Blue Oceans Strategy Chapter 6: Get the Strategic Sequence Right Martin Gutierrez Ashlyn Hargraves Kyle Gooch Sofia Maese Hunter Bernays

The Strategic Sequence Buyer Utility Price Cost Adoption

Buyer Utility Reason to buy Net buyer value = Utility buyers receive - Price of product/service Example: Philips’ CD-i

Buyer Utility Continued Focused Divergent Having a compelling tagline Buyer Utility Map

Buyer Utility Continued

Buyer Utility Examples The Ford Model T.

Strategic Price Set strategic price to build strong revenue system and quickly capture the mass of target buyers 2 reasons for price change: Companies discover that volume generates higher returns than it used to To the buyer, the value of a product or service may be closely tied to the total number of people using it Network Externalities

Strategic Price Rival goods vs. non-rival goods EY Employees vs. Services Excludability A good is excludable if the company can prevent others from using it because of limited access or patent protection. Strategic price Must attract buyers in large numbers but also help retain them.

Strategic Price – Price Corridor of the Mass Helps managers find the right price for an irresistible offer which isn't necessarily the lower price.

Step 1: Identify the Price Corridor of the Mass Different form, same function Example: Ford Model T vs. horse-drawn carriages Different form and function, same objective Example: Cirque de Soleil vs. bars and restaurants

Step 2: Specify a Level Within the Price Corridor Determine how high a price the can afford to set within the corridor without inviting competition from imitation products or services. 1.Degree to which the product or service is protected legally through patents or copyrights 2.Degree to which the company owns some exclusive assets or core capability. Uncertain patents and asset protection = middle of the corridor. No protection = lower prices

Target Cost Target cost is calculated by the formula: Strategic Price – Desired profit margin = Target Cost This method of calculating is very aggressive and forces companies to strip out costs.

3 Principal Levers Streamlining Operations and introducing cost innovations Partnering (Provides companies a way to secure needed capabilities fast and effectively while dropping cost structure) Changing the pricing model

Streamlining Operations Firms such as EY have moved to outsourcing internally focused functions, such as trade processing and reconciliation in order to reduce cost. Introduction to newer technology as well has made this process an easier transition.

Partnerships After the firms combined to create Ernst and Young in 1989 they quickly became a leading global business, had rapid technology innovation, and continuous business change. EY also took advantage of partnerships by acquiring consulting firms in recent years to expand the range of services and gain competitive advantage.

Changing Pricing Model To combat rising input/energy costs and increasing talent cost EY has taken the initiative to redesign operations to maximize margins To do this they have focused on: Building brand equity to improve pricing power with both consumers and retailers Drive out cost from the end-to-end value chain

Adoption of new Strategies Final stage of the strategic sequence Employees Roles and responsibilities may change Business Partners May fear their revenues are in jeopardy General Public May be afraid of technological advancements

Adoption Hurdles for EY New departments create uncertainty for some employees and is something EY must overcome. As EY expands globally they encounter different hurdles unique to each location

BOI

Summary Utility Reason to buy Price Attract & Retain Cost Reaching Target Cost Adoption of New Strategies Objections & Communication

Works Cited organization