Blue Ocean Strategy Ch. 6 Get the Strategic Sequence Right

1. Blue Ocean StrategyCh. 6 Get the Strategic Sequence Right Kristy Strong, John White, Andrew Maale

2. The Right Strategic Sequence • Buyer Utility: Is there a compelling reason for people to buy it? • Park the idea or rethink it • Setting the right strategic price: Is your offering priced to attract the mass of target buyers so they are compelled to pay? • Securing profit brings us to cost: Can you produce your offering at target cost and still earn profit margin? • Adoption hurdles: What are the hurdles in rolling out your idea? • Are you addressing them up front?

3. Testing for Exceptional Utility • Is there Exceptional Buyer Utility in your Business Idea • Need for Buyer Utility • Phillips’ CD-i • Bleeding-Edge Technology ≠ Bleeding-Edge Utility • Value Innovation ≠ Technology Innovation • Expressly Assess Where and How the new product or service will change buyers’ lives

4. Buyer Utility Map (figure)

5. Buyer Utility Map (explanation) • Applying the Right Perspective • Outlines all the Utility Levers companies can pull to deliver Utility as well as different experiences Buyers can have • Managers can identify the full range of utility propositions that a product or service can offer

6. Buyer Experience Cycle (figure)

7. Buyer Experience Cycle (Explanation) • Ask Questions about each 6 steps • Purchase • Delivery • Use • Supplements • Maintenance • Disposal • UPS Buyer Experiences Applied

8. Six Utility Levers • What blocks does your proposed product fill? • Using this tool, you can see how and whether your proposed product creates untapped utility for customers • If your product fills spaces as other players, chances are you have not tapped a Blue Ocean

9. Model-T Ford Example

10. From Exceptional Utility to Strategic Pricing • Ensures that buyers not only will want to buy your offering but will also have the ability to pay for it. • Many companies test the waters of a new product by targeting price-insensitive customers.

11. It is important to know from the start what price will quickly capture the mass of target buyers. • Companies are discovering that volume generates higher returns than it used to. • Value of a product may be closely tied to the total number of people using it. • Network externalities-sell millions at once, or nothing at all.

12. Free Riding • The use of a rival good by one firm precludes its use by another. • Use of a nonrival good by one firm does not limit its use by another. • Excludability is a function both of the nature of the good and of the legal system.

13. The Price Corridor of the Mass

14. Step 1 • Identify the Price Corridor of the Mass • Look at other products with in the same industry. • Compare it to different products offered by non-traditional competitors. • Different form, same function • Model T vs. horse drawn carriages. • Different form and function, same objective. • Bars vs. restaurants vs. movies.

15. Step 2 • Specify a level within the Price Corridor. • Determines how high a price they can afford to set without bringing in competition. • Degree to which the product is protected legally. • Degree to which the company owns exclusive asset or core capability.

16. From Strategic Pricing to Target Costing • Price-minus costing, not cost-plus pricing. • To hit the cost target, companies have 3 principal levers • Streamlining and cost innovations • Partnering • Changing the pricing model of the industry.

17. Streamlining and Cost Innovations • Streamlining operations • You can shorten the number of parts or steps used in production by shifting the way things are made. • Introducing cost innovations from • Manufacturing • Distribution

18. Partnering • Many companies mistakenly try to carry out all the production and distribution activities themselves. • Partnering allows a company to leverage other companies expertise and economies of scale. • Can be faster and cheaper.

19. Changing the Pricing Model“Pricing Innovation” • Sometimes no amount of streamlining or partnering will make it possible for a company to hit its target cost. • Blockbuster changed their model from selling to renting. • Equity Interest • HP trades high-powered servers to Silicon Valley start-ups for a share of their revenue.

20. The profit model

21. From Utility, Price, and Cost to Adoption • Educate the fearful • 3 main stakeholders • Employees • Business partners • General public

22. Employees • Communicate the threats of the idea • Work with them to find ways to defuse the threats • “Get the right people on the bus”

23. Business partners • Discuss the issues with the partners • Convince them what they have more to gain by cooperating • And what there is to compensate from lost revenue

24. General Public • By educating the public, you can help your company by avoiding any activist groups • Let them know you have included them and that they have a voice • No surprises

25. Blue Ocean Idea Index • Yet Another Test to form an integral whole to ensure commercial success • Examples to Illustrate this Test • Phillips CD-I • Motorola Iriduim • DoCoMoi-mode Japan

26. Illustration of Blue Ocean Idea Index

27. Phillips CD-i

28. Motorola Iridium

29. DoCoMoi-mode Japan

30. What next? • After passing the Blue Ocean Idea Index test, the company can shift from Blue Ocean Strategy to Execution • How do you bring an Organization with you to execute this strategy even though it represents a different departure from the past? • Answer: Overcoming key organizational hurdles—Tomorrow’s BOS presentation