Blue Ocean Strategy : Reconstruct Market Boundaries

1. Blue Ocean Strategy: Reconstruct Market Boundaries Joel Hand Rachel Harless Jessica Moore Priscilla Cones Andrew Merlino Clete Donovan Amanda Carey

2. Six Paths Framework • Six assumptions which many companies build their strategies around • Keeps companies trapped in red oceans • Companies must break these boundaries to form blue oceans • Managers must look across these boundaries • Across alternative industries, strategic groups, etc…

3. Reconstructing Market Boundaries • Creating Blue Oceans • Reconstruct market boundaries • Identify the possibilities that exist • Look at the six paths framework • Six paths • Six basic approaches to remaking market boundaries • Leading companies to visible blue ocean ideas

4. Path 1: Look Across Alternative Industries • Companies compete with their competitors as well as alternatives to their product or services • Substitutes • Alternatives -Example: Coca-Cola • Substitutes: Pepsi, Dr. Pepper • Alternatives: Tap Water, Freshly squeezed fruit or vegetable juice, Wine, Milk, Coffee

5. Path 1: Look Across Alternative Industries • Buyers implicitly weigh purchasing alternatives, often unconsciously • Sellers rarely think about how their customers make trade-offs with alternatives • 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

6. NetJets • Successful company using Fractional Jet Ownership as its blue ocean strategy • For only $375,000 (plus pilot, maintenance, and other monthly costs), a corporation can own one sixteenth share of a $6 million aircraft • Point to point flights • Alternative Charters • Favorite foods and drinks

8. Examples: Companies Looking Across Alternative Industries • Home Depot: • Expertise of professional home contractors at markedly lower prices than hardware stores • They have transformed ordinary homeowners into do-it-yourselfers • Southwest Airlines: • Speed of air travel at price of car travel

9. Coca-Cola • Coca-Cola looked across alternative industries and entered the markets of: • Sporting Events • Bowling Alleys • Movie Theaters • Make themselves available to all thirsty consumers

10. Path 2: Look Across Strategic Groups Within Industries • Unlock Blue Oceans by looking across strategic groups • Can be ranked in order by two dimensions: • Price and performance

11. Creating a Blue Ocean • Breaking out of a “tunnel vision” focus • Understanding factors driving customer’s decisions to trade up or down from one group to another

12. Breaking an “oversaturated” market • Targeting Strategic Groups • Traditional health clubs and home exercise programs • Advantages/Strengths • Eliminated the rest • Not competing directly with other health groups • Created new Blue Ocean demand

13. Other Examples: • Toyota Lexus • High quality luxury, but lower prices • Sony Walkman • Inexpensive boom boxes and transistor radios • Champion Enterprises • Prefabricated Houses and on site developers • Coca-Cola

14. Path 3: Look across the chain of buyers • Chain of Buyers • Competitors come together on a common definition of a target buyer • There is a chain of buyers • Buyers are directly or indirectly involved in the buying decision

15. Three Buyer Categories 1. Purchasers 2. Users 3. Influencers

16. Individual companies often target different customer segments • -ex: Large vs small customers • An industry typically comes together at a single buyer group • Such as: • Pharmaceutical industry on influencers: doctors • Office equipment industry on purchasers: corporate purchasing department • Clothing industry sells predominately to users

17. When someone challenges industries wisdom about which buyer group to target can lead to new ocean discoveries.

18. Novo Nordisk • Danish insulin producer • Created blue ocean in insulin industry • Changed focus from influencers (doctors) to users (patients) • Created NovoPen, first user friendly insulin delivery solution • Novo Nordisk’s blue ocean strategy shifted the industry landscape. • It changed the company from an insulin producer to diabetes care industry.

19. Bloomberg • Until 1980’s Reuters and Telerate dominated online financial information industry • Reuters and Telerate focused on purchasers (IT managers) • Bloomberg redesigned system catered to traders • Made a system that was easy to use: • Keyboards labeled in financial terms • Two flat panel monitors to see all information • Built in analytic capability to run “what it” scenarios

20. Other Industries Blue Ocean Changes • Canon • Shifted from corporate purchasers to users • Made small desktop copier industry • SAP • Shifted focus of business application software from functional user to corporate purchaser • Created successful real-time integrated software business • Coca Cola focuses heavily on the purchasers and users of the product.

21. Path 4: Look Across Complementary Product and Service Offerings • Before, During, After -Example: Movie theatre/ Babysitting • Key: Find the Total Solution • Example: Coca-Cola

22. NABI • Rags to Riches- 1 Billion • The Highest cost factors= During process

23. Started a Blue Ocean • Adopted Fiberglass • “Killed 5 birds with one stone” • Raised Customer Service Level

24. Other Examples • The British Teakettle • Barnes & Nobles • Virgin Entertainment • Dyson

25. Competition in Industries • Two bases of appeal: functional/rational, emotional • Rarely intrinsically one or the other • Challenge orientation of industry

26. QB House • Japanese Barber Shop industry • 57,000 visitors (1996) to 3.5 million (2002) • Created “no-nonsense” haircuts • Reduced extra service, time, and costs • Improved savings and hygiene

27. Cemex • Cement production industry in Mexico • Launched Patrimonio Hoy program • Created Supertanda • “Sold a dream” • Achieved differentiation while cutting costs

28. Increased usage of PET recycling • Less energy/resources, preserves fossil fuels

29. Path 6 • By looking at external trends with the right perspective, it can show you how to create blue ocean opportunities. • Key insights into blue ocean strategy arise from business insights into how the trend will change value to customers and impact the company’s business model.

30. 3 Principles that are critical to assessing trends across time • 1. Must be decisive to your business • 2. Must be irreversible • 3. Must have a clear trajectory

31. The Euro • Has been evolving along a constant trajectory as it has been replacing Europe’s multiple currencies. • It is decisive, irreversible, and clearly developing a trend in financial services. • These are the principles upon which blue oceans can be created as the European Union continues to enlarge.

32. Apple & iTunes • Trend of illegally downloading music • This trend was underscored by the fast growing demand for MP3 players • Apple capitalized on this decisive trend with a clear trajectory by launching the iTunes online music store in 2003. • Partnered with 5 major music companies • They created a marketplace where you are legally allowed to only download the specific songs. • Broke key customer annoyance • Apple’s iTunes is unlocking a blue ocean in digital music, with the added advantage of increasing the attractiveness of its already hot iPod player.

33. Cisco Systems • Cisco Systems created a new market space by thing across time trends. • Started with a decisive and irreversible trend that had a clear trajectory • The growing demand for high-speed data exchange • Created high-speed value for customers in a seamless networking environment. • 80% of all traffic on the Internet goes through Cisco’s products.

34. From Head-to-Head Competition to Blue Ocean Creation

35. Through reconstructing existing market elements across industry and market boundaries, they will be able to free themselves from head-to-head competition in the red ocean.

36. Relation to Coke • Coca Cola continually develops programs that ensure the creation of social and economic value by fostering the quality of life of our employees, promoting a culture of health and well-being, supporting our surrounding communities and minimizing our operations’ environmental impact. This relates to the “Functional-emotional orientation, which under the Blue Ocean Creation, rethinks the functional-emotional orientation of its industry.