Reconstruct Market Boundaries

Reconstructing Market Boundaries The first principle of blue ocean strategy is to reconstruct market boundaries to break from the competition and create blue oceans.

Chapter Goals Are there systematic patterns? Are these patterns applicable across all types of industry sectors? Six Paths of remaking market boundaries

Red Ocean Strategy Define industry similarly and focus on being the best within it Generally accept strategic groups, and strive to stand out in the their group Focus on the same buyer group Define the scope of the products and services offered by their industry similarly Accept their industry’s functional or emotional orientation Focus on the same point in time—and often on current competitive threats—in formulating strategy

Six Paths Path 1: Look Across Alternative Industries Path 2: Look Across Strategic Groups Path 3: Look Across the Chain of Buyers Path 4: Look Across Complimentary Product and Service Offerings Path 5: Look Across Functional or Emotional Appeal to Buyers Path 6: Look Across Time

Path 1 Look Across Alternative Industries Substitutes Alternatives Example: A night out!

NetJets Successful company using Fractional Jet Ownership as its blue ocean strategy For only $375,000 (plus pilot, maintenance, and other monthly costs), a corporation can own one sixteenth share of a $6 million aircraft Point to point flights Alternative Charters Favorite foods and drinks

NetJets Commercial Airlines Corporate Jets Low Capital Cost High Travel Time Crowded airports D.C. to Sacramento 10.5 hour flight High Capital Cost No layovers Small regional airports D.C. to Sacramento 5.2 hour flight

NetJets’ Position IndustryB: Private Corporate Jets IndusrtyA: Traditional Airlines IndustryB: Private Corporate Jets NETJETS

NTT DoCoMo Internet Cellphones I M O D E

What is I-Mode? Cell phone with Killer Apps Goal: To make an affordable I-phone!!!

Path 2: Look Across Strategic Groups Within Industries Blue Ocean Strategy is diversified through companies and their industrial make up They market themselves towards foreseeable customers of their products or services

Example Businesses Curves is a women’s fitness business that has flourished. They target the women who have the thought of staying healthy yet aren’t the highest motivated. Located to be easily visited No men around Machines in positions to motivate socializing Machines suite women’s preferances “full range aerobic and strength training machines, juice bar, instructors, locker room (shower, sauna)”

Examples Ralph “high fashion with no fashion” luxury Toyota’s Lexus-high end Mercedes, BMW, and Jaguar at a price closer to the lower-end Cadillac and Lincoln Sony with the Sony Walkman-appealed to people working out and commuters Champion Enterprises- prefabricated houses that were cheap and allowed for the lower income to participate in living- appealed to wide variety

Best Buy They marketed themselves as a large electronic business with great customer service They labeled themselves with the “Geek Squad” Able to help out customers with anything electronic to installing electronics in vehicles

Path 3: Look Across the Chain of Buyers Purchasers of a product can be different from users and influencers Groups can overlap, have different definitions of value Corporate user vs. consumer user

Path 3: Look Across the Chain of Buyers Example: Novo Nordisk, Danish insulin provider Originally focused on key influencers – doctors Started to focus on patients and their comfort NovoPen, NovoLet, Innovo Think in terms of users rather than influencers

Path 3: Look Across the Chain of Buyers Bloomberg in the online financial industry Previously dominated by Reuters and Telerate Focused on purchasers – IT managers, who valued their standardized programs that made their lives easier Bloomberg focused on the users, traders and analysts Easy terminals and keyboards, two panel monitors, built in analytic capability Added ways for analysts to purchase items to enhance their personal lives

Path 4: Look Across Complementary Product and Service Offerings Few services are used in a vacuum. In most cases, other products and services affect their value Movie theaters Ease and cost of getting a babysitter and parking the car affect the perceived value of going to the movies Think about what happens before, during, and after your product is used

Path 4: Look Across Complementary Product and Service Offerings NABI, a Hungarian bus company The industry had low quality buses for low cost The low quality affects the bus needing more work done, thus spending more money Created a bus build from fiberglass, killed 5 birds with one stone Faster body repairs, cut fuel costs, fewer axels and lower powered engines, lower manufacturing costs, more space inside the bus Value curve cost more initially, but worth it. Revamped bus industry

Path 4: Look Across Complementary Product and Service Offerings Philips Electric in the British teakettle industry Lime scale found in tap water after boiling was a pain to remove from the teakettle Philips created a mouth filter on the teakettle to capture lime scale as the water is poured Kick started on a strong growth trajectory of British people all replacing their teakettles with new filtered teakettles

Path 4: Look Across Complementary Product and Service Offerings Borders and Barnes & Noble Don’t just sell books, sell the pleasure of reading Lounges, knowledgeable staff, coffee bars Celebrates reading, learning, intellectual exploration

Path 5: Look across functional or emotional appeal to buyers Competition in an industry tends to converge not only on an accepted notion of the scope of the products but also on one of two possible bases of appeal. Companies compete on calculations of utility or largely on feelings.

Competing on what you know! Most prestigious companies compete on what they did in the past. Behavior affects buyer’s expectations Market research rarely reveals new insights into what attracts customers.

Emotional vs. Functional Functionally industries in the challenge to change focus on finding new market space. Infuse commodity products. Emotionally orientated industries offer many extras that add price without enhancing functionally. Relationships improve business.

Transitioning into functional Companies over time still have the emotional appeal but are transitioning into more of a functional approach. If your company competes on functionality, what elements can be incorporated so you still show emotion?

Path 6: Look Across Time External trends affect all businesses over time Ex. Internet and going green Which direction will a technology evolve? How it will be adopted Whether it will become scalable How will the trend change value to customers?

Accessing Trends Across Time To form the basis of Blue Ocean Strategy….. Must be decisive to your business Must be irreversible Must have clear trajectory Ex: discontinuing technology, rise of new lifestyle, change in environment (regulatory or social)

The Euro Has been replacing Europe’s multiple currencies Blue Oceans can continue to be created as the European Union keeps enlarging

Apple 1990’s illegal music downloading Napster, Kazaa, LimeWire By 2003, more than 2 billion illegal music files downloaded every month No more desire to purchase CDs…need for digital music 2003 Apple launched iTunes

iTunes Legal, easily usable, flexible song downloads Cheaper than purchasing a CD Sound quality and excellent browsing and searching functions Wide range of song options available, unlike when searching for illegal downloads Protected recording companies by having copyright protection

Cisco Systems Growing demand for high-speed data exchange Create breakthrough value for customers Fast data exchanges and seamless networking environment Value innovation and technology

Blue Oceans using Path 6 CNN HBO How will trends impact your industry? 24-hour global news network Rising globalization HBO Sex and the City Trend of more urban, successful women having trouble finding love and marrying later in life How will trends impact your industry? How can you open up unprecedented customer utility?

Six-Path Framework

Conceiving New Market Space Recording market realities in a new way: Reconstructing existing market elements across industry and market boundaries, leading them to free themselves from head-to-head competition in the red ocean Now reframe strategy planning process to focus on the big picture and apply these paths in forming your blue ocean strategy!

Questions???