Reach beyond existing demand

Chapter 5 Reach beyond existing demand

Introduction • Focus on maximizing size of Blue Ocean being created • Companies must challenge two conventional strategies • Focus on existing customers • Drive for finer segmentation • Finer segmentation often creates smaller target markets

Maximizing Size of Blue Oceans • Companies must focus on noncustomers • Build commonalities in buyer’s value • Example: Callaway Golf • Focused on why people weren’t playing golf • Found it was too difficult to hit the ball • Introduced their product Big Bertha

The Goal • The Goal: Find insight to get noncustomers to become customers • Example: Coca Cola

The Three Tiers • First: Buyers who minimally purchase your industry offering=Necessity • Second: Buyers who have seen what’s offered but don’t use. Example: Callaway • Third: Have never thought of your market or industry offerings

Graphic Representation

First-Tier Noncustomers • Soon-to-be noncustomers are those who minimally use the current market offerings to get by as they search for something better • Upon finding better alternative, they eagerly jump ship • Tend to sit on the edge of the market

Market Results • Market grows stagnant as soon-to-be noncustomers increase • This develops an opportunity for untapped demand waiting to be released

Pret A Manger • Expanded Blue Ocean by tapping into demand of first tier noncustomer • People second guessed their choice of eating at restaurants because they wanted healthier, faster, and less expensive options

Key Commonalities • First-tier noncustomer had three commonalities • Wanted lunch • Wanted it fresh and healthy • Wanted it at a reasonable price

Pret A Manger Formula • Offers restaurant quality sandwiches made fresh everyday • Finest ingredients • Makes food available faster than restaurants and fast food • Sleek setting • Reasonable prices

Pret A Manger Style • Clean, Art Deco style • 30+ choices of sandwiches • $4-$6 • Made in specific shop • Fresh ingredients that are delivered that specific day • Also offers additional healthy options

Ordering Experience • Fast food: queue-order-pay-wait-receive-sit down • Pret A Manger: browse-pick up-pay-leave • 90 seconds in store average

How is it possible? • Makes their ready-made sandwiches at a high volume with high standardization assembly • No made-to-order and no serving customer

The Lesson • Noncustomers tend to offer far more insight on how to unlock and grow a Blue Ocean than relatively content-existing customers

Pret A Manger Today • Sells more than 25 million sandwiches annually • 130 UK stores • Now in Hong Kong and New York • With $160 million in sales, McDonalds bought 33% of its shares

Second-Tier Noncustomers • Refusing noncustomers • Don’t use/can’t afford current market offerings • Find them unacceptable or beyond their means

JCDecaux • Discovered problem: • Outdoor advertisement space undesirable • Billboards and transport ads • No time for people to experience the ad • Discovered solution: • “Street furniture” in 1964 • Municipalities offer stationary locations • Bus stops downtown

JCDecaux Success • “Street furniture” • Permitted richer contents and more complex messages • Campaigns could begin in 2-3 days as opposed to 15 days for billboards • Extensive contracts • 8-25 years • Mostly variable costs • Maintenance and renewal of furniture

JCDecaux Today • Number one street furniture-based ad space provider worldwide • Possess 283,000 panels in 33 countries

Third-Tier Noncustomers • Farthest from your current customers • These are unexplored noncustomers • Customers have not been targeted or seen as potential customers by any player in the industry • Tooth whitening example

U.S. Defense Aerospace Industry • Problem • Inability to control aircraft costs • Key vulnerability in long-term military strength of U.S. • Soaring costs/shrinking budgets • Leaving no viable plan to be able to replace the aging fleet of fighter aircraft

U.S. Defense Aerospace Industry • Needs by branch: • TheNavy- durable aircraft that would survive the stress of landing on carrier decks and maintainability • The Marines- the need for short takeoff vertical landing (STOVL) and robust countermeasures • The Air Force- fastestand most sophisticated aircraft with super tactical agility and stealth technology • Three separate segments needing to be combined to cut costs

U.S. Defense Aerospace Industry • The Joint Strike Fighter (JSF) program challenged this industry practice • JSF searched for key commonalities across the three branches • JSF found that the highest-cost components of the three branches were the same: avionics (software) and the engines • JSF is now called the F-35

U.S. Defense Aerospace Industry • Need • To build one aircraft for all three divisions • Combing those key factors while reducing or eliminating everything else • Result: ONE aircraft and a dramatic decrease in costs. Price per aircraft went down and value went up • The JSF reduced costs from $190 million per aircraft to $33 million

U.S. Defense Aerospace Industry • In Fall 2001, Lockheed Martin was given the $200 billion JSF contract • The largest military contract in history • Pentagon believes in continued success because the F-35 has won support from all three branches

Go for the Biggest Catchment • No set rule on which tier of noncustomers to focus on • Focus tier that represents the biggest catchment at the time • Explore if there are overlapping commonalities across all three tiers

Go for the Biggest Catchment • Companies focus on retaining existing customers and seek further market segmentation • This strategy is not likely to create a Blue Ocean • The point is to challenge the existing, taken for granted strategic orientations

Maximizing Scale of Blue Ocean • Reach beyond demand to noncustomers • De-segment opportunities to formulate new strategies • If no strategies are found, move on to exploit differences among existing customers

Central Idea • It is not enough to maximize the size of the Blue Ocean you are creating • A profit must be reached to create a win-win outcome

Reach beyond existing demand