. Second Principal Lever Partnering with other companies Trying to carry out all activities themselves Fast and effective securing of capabilities Sometimes these first two levers are not enough to hit target cost

22. Third Principal Lever Changing the pricing model of the industry Videotapes– from selling to renting Even after target cost is met, pricing innovation may still be pursued

23. Stakeholders No matter the business model success isn’t guaranteed in a blue ocean idea. Fear and resistance may arise from: • Employees • Business Partners • The General Public

24. Employees Explain the changes to the employees, address potential threats and how those will be resolved. Example: • Merrill Lynch announcing online brokerage service.

25. Business Partners Those that have a vested interest want to know how the implementation of a new business idea will effect current revenues from existing offerings. Example: • Southwest offering international flights

26. The General Public Hesitation among the general public can be triggered by a product that is very new and innovative; therefore threatening social or political norms. Example: • Monsanto producing genetically modified foods.

27. Blue Ocean Idea Index