REACHING BEYOND EXISTING DEMAND Team 5 Jason Bullard Grant Gerhardt Patrick Kirkland Laura Moore Jeffri Vaughn Chet Visser

No company wants to venture beyond a red ocean only to find itself in a puddle No company wants to venture beyond a red ocean only to find itself in a puddle How do you maximize the size of the Blue Ocean you want to create How do you maximize the size of the Blue Ocean you want to create – By Reaching beyond your existing demand

To achieve the greatest demand a company must: To achieve the greatest demand a company must: – Focus on existing customers – Drive for a finer segmentation to accommodate buyer differences

Typically to grow their market share companies try to retain and expand existing customers Typically to grow their market share companies try to retain and expand existing customers – This practice often leads to two things: Finer Segmentation Finer Segmentation Greater Tailoring of offerings to meet customer preferences Greater Tailoring of offerings to meet customer preferences

As the competition increases so does the amount of customizations offered by the company As the competition increases so does the amount of customizations offered by the company – This practice often leads companies into creating too-small target markets

Maximizing the Blue Ocean To maximize the size of their Blue Ocean companies need to reverse course and consider: To maximize the size of their Blue Ocean companies need to reverse course and consider: – Looking to Non-Customers – Building powerful commonalities on what customers buy Doing this will allow companies to reach beyond existing demand to unlock a new mass of customers Doing this will allow companies to reach beyond existing demand to unlock a new mass of customers

Example 1: Callaway Golf Example 1: Callaway Golf – Understood that golf was very hard and frustrating for novices – They used this knowledge to create new clubs that were easier to hit and made golf enjoyable for beginners – By doing this they generated a massive set of new customers

Example 2: Commuter Airlines Example 2: Commuter Airlines – Saw an opportunity in connecting many underserved smaller communities to large cities – Used this information to create an entirely new business in the airline industry Short, usually less than and hour long flights that connect smaller airports to large airports to make traveling much easier and more efficient for people that lived away from large airports (Ex. Lubbock, Amarillo, and Abilene) Short, usually less than and hour long flights that connect smaller airports to large airports to make traveling much easier and more efficient for people that lived away from large airports (Ex. Lubbock, Amarillo, and Abilene)

Three Tiers of Non-customers These non-customers can be transformed into customers and offer a great opportunity to expand your business These non-customers can be transformed into customers and offer a great opportunity to expand your business Tier 1 Tier 1 – Closest to your market – Buyers who minimally purchase an industries offerings out of necessity – Do not perceive themselves as customers – Are willing to jump ship or multiply their purchase frequency depending on your product’s value

Tier 2 Tier 2 – Mid Range from your market – Refuse to use an industries offerings – They see the need for an industries products but do not wish to use them Tier 3 Tier 3 – Farthest from your market – Never thought of your industry’s offerings as and option

Takeaways Reach Beyond existing demand to increase your size Reach Beyond existing demand to increase your size To many customizations can lead to too small of markets To many customizations can lead to too small of markets The three Tiers The three Tiers

First-Tier Noncustomers Soon-to-be noncustomers Soon-to-be noncustomers Minimally use the current market offerings to get by as they search for something better Minimally use the current market offerings to get by as they search for something better When they find better alternatives, they will eagerly jump ship When they find better alternatives, they will eagerly jump ship Sit on the edge of the market Sit on the edge of the market

First-Tier Noncustomers As the number of first-tier noncustomers increases, the market becomes stagnant and develops a growth problem As the number of first-tier noncustomers increases, the market becomes stagnant and develops a growth problem Within these customers is an ocean of untapped demand waiting to be released Within these customers is an ocean of untapped demand waiting to be released

British fast-food chain British fast-food chain French for “Ready to Eat” French for “Ready to Eat” Specializes in sandwiches, baguettes, and wraps Specializes in sandwiches, baguettes, and wraps Opened in 1986 in London, arrived in America in 2000 in New York City Opened in 1986 in London, arrived in America in 2000 in New York City About 150 Pret shops, most in the UK About 150 Pret shops, most in the UK Expanded its blue ocean by tapping into the demand of first-tier noncustomers Expanded its blue ocean by tapping into the demand of first-tier noncustomers Don’t franchise Don’t franchise

Pret Before Pret, professionals in European city centers frequently went to restaurants for lunch Before Pret, professionals in European city centers frequently went to restaurants for lunch Sit-down restaurants offered a nice meal and setting Sit-down restaurants offered a nice meal and setting Number of first-tier noncustomers was rising Number of first-tier noncustomers was rising Need for healthy eating and cheaper options instead of eating out in restaurants Need for healthy eating and cheaper options instead of eating out in restaurants Some were grabbing something on the run, brown bagging, or skipping lunch Some were grabbing something on the run, brown bagging, or skipping lunch

Pret First-tier noncustomers were in search of better solutions First-tier noncustomers were in search of better solutions Three key things: Three key things: – Wanted lunch fast – Wanted fresh and healthy – Wanted reasonable price

Pret Pret formula is simple Pret formula is simple – Offers restaurant-quality sandwiches made fresh every day from only the finest ingredients – Makes the food available at a speed that is faster than that of restaurants and even fast food – Delivers this in a sleek setting at reasonable prices

Pret Along the walls are clean refrigerated shelves stocked with more than thirty types of sandwiches made fresh that day Along the walls are clean refrigerated shelves stocked with more than thirty types of sandwiches made fresh that day Average price $4-6 Average price $4-6

Pret Can also choose from salads, yogurt, parfaits, blended juices, and sushi Can also choose from salads, yogurt, parfaits, blended juices, and sushi Each store has its own kitchen, and non- fresh items are made by high-quality producers Each store has its own kitchen, and non- fresh items are made by high-quality producers

Pret Make stuff fresh so they can sell fresh Make stuff fresh so they can sell fresh – Old fashioned but works well Donates sandwiches to charity rather than keep them over to sell the next day Donates sandwiches to charity rather than keep them over to sell the next day – Food doesn’t have “shelf life” dates

Pret In NYC store In NYC store – Baguettes from Paris – Croissants from Belgium – Danish pastries from Denmark

Fast Food vs. Pret Pret speeds up the customer ordering experience Pret speeds up the customer ordering experience Fast food Fast food – Order, Pay, Wait, Receive, Sit down Pret Pret – Browse, pick up, pay, leave On average, customers spend just 90 seconds from the time they get in line to the time they leave the shop On average, customers spend just 90 seconds from the time they get in line to the time they leave the shop – Does not make to order or serve customers

Restaurants vs. Pret Restaurants have been seeing stagnant demand Restaurants have been seeing stagnant demand Pret has been converting the mass of first- tier noncustomers into core thriving customers who eat at Pret more than they used to eat at restaurants Pret has been converting the mass of first- tier noncustomers into core thriving customers who eat at Pret more than they used to eat at restaurants

Lesson of Pret Noncustomers tend to offer far more insight into how to unlock and grow a blue ocean than do relatively content existing customers Noncustomers tend to offer far more insight into how to unlock and grow a blue ocean than do relatively content existing customers

Today, Pret sells more than 25 Million sandwiches a year Today, Pret sells more than 25 Million sandwiches a year 2002 Sales of $160 Million 2002 Sales of $160 Million McDonalds bought 33 percent share of the company McDonalds bought 33 percent share of the company

First-Tier Noncustomers What are the key reasons first-tier noncustomers want to jump ship and leave your industry? What are the key reasons first-tier noncustomers want to jump ship and leave your industry? – Look for commonalities across their responses Like Restaurant eaters’ three similarities Like Restaurant eaters’ three similarities – Fast Lunch – Fresh and healthy – Reasonable prices – Focus on commonalities and not differences Desegment buyers and unleash an ocean of latent untapped demand Desegment buyers and unleash an ocean of latent untapped demand

Second-Tier Refusing Noncustomers Refusing customers are people who either do not use or cannot afford to use the current market offerings because they find the offerings unacceptable or beyond their means Refusing customers are people who either do not use or cannot afford to use the current market offerings because they find the offerings unacceptable or beyond their means

JCDecaux Outdoor advertising was originally limited to billboards and transports Outdoor advertising was originally limited to billboards and transports – People only saw the ads for a short time – Cannot include comprehensive messages needed to promote new names and products – Relatively expensive

JCDecaux JCDecaux realized that the lack of stationary downtown locations was the key reason outdoor advertising remained unpopular and small JCDecaux realized that the lack of stationary downtown locations was the key reason outdoor advertising remained unpopular and small JCDecaux researched the issue and found that municipalities could offer stationary downtown locations such as bus stops JCDecaux researched the issue and found that municipalities could offer stationary downtown locations such as bus stops – People often wait at bus stops for a few minutes and therefore had more time to be influenced by the ads

JCDecaux JCDecaux provided street furniture and its related maintenance and upkeep to municipalities for free JCDecaux provided street furniture and its related maintenance and upkeep to municipalities for free – This gave them exclusive rights to display advertisements on the furniture

JCDecaux JCDecaux’s solution let everybody win JCDecaux’s solution let everybody win – Municipalities gain free furniture and its related upkeep – JCDecaux gains rights to advertise on the furniture – Previously refusing noncustomers pay JCDecaux for advertising on the furniture Ads have longer exposure time Ads have longer exposure time Ads can have more detailed messages Ads can have more detailed messages Ads can be put up in 2-3 days rather than about 15 days for billboards Ads can be put up in 2-3 days rather than about 15 days for billboards

Third Tier of Noncustomers Tier 3 is the “unexplored noncustomers who are in markets distant from yours” Tier 3 is the “unexplored noncustomers who are in markets distant from yours” This is as far away as you can get from your market, including your usual, original, or existing customer base This is as far away as you can get from your market, including your usual, original, or existing customer base

U.S. Defense Aerospace Industry This is the example in the book This is the example in the book The Marines, Navy, and Air Force needed different fighter jets for different reasons. And the U.S. has been criticized for not being able to control aircraft costs The Marines, Navy, and Air Force needed different fighter jets for different reasons. And the U.S. has been criticized for not being able to control aircraft costs Much research was done to find out what each branch needed most in its aircraft, and combined each one’s attributes Much research was done to find out what each branch needed most in its aircraft, and combined each one’s attributes To fix this problem Lockheed Martin was given the job over Boeing and a single fighter jet that used to cost $190 million would now cost only $33 million To fix this problem Lockheed Martin was given the job over Boeing and a single fighter jet that used to cost $190 million would now cost only $33 million

Who is sick of me talking about The Home Depot? Well too bad!! Well too bad!!

Home Depot’s 3 rd Tier Women! Women! – "Her Depot," the store will abandon Home Depot's warehouse aesthetic in favor of shorter, "cleaner" aisles that emphasize home organization and interior design (Consumerist.com) (Consumerist.com) – Home Depot opened up Home Depot Design Centers for couples, but are definitely geared towards women

Home Depot’s 3 rd Tier Hispanics! Hispanics! – Home Depot Launched its Spanish website on November 17, 2008 – A study of English and Spanish-language consumers conducted last year by Forrester Research Inc. found that one-fourth of Hispanics must be served in Spanish if retailers want their business. More than half of Hispanics who shop online—7.1 million people, by Forrester’s count—prefer Spanish (Commercialalert.org)

So… Always find out who you’re not catering to… Always find out who you’re not catering to… And find a way to cater to them!!!!

Go For The Biggest Catchment There is no hard-and-fast rule to suggest which tier of noncustomers you should focus on and when

The Biggest Catchment Because the scale of blue ocean opportunities that a specific tier of noncustomers can unlock varies across time and industries, you should focus on the tier that represents the biggest catchment at the time Because the scale of blue ocean opportunities that a specific tier of noncustomers can unlock varies across time and industries, you should focus on the tier that represents the biggest catchment at the time

The Biggest Catchment You should also explore whether there are overlapping commonalities across all three tiers of noncustomers You should also explore whether there are overlapping commonalities across all three tiers of noncustomers In that way, you can expand the scope of latent demand you can unleash… In that way, you can expand the scope of latent demand you can unleash…

The Largest Catchment When there are overlapping commonalities, you should focus not on a specific tier, but instead look across the tiers When there are overlapping commonalities, you should focus not on a specific tier, but instead look across the tiers The rule here is to go for the largest catchment The rule here is to go for the largest catchment

Creating Your Blue Ocean The natural strategic orientation of many companies is toward retaining existing customers and seeking further segmentation opportunities The natural strategic orientation of many companies is toward retaining existing customers and seeking further segmentation opportunities This is especially true in the face of competitive pressures… This is especially true in the face of competitive pressures…

Creating Your Blue Ocean This might be a good way to gain a focused competitive advantage and increase share of the existing market space, but it is not likely to produce a blue ocean that expands and creates new demand This might be a good way to gain a focused competitive advantage and increase share of the existing market space, but it is not likely to produce a blue ocean that expands and creates new demand

Creating Your Blue Ocean It’s not wrong to focus on existing customers or segmentation It’s not wrong to focus on existing customers or segmentation Try to challenge the existing, taken-for- granted strategic orientations Try to challenge the existing, taken-for- granted strategic orientations

Creating Your Blue Ocean To maximize the scale of your blue ocean, you should first reach beyond existing demand to noncustomers To maximize the scale of your blue ocean, you should first reach beyond existing demand to noncustomers If no such strategies can be found, you can then move on to further exploit differences among existing customers…but you may end up landing in a smaller ocean If no such strategies can be found, you can then move on to further exploit differences among existing customers…but you may end up landing in a smaller ocean

The Blue Ocean It is not enough to maximize the size of the blue ocean you are creating It is not enough to maximize the size of the blue ocean you are creating You must profit from it to create a sustainable win-win outcome You must profit from it to create a sustainable win-win outcome

Blue Oceans on the Course The Callaway Big Bertha The Callaway Big Bertha The Nike Sumo 2 — first square-shaped driver The Nike Sumo 2 — first square-shaped driver The Callaway HX golf balls—designed with hexagonal dimples to increase the total dimple surface area The Callaway HX golf balls—designed with hexagonal dimples to increase the total dimple surface area How about ladies’ golf clubs for reaching across tiers? How about ladies’ golf clubs for reaching across tiers?

Golf Notes 1618—feathery golf ball 1618—feathery golf ball 1826—American hickory is shipped to Scotland to manufacture shafts 1826—American hickory is shipped to Scotland to manufacture shafts 1848—the gutta-purcha (or guttie) ball replaces feathery 1848—the gutta-purcha (or guttie) ball replaces feathery 1902—first grooved set of clubs 1902—first grooved set of clubs 1929—steel shafts are legalized 1929—steel shafts are legalized

References Welcome to Pret A Manger New York. 15 Feb Welcome to Pret A Manger New York. 15 Feb Kim, W. Chan, and Ren Mauborgne. Blue Ocean Strategy : How to Create Uncontested Market Space and Make the Competition Irrelevant. New York: Harvard Business School P, Kim, W. Chan, and Ren Mauborgne. Blue Ocean Strategy : How to Create Uncontested Market Space and Make the Competition Irrelevant. New York: Harvard Business School P, 2005.