Blue Oceans – Reaching Beyond Existing Demand Chapter #5

Blue Ocean – Ch. 5: Reach Beyond Existing Demand The Third Principle of Blue Ocean Strategy is, “Reach beyond existing demand” This is the key component of achieving value innovation You need to challenge two conventional strategy practices; Focusing on existing customers Increased segmentation to accommodate buyer differences To grow share of market companies strive to retain and expand existing customers The more intense the competition, the greater the tendency to segment and tailor the offering The net result is creating too-small target markets

Reach Beyond Existing Demand To maximize the size of your Blue Ocean you need to take a reverse course of action Instead of focusing and concentrating on customers, you need to look at non-customers Instead of focusing on customers differences you need to build on powerful commonalities in what buyers value This will permit you to reach beyond existing demand and unlock a new mass of customers that did not exist before Take the case of Callaway Golf, who focused their efforts on noncustomers Other golf companies competed in red oceans for to win new customers, Callaway did the opposite By looking at people who would not play golf, they found that the reason was “it is too difficult” to hit the ball Callaway created the Big Bertha, a club with a bigger head making it easier to hit the ball The result is that Callaway leaped into number 1 spot in golf equipment sales, and the competition followed.

The Original big Bertha golf Clubs

Reach Beyond Existing Demand The Three Tiers of Noncustomers Third Tier First Tier Second Tier Your Market 1st Tier – Soon to be non-customers waiting to jump ship 2nd Tier – Refusing customers who choose against your market 3rd Tier – Unexplored customers who are in the markets distant from yours

Reach Beyond Existing Demand First Tier Noncustomers These are the soon-to-be noncustomers who use the service until something better, cheaper comes along As the number of these noncustomers increase, the market becomes stagnant, and these are the untapped demand Look at ‘Prêt A Manger’, a British fast-food chain who opened in 1986 by two ‘friends’ Lunch customers began to want healthy food in a non sit down environment, they did not have the time ‘Brown bag’ lunches were on the rise, or simply fast food and they wanted (i) fast (ii) fresh and healthy (iii) reasonable $ Prêt answered with fresh, high quality sandwiches at a fast pace in a sleek setting at reasonable prices Prices were $4-$6, made fresh every day, in-store kitchens, never kept to the next day (given to the homeless) The Baguettes are from Paris, the Croissants from Belgium and the Pastries from Denmark Instead of queue-order-pay-wait-receive-sit down they created browse-pick up-pay-leave in just 90 seconds

Reach Beyond Existing Demand Second Tier Noncustomers These are the refusing noncustomers who either do not use or cannot afford the service Their needs are either ignored or dealt with by alternatives Sitting in this mass of noncustomers is an ocean of untapped demand waiting to be released Consider JCDecaux a French outdoor advertising agency Prior to them outdoor advertising consisted solely of billboards, they created “street furniture” The entire inner city was filled with latent advertising potential JCDecaux saw that cities offered stationary locations such as bus stops where people tended to wait a while and therefore read the ads, thereby converting 2nd tier noncustomers They paid for the maintenance and upkeep of the bus stops saving the city money and getting long-term exclusivity Today JCDecaux is the largest street furniture based ad agency in the world with 283,000 locations in 33 countries They looked at noncustomers and created and increased the demand for outdoor advertising

J C Decaux - Europe

J C Decaux - US

J C Decaux - US

Reach Beyond Existing Demand Third-Tier Noncustomers These are the farthest away form the industry's existing customers These unexplored noncustomers have not been targeted or thought of as potential customers Their needs and the opportunities associated with them have been assumed to belong to other markets Just look at the tooth whitening revolution that used to only belong to Dentists Instead of $500-800 systems from Dentists, oral care companies created an ocean of latent demand at low cost The total market for tooth whitening has grown by leaps and bounds and is a staggering blue ocean Consider that fact that women used to go the beauty parlor for an expensive nail beauty treatment, now we have thousands of inexpensive nail salons catering to a new market Precept Golf ball company created the Lady Precept and the growth in women's golf has been enormous

Reach Beyond Existing Demand Third-Tier Noncustomers – Cont. Now consider the mighty US aerospace defense industry The argument is that the inability to control aircraft costs could make the US vulnerable in the long-term Soaring costs and shrinking budgets left the military without a viable plan to replace its aging fleet The Navy, Air Force and Marines each had their own different concept of what was necessary for their needs. Government formed the Joint Strike Fighter program (JSF) to attempt to deal with the issue Instead of accepting the differences the JSF challenged them and found key commonalities instead All the aircraft had the same high-cost components (i) avionics and (ii) engines Now with each aircraft using the same avionics and engines the cost savings were enormous The two key factors that each needed were (i) durability and (ii) maintainability

Reach Beyond Existing Demand Third-Tier Noncustomers – Cont. The JSF set about designing and building one aircraft ofr all three branches Of the over 20 key factors in place prior to JSF they ended up with only 6 competing factors The result was the awarding of a $200 billion contract to Lockheed Martin The result was an aircraft (F35) that satisfied all the needs of each branch at a cost savings of $33 m per aircraft. The strategy canvas of the success of this program is another typical success story of blue Ocean strategy By reaching beyond the existing customers of each of the three branches JSF aggregated demand previously divided amongst them

Air Force Navy Marines STOVL Stealth Lightweight Two engine Design Custom. Integrated avionics Two seats Stealth Large wings Short wings Supercruise engine Durability Countermeasures Long-distance Agility Maintainability Air-Air armaments Large-flexible weapons payloads Fixed internal weapons payload Air-air and air-ground armaments Air-ground armaments WEAPONS CUSTOMIZATION Electronic warfare An aircraft built for every mission MISSION CUSTOMIZATION

JSF (F-35) High Air force (F-22) Low Price Design Weapons Mission Agility Stealth Maintain Durability Counter STOVL Customiz Customiz. Customiz. ability measures

F 22 Fighter F 35 Fighter