1. Andrea brandt Vanessa Gomez Rachele Reagan Team 5 Allison Schmidt
Blue Ocean Strategy
Chapter 5: Reaching Beyond Existing Demand
Andrea brandt
Vanessa Gomez
Rachele Reagan
Team 5
Allison Schmidt

2. Principles of Blue Ocean Strategy
Formulation Principles
Reconstruct market boundaries
Focus on the big picture, not the numbers
Reach beyond existing demand
Get the strategic sequence right
Execution Principles
Overcome key organizational hurdles
Build execution into strategy
-There are 7 principles of Blue Ocean Strategy

3. Reaching Beyond Existing Demand
Reaching beyond existing demand is the third principle of blue ocean strategy, a key component of achieving value innovation, and weakens the scale risk affiliated with creating a new market
It shows you how to maximize the size of the blue ocean you are creating
Usually to increase its market share, firms will strive to retain and expand its existing customers
This leads to finer segmentation and modifying offerings to meet customer preferences
Therefore, as competition intensifies this customization will increase also and risk the creation of too-small target markets

4. Opposite Approach
Too combat these issues, firms need to take the opposite approach
Firms must challenge those two conventional strategy practices:
Focusing on existing customers
concentrate and look to noncustomers
Driving for finer segmentation to accommodate buyer differences
find and build on the dynamic commonalities that buyers value
Callaway Golf decided to ask why people had not taken up golf and discovered the commonality that many found hitting a small golf ball to be too difficult
Callaway’s solution was to introduce the Big Bertha golf club which had a larger head to make it easier to hit a golf ball
Ended up being a big hit with noncustomers as well as existing customers who were having trouble mastering the skills needed to hit the ball consistently
Ultimately, think noncustomers before customers; commonalities before differences; and de-segmentation before pursing finer segmentation

5. The three tiers of noncustomers
Third Tier
Second Tier
First Tier
There are three tiers of noncustomers that can be transformed into customers
The tiers differ in their relative distance from your market
Your Market

6. First-tier noncustomers
“soon-to-be” noncustomers on the edge of your market, who minimally use the current market offerings waiting for something better to come along
Pret A Manger, a British fast-food chain, discovered professionals preferred a healthier, quicker, less expensive option for lunch as opposed to a pricey, time consuming sit-down restaurant
Their solution: provide restaurant- quality sandwiches that are made fresh each day, cost on average $4-$6 and spend on average only 90 second in line
-Pret Ah Mahn-jay (soft j)
-Noticed professionals

7. Second-tier noncustomers
“refusing” noncustomers who consciously choose against your market because they do not use or cannot afford the markets offerings so their needs or either ignored or dealt with in other means
The designer clothing industry has ignored the needs of many American women. The average American woman wears a size 14 dress but this is considered “plus-size” and many manufactures don’t produce clothing past size 12.
-Government statistics shows that 64% of American women are overweight. The majority of clothing brands do not make clothes that accommodate this segment of women. The average American women is a size 14 in dresses but many name brands and designers don’t produce and carry sizes bigger than 12. Anything 14 and up is considered “plus-size.” A study conducted by the World Health Organization shows that 1.6 billion people in the world are overweight. This is huge market for clothing companies to explore but they seem to just ignore it.
-Department stores like Kohl’s, JCPenny and Macy’s are going to typically offer more larger sizes than name brand clothing but still fail to offer many varying styles compared to the number of women in this market.
-Nordstrom offers 276 styles of plus size (14 and up) dresses and 2,392 styles in sizes 4-6
-Forever 21 offers 20 styles of plus size dresses and 360 styles in sizes 12 and under
-Express doesn’t even offer clothes larger than size 12
-The point being, even though plus size women represent a majority of the market, name brands have yet to take advantage of these second tier noncustomers. -

8. Third-tier noncustomers
“unexplored” noncustomers who have either not been targeted or thought of as potential customers because their needs have always been assumed to belong to other markets
In the last decade, with consumer preferences changing to healthier products, a new segment of nonconsumers has been uncovered
VS.
VS.
-There is a whole segment of consumers out there who just don’t consume soft drinks because they choose to consume healthier beverages. And over the last decade even existing customers seem to be shifting their preferences in the same direction.
-PepsiCo introduced Diet Pepsi (the first name brand diet soda) in 1964 but Coca-Cola refused to do this because they feared it would tarnish the image of their flagship product if they put their name on diet soda. Only after the popularity of Diet Pepsi became clear, then Coca-Cola launched Diet Coke in Coke was eventually able to overtake the diet soda market(Diet Coke #2 in terms of market share behind Coke) but had they acted faster they may have been able to capitalize on profits from it earlier.
-The Coca-Cola Company took the same approach when PepsiCo decided to enter into the bottled water market. They introduced Aquafina in 1994 and as of 2009, it is the #1 bottled water brand as measured by retail sales. Coca-Cola decided to follow suit in 1999 by introducing Dasani but it was never able to obtain a significant chunk of the market and sales actually started to dramatically fall in Coke acted too late in this case and has no been able to secure many of those noncustomers.
Introducing…
Girl Watching

9. Go for the biggest catchment
The potential in each tier varies across time and industries, therefore focus should be aimed at whatever tier represents the largest potential at the time
Also explore the idea that some tiers have commonalities that may overlap which can expand the scope of latent demand you release
Making the strategic decision not to explore noncustomers can result in:
Your market share becoming smaller and smaller due to increasing segmentation and customization
Competitors could attract the noncustomers and potentially your existing customers with value innovation
Ex: Aquafina vs. Dasani
-The importance and size of each tier is going to vary between industries and will change over time. Therefor, after firms to analyze each one, they should focus on the tier that offers the largest potential of demand at that time.
-The potential is always there that the tiers could overlap. Noncustomers in one tier may share a commonality with another tier. In this case, firms can kill two birds with one stone by attracting not just one but two tiers of noncustomers.
-If you firm fails to acknowledge the latent demand noncustomers provide, you risk the chance that your market share will shrink due to more and more customization and segmentation. You also take the risk that a competitor will attract those noncustomers with value innovation (like PepsiCo with Aquafina) and possibly even your existing customers