Blue Ocean Strategy: Chapter 5 Team 5: Robert Smith, Luis Hernandez and Gloria Solorzano

Overview of Chapters What have we learned so far? The importance of creating blue oceans? The analytical tools and Frameworks needed in order to execute blue ocean strategy 1st Principle: Reconstruct Market Boundaries to break from competition and create blue oceans 2nd Principle: Focusing on the Big Picture and Not the numbers

3rd Principle: Reach Beyond Existing Demand How do you maximize the blue ocean you are creating? Key Factor: Achieving Value Innovation By aggregating the greatest demand for new offering, this approach attends the risk of creating a new market Instead of focusing on what customer differences, companies should focus on commonalities

Seek Commonalities Find the commonality to what is keeping customers away from your product Find a solution that pleases existing customers and converts non-customers to customers Focus on the common issues not the differences Ex: Callaway Golf asked customers why they hadn’t taken up golf hitting golf ball was too difficult and not fun Offered a “Big Bertha” golf club that made hitting golf balls much more easy and attracted customers

PepsiCo is Transforming Itself Pepsi found their commonality within customers and non-customers wants are healthier choices Healthy lifestyle is having a large role within the Food Industry A strive for “Every day nutritional items” Gluten Free, Sugar Free, Reduced Fat Their movement “Performance with a Purpose” and “Hello Goodness”

PepsiCo striving to meet non-customer and customer needs

The Three Tiers of Noncustomers By focusing on key commonalities across these non-customer and existing-customer, companies can understand how to pull them into a new market

First-Tier Noncustomers They minimally use the current market offerings to get by as they search for something better - (eagerly jump ship upon finding better option) Yet, this segment holds ocean of untapped demand Pret A Manger: British fast-food chain est.1986 Tapped into demand of first-tier noncustomers - Professionals out for lunch Identified 3 commonalities across their responses Offered readymade sandwiches/salads made from quality ingredients Gain insight from First-Tier noncustomers by looking at the commonalities between them rather than their differences These people tend to offer more insight than content existing customers

Second-Tier Noncustomers These are refusing noncustomers, people who either do not use or cannot afford to use the current market offerings, finding them unacceptable or beyond their means JCDecaux - vendor of French outdoor advertising space Traditional outdoor advertising mediums were inadequate and ineffective Introduced a new concept called “street furniture” Secured contacts with municipalities Pulled the mass of refusing noncustomers into its market Created value for second-tier noncustomers, cities, and itself

Second-Tier Noncustomers cont. JCDecaux discovered untapped demand and capitalized on the opportunity Developed a sustainable business model by increasing value for both the customer and itself New concept offered more exposure for longer periods of time Adv. mediums operated and maintained by company Drew in customers from traditional outdoor advertisers Still leader in the industry 50 yrs later Again, succeeded because it focused on the commonalities of the refusing customers responses and not their differences

Third-Tier Noncustomers These noncustomers are the ones furthest away from an industry and are people that just haven’t been targeted. A Reason for this can be that industries just assume the customers needs and business opportunities just belong to another market. This drives companies crazy. EX: Tooth whitening was thought to be a service exclusively provided by dentist until oral care companies looked into these noncustomers and found an ocean of latent demand waiting to be tapped. Then the companies started selling and the market exploded.

US Defense Aerospace Industry 1993 Pentagon Report - There was soaring costs and shrinking budgets which caused the military to replace their aging fleet and find a new way to build new aircrafts differently. The Navy - Able to land on carrier decks. The Marines - Capable of short takeoffs and landings. The Air Force - Fastest and most sophisticated. The Joint Strike Fighter (JSF) Program - set out to question these differences for each branch. The JSF looked at all three segments as potentially unexplored noncustomers that could be aggregated into a new market of higher performance. They also looked to understand how many of the highly customized features decisively influenced the branches’ purchase decision.

The key competing factors of the defense aerospace industry Air Force Navy Marines Lightweight Two Engines STOVL (short takeoff vertical landing) Integrated Avionics Two Seats Stealth Large Wings Short Wings Supercruise Engine Durability Countermeasures Long-distance Agility Maintainability Air-air Armaments Large/flexible weapons Fixed Internal weapons payload Air-air and air-ground armaments Electronic Warfare and Air-ground armaments An aircraft built for every mission

Go for the Biggest Catchment There is no hard and fast rule to suggest which tier of noncustomers you should focus on and when. Explore all three tiers of noncustomers. Best thing to do is to focus on the tier that represents the biggest catchment that your organization has the capability to act on. Most companies will stick with the strategic orientation that focuses on existing customers and seeking further segmentation opportunities. Only problem with this is the company is not producing a blue ocean that expands the market and creates new demands.