Blue Ocean Strategy: Chapter 3

1. Blue Ocean Strategy: Chapter 3 Crystal Hill Stephen Lechtenberg Anand McGee Allison Purtell Jason Torres

2. Reconstruct Market Boundaries • Challenge: Successfully identify, out of the possibilities that exist, commercially compelling blue ocean opportunities

3. Six Paths Framework: • Clear patters for creating blue oceans • They have general applicability across industry sectors, and they lead companies into the corridor of commercially viable blue ocean ideas • These paths challenge the fundamental assumptions underlying many companies strategies

4. Six Fundamental Assumptions: Keep companies trapped in Red Oceans • Define their industry similarly and focus on being the best within it • Look at their industries through the lens of generally accepted strategic groups, and strive to stand out in the strategic group they are in • Focus on the same buyer group, whether it’s the purchaser, user, or influencer • Define the scope of the products and services offered by their industry similarly • Accept their industry’s functional and emotional orientation • Focus on the same point in time-and often on current competitive threats-in formulating strategy

5. Path 1:Look Across Alternative Industries • Companies compete not only with the other companies in its own industry but also with companies in those other industries that produce alternative products or services. • Alternatives are broader than substitutes -Example: Starbucks • Substitutes: House Blend, French Blend, Latin American Blends, Asian Pacific Blends, etc. • Alternatives: Tazo Teas for Coffee

6. Path 1: Look Across Alternative Industries, cont. • In making every purchase decision, buyers implicitly weigh alternatives, often unconsciously • Sellers rarely think consciously about how their customers make trade-offs across alternative industries • Space between alternative industries provides opportunities for value innovation • By focusing on the key factors that lead buyers to trade across alternative industries and eliminating or reducing everything else, you can create a blue ocean of new market space

7. Examples: Companies Looking Across Alternative Industries • Home Depot: • Offer the expertise of professional home contractors at markedly lower prices than hardware stores • By delivering the decisive advantages of both alternative industries, and eliminating or reducing everything else, they have transformed the ordinary homeowners into do-it-yourselfers • Southwest Airlines: • Concentrated on driving as the alternative to flying, provided the speed of air travel at the price of car travel

8. Examples cont: Starbucks • Starbucks looked across alternative industries and entered the markets of: • Ice-Cream • CD’s, books • Drinkware-cups, mugs, tumblers • Instant Coffee • Brewing Equipment

9. Path 2: Look Across Strategic Groups Within Industries • Figure out which factors determine customers to trade up or down from one group to another • Examples: • Ralph Lauren • Lexus

10. Curves For Women • Women trade up or down between: • At home exercise programs • More convenient, but easy to get distracted • High end health clubs • Lots of men, expensive, inconvenient • Developed new concept • Women only, more locations, smaller buildings, cheap to join and manage.

11. Path 3: Look Across the Chain of Buyers • Purchasers, users, and influencers • Companies usually focus on a single buyer group • Create blue ocean by shifting buyer group • Novo Nordisk • From insulin producers to diabetic care company • Starbucks • Selling coffee beans to grocery stores

12. PATH 4: Look Across Complementary Product & Service Offerings • Most products and services are affected by other products or services • Many companies fail to notice this • The key is to define a solution buyers seek when they choose a product or service • A simple way to do this is to think about what happens • Before • During • After

13. NABI • Hungarian bus company that applied Path 4 to U.S. transit bus industry • Competition competed on offering the lowest purchase price for buses • But, • Designs outdated • Delivery times were late • Quality was low

14. NABI • Discovered it was costs that came after initial bus was purchased • Maintenance over it’s 12 year cycle • Repairs after accidents • Fuel usage • Wear and tear • Rusting • Rising demand for cleaner air

15. NABI Finds Total Solution • Normally made of steel • Heavy • Corrosive • Hard to replace parts after accidents • NABI adopted fiberglass when making it’s buses • Solution that killed 5 birds with one stone

16. Fiberglass Buses • Cut costs by being corrosion free • Light weight cut fuel consumption and emissions • After accidents they didn’t have to replace a whole panel rather they could cut the damaged area and replace it • Lighter weight also meant lower powered engines and fewer axles which cut costs • And gave more space inside the bus

17. Now we must ask ourselves • Context of how our product or service is used • What happens before, during and after the product or service is used • How to eliminate problem areas through a complementary product or service offering

18. Path 5: Look Across Functional or Emotional Appeal to Buyers • Emotionally Oriented • Add price without enhancing functionality . • Functionally Oriented • Blend commodity products with life by adding emotion. • Examples: • Swatch, The Body Shop, Quick Beauty House

19. Quick Beauty House • Created a Blue Ocean in the Japanese barbershop industry. • Shift from emotional to highly functional • Eliminated the time and cost of getting a haircut • Re-defined the Japanese barbershop industry.

20. Cemex • The world’s third largest cement producer. • Created a blue ocean by shifting from functional to emotional. • Mexico’s poor didn’t have enough money to purchase building materials.

21. Patrimonio Hoy • Created around the traditional Mexican system of tandas. • Example: • Ten individuals contribute 100 pesos per week for 10 weeks. Lots are drawn to see who wins the 1,000 pesos. Each individual wins one time only. • Patrimonio Hoy works in the same way.

22. Functional Orientation • Service Industries • Direct Line Group has done away with traditional brokers. • Eliminating emotional orientation • Vanguard Group, Charles Schwab

23. Path 6: Look Across Time • What companies tend to do: • Focus on same point in time • Passive actions • Projecting trend itself • External Threats • What companies need to do: • Look into time • Don’t predict future • How the trend will bring Value

24. Assessing Trends • Three principles: • The trends must be decisive to your business • They must be irreversible • They must have a clear trajectory -Impact on your business -Work back from conclusion -Ex: EU, iTunes, Cisco, CNN, Sex and the City

25. Conceiving New Market Space • Think across conventional Boundaries • Don’t rely on trial/error, predicting, intuition • Engage in structured process • Questions?