Blue Ocean Strategy: Reconstruct Market Boundaries

1. Blue Ocean Strategy:Reconstruct Market Boundaries Group 4 Carly Buell Ryan Buell Brian Cote Shana Hartford April Miller Brittany Snethkamp Austin Stewart

2. Blue Ocean Strategy • The first principle of blue ocean strategy is to reconstruct market boundaries to break from the competition and create blue oceans. • The challenge is to successfully identify, out of all the possibilities that exist, commercially compelling blue ocean opportunities.

3. Systematic Patterns • There are clear patterns for creating blue oceans. • There are six basic approaches to remaking market boundaries. • These paths challenge the six fundamental assumptions, on which most companies build their strategies, that keep companies trapped competing in red oceans.

4. The Six Paths Framework 1. Look Across Alternative Industries 2. Look Across Strategic Groups Within Industries 3. Look Across the Chain of Buyers 4. Look Across Complementary Product and Service Offerings 5. Look Across Functional or Emotional Appeal to Buyers 6. Look Across Time

5. Path 1: Look across alternative industries • Alternatives broader than substitutes • Substitutes: products/services that have different forms but same functionality • Alternatives: products/services that have different functions and forms, but same purpose

6. Example • Installing financial software packages on a personal computer, hiring a CPA, using pencil and paper • 3 substitutes to finding the same solution- Sorting out personal finances • Cinemas vs. Restaurants • Restaurants: offer conversational and gastronomical pleasure • Cinemas: visual entertainment • Same objective: people enjoying a night out- therefore they are alternatives of each other

7. Making a purchase decision • Consumers weigh consciously, and unconsciously, the alternatives to a decision • Do I need self-indulgent 2 hours? • What do I need to do to achieve it? • Do I go to a movie, a massage, or go read a book? Both individual consumers, and industrial buyers partake in a similar thought process

8. Sellers • Sellers often forego the intuitive thinking process • Don’t take into account the tradeoffs their consumers have • Space between alternatives= opportunities for value innovation

9. NetJets • Blue ocean of frictional jet ownership • In less than 20 years, they have become the fastest growing airline company • Over 500 aircraft • Operating in over 40 countries • Purchased by Berkshire Hathaway in 1998 • Revenue growth from 30-35% each year NetJets reconstructed market boundaries to create their blue ocean by looking across alternative industries

10. Why do corporations use commercial airlines for their travel? • Costs. NetJets offers customers 1/16th ownership of an aircraft shared with 15 other customers, each receive 50 hours of flight time per year for $375,000 Customers receive convenience of private jet at the price of a commercial airline ticket Due to NetJets smaller airplanes, use of smaller regional airports, and limited staff, their costs are kept to a minimum

11. NTT DoCoMo’s i-mode • Largest telecommunications company in Japan • Changed the way people communicate and access information • Created blue ocean by thinking of why people trade across alternatives of mobile phones and the internet

12. Deregulation of telecommunication industry in Japan, it was easy for new competitors to enter the market • Result: rising costs, and the average revenue per consumer fell • Broke out of red ocean by creating wireless transmission of voice, text, data, and pictures

13. Creating a blue ocean • What are the alternatives industries to your industry? • Why do customers trade across them? • Focus on key factors and eliminate everything else, creating a blue ocean of new market space is possible

14. Path 2: Look Across Strategic Groups within Industries • Strategic Groups- a group of companies within an industry that pursue a similar strategy • Example: Mercedes, BMW, and Jaguar all focus on outcompeting one another in the luxury car segment versus economy car makers who focus on excelling over one another in their strategic group.

15. The key to creating a blue ocean across existing strategic groups is to understand which factors determine customers’ decisions to trade up or down from one group to another. • Example:

16. Example: CurvesTexas-based women’s fitness company - Created a veritable blue ocean demand for women struggling and failing to keep in shape through sound fitness. • Built on the distinctive strengths of two strategic groups –traditional health clubs and home exercise programs –and eliminated everything else • Question is, What makes women trade either up or down from these two strategic groups? • Curves’ low-cost business model makes its franchises easy to afford and are profitable within the first couple of months • Curves facilities now exist in most towns all over the U.S. and North America and have expanded into Europe

17. Other Companies that have created blue oceans by looking across strategic groups • Polo Ralph Lauren • Toyota’s Lexus as a Luxury Car • Sony’s Walkman in the late 1970s • Champion Enterprises prefabricated housing

18. Creating a blue ocean • What are the strategic groups in your industry? • Why do customers trade up for the higher group, and why do they trade down for the lower one? • The key is to combine the most attractive factors of both groups and eliminate or reduce everything else.

19. Path 3: Look Across the Chain of Buyers • Typically, an industry concentrates on who the single target buyer is. • In reality, there is a chain of “buyers” who are directly or indirectly involved in the buying decision. • purchasers, users, and influencers • Each hold different definitions of value.

20. Individual companies in an industry often target different customer segments. • large vs. small customers • An industry typically converges on a single buyer group • Pharmaceutical industry influencers • Office Equipment industry purchasers • Clothing industry users

21. Look Across the Chain of Buyers… • Challenging an industry’s conventional understanding about which buyer group to target can lead to the discovery of new blue ocean. • By looking across buyer groups, companies can gain new insights into how to redesign their value curves to focus on a previously overlooked set of buyers.

22. Ex: Novo Nordisk created a blue ocean in the insulin industry and transformed from an insulin producer to a diabetes care company. • Industry focused on key influencers (doctors) • Nordisk saw that it could break away from the competition by shifting the company’s thinking to users(patients) rather than doctors. -NovoPen = the 1st user-friendly insulin delivery system -NovoLet = prefilled disposable insulin pen -Innovo = electronic memory records designed to manage and reduce risk of missing a dose

23. EX:Bloomberg created a value curve new to the industry of business information providers by shifting its focus upstream from purchasers to users • Industry focused on purchasers (IT managers) • Bloomberg disagreed and saw the users (traders & analysts) were making the crucial decisions for their employers -Designed system to offer users better value with a easy-to-use, broker-friendly computer system -Also added information and purchasing services to enhance their personal lives • In return the traders & analysts exerted their power within the firm to drive IT managers to purchase from Bloomberg.

24. By questioning who can and should be the target buyer, companies can create blue oceans. Ask: • What is the chain of buyers in your industry? • Which buyer group does your industry typically focus on? • If you shifted the buyer group of your industry, how could you unlock new value?

25. Path 4: Look Across Complementary Product and Service Offerings

26. What is the context in which your product or service is used? • What happens before, during, and after? • Can you identify the pain points? • How can you eliminate these pain points through a complementary product or service offering?

27. Untapped value is often hidden in complementary products and services. • The key is to define the total solution buyers seek when they choose a product or service.

29. Examples: • Barnes & Noble • Virgin Entertainment’s Megastores • Dyson Vacuums • Zeneca’s Salick Cancer Centers

30. Phase 5: Look Across Functional or Emotional Appeal to Buyers • What Industries should compete on • Rational appeal • Emotional appeal • Appeal usually a result of how companies have competed in the past • Ex: Functionally oriented companies become more functionally oriented

31. Change • Emotionally oriented industries offer extras at extra price without enhancing functionality • By stripping those extras it would create a fundamentally simpler business model • Functionally oriented industries can add emotion to their products to stimulate demand

32. Quick Beauty House • Traditional Japanese haircuts • Most haircuts in Japan took around an hour because of rituals • Actual cutting of hair was just a fraction of that time • Price was around $27 to $45 • QB House • Decided working professionals did not want to waste an hour • Stripped the emotional service of the haircut • Focused on basic cuts • Cut time from one hour to 10 minutes • Price was reduced to around $9

33. Cemex • World’s third-largest cement producer • Created a blue ocean by going from functional to emotional • Cement houses were the dreams of the people of Mexico • Most could never afford it because extra money was always spent on village festivals, baptisms, etc. • Launched Patrimonio Hoy: Shifted orientation from functional to emotional. • Foundation of tandas • While competitors were selling cement, Cemex was selling dreams

34. Path 6: Look Across Time • All industries are subject to external trends that effect their businesses over time • Internet • “Going green” to protect the planet • Most companies adapt incrementally and somewhat passively as trends emerge. • They focus on projecting the trend itself and pace themselves to keep up with the trend they are tracking. • So how to get out of Red oceans and develop a blue ocean strategy?

35. Creating a Blue ocean Strategy • Blue oceans arise from business insights into how the trend will change value to customers and impact the company’s business model. • Three Principles to assessing trends over time: • Trends must be decisive to your business • Trends must be irreversible • Trends must have a clear trajectory Example: The Asian Crisis of 1997 vs. the Euro

36. Creating a Blue Ocean Strategy • To create a blue ocean one must look into the future and imagine what a developing trend will look like at its logical conclusion. Then work back from that point to see what can be changed today to meet that goal. • Digital music downloading: Apple’s iTunes • Legal, easy to use, flexible • While more digital music stores enter the market, Apple has kept developing a blue ocean with the creation of the iPhone. • High-Speed data exchange: Cisco Systems • Rise in Globalization: CNN 24 hour global news network

37. Questions to ask as you look across time: • What trends have a high probability of impacting your industry, are irreversible, and are evolving in a clear trajectory? • How will these trends impact your industry? • Given this, how can you open up unprecedented customer utility?