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Title: Blue Oceans


1
Blue Oceans
  • Part TwoFormulating Blue Ocean Strategy

1
2
Formulation Principles Risk Factors
Reconstruct market boundaries Lowers Search risk
Focus on the big picture, not the numbers Lowers Planning risk
Reach beyond existing demand Lowers Scale risk
Get the strategic sequence right Lowers Business model risk
3
Reach Beyond Existing Demand
3
4
Reach Beyond Existing Demand
  • The Three Tiers of Noncustomers

1st Tier
3rd Tier
2nd Tier
Your Market
4
5
Reach Beyond Existing Demand
  • The Three Tiers of Noncustomers
  • First Tier Soon-to-be noncustomers
  • On the edge of your market
  • Waiting to jump ship.Minimally use the current
    market offerings to get by as they search for
    something better.

1st Tier
Your Market
5
6
Reach Beyond Existing Demand
  • The Three Tiers of Noncustomers
  • Second Tier Refusing noncustomers
  • Consciously choose against your market.Their
    needs are either dealt with by other mean or
    ignored.
  • Harboring within refusing noncustomers, however,
    is an ocean of untapped demand waiting to be
    released.

2nd Tier
6
7
Reach Beyond Existing Demand
  • The Three Tiers of Noncustomers
  • Third Tier Unexplored Have not been targeted
    or thought of as potential customers by any
    player in the industry
  • Their needs and the business opportunities
    somehow always been assumed to belong to other
    markets.

3rd Tier
7
8
Get the Strategic Sequence Right
8
9
9
10
Buyer Experience Cycle
A buyers experience can usually be broken into a
cycle of six stages, running more or less
sequentially from purchase to disposal. Each
stage encompasses a wide variety of specific
experiences. At each stage, managers can ask a
set of questions to gauge the quality of buyers
experience.
Purchase
Delivery
Use
Supplements
Maintenance
Disposal
How long does it take to find the product you
need? Is the place of purchase attractive and
accessible? How secure is the transaction
environment? How rapidly can you make a purchase?
How long does it take to get the product
delivered? How difficult is it to unpack and
install the new product? Do buyers have to
arrange delivery themselves? If yes, how costly
and difficult is this?
Does the product require training or expert
assistance? Is the product easy to store when not
in use? How effective are the products features
and functions? Does the product or service
deliver far more power or options than required
by the average user? Is in overcharged with
bells and whistles?
Do you need other products and services to make
this product work? If so, how costly are
they? How much time do they take? How easy are
they to obtain?
Does the product require external
maintenance? How easy is it to maintain and
upgrade the product? How costly is maintenance?
Does use of the product create waste items? How
easy is it to dispose of the product? Are there
legal or environmental issues in disposing of the
product safely? How costly is disposal?
11
Uncovering Blocks to Buyer Utility
Uncovering blocks to buyer utility can identify
the most compelling hot spots to unlock
exceptional utility. By locating your proposed
offering on the thirty-six space of the buyer
utility map, you can clearly see how, and whether
the new idea not only creates a different utility
proposition from existing offerings but also
removes the biggest blocks to utility that stand
in the way of converting noncustomers into
customers.
Purchase Delivery Use Supplements Maintenance Disposal
Customer Productivity In which stage are the biggest blocks to customer productivity?
Simplicity In which stages are the biggest blocks to simplicity?
Convenience In which stage are the biggest blocks to convenience?
Risk In which stage are the biggest blocks to reducing risks?
Fun and Image In which stage are the biggest blocks to fun and image?
Environmental Friendliness In which stage are the biggest blocks to environmental friendliness?
12
Buyer Utility Map
The buyer utility map helps managers look at this
issue from the right perspective. It outlines
all the levers companies can pull to deliver
exceptional utility to buyers as well as the
various experiences buyers can have with a
product or service.
The Six Stages of the Buyer Experience Cycle
1. Purchase
2. Delivery
3. Use
4. Supplements
5. Maintenance
6. Disposal






Customer Productivity
Simplicity
The Six Utility Levers
Convenience
Risk
Fun and Image
Environmental friendliness
13
Price Corridor of the Mass
This tool helps managers find the right price for
an irresistible offer, which, by the way, isnt
necessarily the lower price. The tool involves
two distinct buy interrelated steps. The first
step involves identifying the price corridor of
the mass which deals with customer price
sensitivity and pricing strategies of products
offered outside the group of traditional
competitors. The second step deals with
specifying a level within the price corridor
which factors in legal protection and exclusive
assets.
Step 1 Identify the price corridor of the mass.
Step 2 Specify a price level within the price
corridor.
Three alternative product/service types
Different form and function, same objective
Same form
Different form, same function
High degree of legal and resource
protection Difficult to imitate



Upper-level pricing
Some degree of legal and resource protection
Mid-level pricing
Price Corridor of the Mass
Low degree of legal and resource protection Easy
to imitate
Lower-level pricing
14
Reconstructing Market Boundaries
14
15
Reconstructing Market Boundaries
  • The first principle of blue ocean strategy is to
    reconstruct market boundaries
  • break from the competition
  • create blue oceans.
  • Challenge
  • successfully identify compelling blue oceans

15
16
Reconstructing Market Boundaries
  • Six Approaches that Look Across
  • Alternative Industries
  • Strategic Groups Within Industries
  • The Chain of Buyers
  • Complementary Product and Service Offerings
  • Functional or Emotional Appeal to Buyers
  • Look Across Time

16
17
Reconstructing Market Boundaries
  • Look Across Alternative Industries
  • Broader than substitutes
  • Products Service Substitutes
  • different forms but same functionality
  • Products Service Alternatives
  • different functionality and forms but same purpose

17
18
Reconstructing Market Boundaries
  • Look Across Alternative Industries QUESTION
  • Name the 2 examples the book uses?

18
19
Reconstructing Market Boundaries
  • Look Across Alternative Industries FIRST
    EXAMPLE CLUE
  • Sorting out personal finances

19
20
Reconstructing Market Boundaries
  • Look Across Alternative Industries FIRST
    EXAMPLE
  • Sorting out personal finances
  • Installing financial software packages on a
    computer
  • hiring a CPA
  • using pencil and paper
  • What is it?
  • different forms but same functionality
  • different functionality and forms but same purpose

20
21
Reconstructing Market Boundaries
  • Look Across Alternative Industries FIRST
    EXAMPLE
  • Sorting out personal finances
  • Installing financial software packages on a
    computer
  • hiring a CPA
  • using pencil and paper
  • What is it?
  • different forms but same functionality
  • Helps people manage financial affairs

21
22
Reconstructing Market Boundaries
  • Look Across Alternative Industries SECOND
    EXAMPLE CLUE
  • Cinemas vs. Restaurants

22
23
Reconstructing Market Boundaries
  • Look Across Alternative Industries SECOND
    EXAMPLE
  • Cinemas vs. Restaurants
  • Restaurants offer conversational gastronomical
    pleasure
  • Cinemas visual entertainment
  • What is it?
  • different forms but same functionality
  • different functionality and forms but same purpose

23
24
Reconstructing Market Boundaries
  • Look Across Alternative Industries SECOND
    EXAMPLE
  • Cinemas vs. Restaurants
  • Restaurants offer conversational gastronomical
    pleasure
  • Cinemas visual entertainment
  • What is it? CLUE
  • Same objective but its not a substitite
  • about enjoying a night out - therefore they are
    alternatives of each other

24
25
Reconstructing Market Boundaries
  • Look Across Alternative Industries SECOND
    EXAMPLE
  • Cinemas vs. Restaurants
  • Restaurants offer conversational gastronomical
    pleasure
  • Cinemas visual entertainment
  • What is it?
  • different functionality and forms but same purpose

25
26
Reconstructing Market Boundaries
  • Look Across Alternative Industries RECAP
  • Sorting out personal finances
  • different forms but same functionality
  • Cinemas vs. Restaurants
  • different functionality and forms but same purpose

26
27
Reconstructing Market Boundaries
  • Look Across Alternative Industries QUESTION
  • What was the deal with NetJets?

27
28
Reconstructing Market Boundaries
  • What was Netjets Blue Ocean?

28
29
Reconstructing Market Boundaries
  • fractional jet ownership

29
30
Reconstructing Market Boundaries
  • Look Across Alternative Industries NetJets
  • Blue ocean of fractional jet ownership
  • In less than 20 years, it was the fastest growing
    airline company
  • Over 500 aircraft - Operating in over 40
    countries
  • Purchased by Berkshire Hathaway in 1998
  • Revenue growth from 30-35 each year

30
31
Reconstructing Market Boundaries
  • Look Across Alternative Industries NetJets
    SUMMARY
  • NetJets reconstructed market boundaries to create
    their blue ocean by looking across alternative
    industries

31
32
How did they reconstruct market boundaries to
create their blue ocean?
33
Reconstructing Market Boundaries
  • They asked
  • Why do corporations use commercial airlines for
    their travel?
  • What are the Costs.

33
34
Reconstructing Market Boundaries
  • They responded
  • Offerering customers 1/16th ownership of an
    aircraft shared with 15 other customers who all
    Receive
  • 50 hrs of flight time per year for 375,000
  • Private jet at the price of a commercial airline
    ticket

Due to NetJets smaller airplanes, use of smaller
regional airports, and limited staff, their costs
are kept to a minimum
34
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36
What are dead head fees?
37
  • Dead head fees are
  • Additional client costs, calculated per mile,
    that apply when the pick up, drop off location,
    or
  • The service area is not within 25 miles of the
    bus company, or
  • Charters where the mileage fee is greater than
    the hourly fees.

38
Reconstructing Market Boundaries
  • Look Across Functional or Emotional Appeal to
    Buyers
  • What Industries should compete on
  • Rational appeal
  • Emotional appeal
  • Appeal usually a result of how companies have
    competed in the past
  • Ex Functionally oriented companies become more
    functionally oriented

38
39
Reconstructing Market Boundaries
  • Look Across Functional or Emotional Appeal to
    Buyers
  • Change
  • Emotionally oriented industries offer extras at
    extra price without enhancing functionality
  • By stripping those extras it would create a
    fundamentally simpler business model
  • Functionally oriented industries can add emotion
    to their products to stimulate demand

39
40
Reconstructing Market Boundaries
  • Look Across Functional or Emotional Appeal to
    Buyers
  • Example Quick Beauty House
  • Traditional Japanese haircuts - took around an
    hour because of rituals
  • Price was around 27 to 45 -- Reduced to around
    9
  • Decided working professionals did not want to
    waste an hour
  • Stripped the emotional service of the haircut -
    focused on basic cuts

40
41
Reconstructing Market Boundaries
  • Look Across Functional or Emotional Appeal to
    Buyers
  • Look Across Buyerss Utility and how they
    purchase
  • Example Cemex
  • Worlds 3rd-largest cement producer Blue ocean
    functional to emotional
  • Cement houses were the dreams of the people of
    Mexico - unaffordable
  • Foundation of tandas
  • While competitors were selling cement, Cemex was
    selling dreams

41
42
What defines the Bottom of the Pyramid?
Annual per capita income (1)
Population in millions
More than 20,000
75-100
1,500 - 20,000
1,500 1,750
Less than 1,500
4,000
(1) Based on purchasing parity in US
Source U.N. World Development Reports
43
Six Assumptions You May Be Making
  • 1. The poor are not our target customers because
    with our current cost structures, we cannot
    profitably compete for that market.
  • 2. The poor cannot afford and have no use for the
    products and services sold in developed markets.
  • 3. Only developed markets appreciate and will pay
    for new technology. The poor can use the previous
    generation of technology.
  • 4. The bottom of the pyramid is not important to
    the long-term viability of our business. We can
    leave Tier 4 to governments and nonprofits.
  • 5. Managers are not excited by business
    challenges that have a humanitarian dimension.
  • 6. Intellectual excitement is in developed
    markets. It is hard to find talented managers who
    want to work at the bottom of the pyramid.
  • Source C.K. Prahalad and Stuart L. Hart, The
    Fortune at the Bottom of the Pyramid, strategy
    business, Issue 26

Every single one of these assumptions is
generally wrong.
44
Cemex Launched the Patrimonio Hoy Project for the
Poor People of Guadalajara (Mexico)
How can we give poor people access to the
home-owning experience faster?
45
The Challenge for Poor People Building Their
Home One Room at a Time
Self-construction market
Cement bag
How can we accelerate access to the cement bag
for poor people?
46
Patrimonio Hoy Builds on an Existing Community
Called a Tanda
  • Tanda concept
  • A tanda is a traditional Mexican community
    savings scheme.
  • For example, 10 people save 1 peso per month.
  • Every five months, the accumulated savings is won
    in a lottery by one of five people, who receives
    50 pesos.
  • All participants win the 50 pesos one time only.
  • Traditionally, the tanda money goes toward
    festive events.
  • With Patrimonio Hoy, the winner receives a bag
    of cement from Cemex.
  • The value is in the acceleration of access to the
    larger sum, and in the discipline of savings
    that is created (community peer pressure).

Communities nearly always play a role in solving
bottom-of-the-pyramid problems
47
A win-win solution for Cemex and tandas
  • Microcredit lending to the tanda
  • Based on solidarity of a group of at least 3
    people.
  • No collateral required.
  • 4 credit for each 1 saved.
  • Security of supply
  • Frozen prices for 70-week periods.
  • Warehousing services to store materials according
    to customer needs.
  • Technical advice
  • Customized house growth project for each family,
    phased one room at a time.

48
Results from the customers standpoint
  • More than 75,000 families have participated.
  • Customers in 23 cities served by 48 Cemex
    offices.
  • Families have built the equivalent of 33,000
    additional 11-square meter rooms.
  • Accelerated access to home-owning 1 room in 16
    months vs. 48 months historically.

49
Results for Cemex
  • Results from Cemexs standpoint
  • Excellent credit results
  • On-time payments better than 99.
  • Demand expansion
  • Accelerated cement use.
  • Creation of a new market valued at 500-600 MM.
  • Growing quickly.
  • Branding
  • Increased brand loyalty.
  • Brand preference in other segments based on
    demonstrated socially responsible programs.
  • Generating its own growth resources
  • Customers become Cemex cement salespeople.

50
  • Curves

50
51
Reconstructing Market Boundaries
  • Look Across Strategic Groups Within Industries
    CURVES
  • Blue ocean demand for women failing to keep in
    shape
  • Built on two strategic groups
  • traditional health clubs and home exercise
    programs
  • eliminated everything else
  • Asked What makes women trade either up or down
    from these two strategic groups?
  • Curves low-cost business model makes its
    franchises easy to afford and are profitable
    within the first couple of months
  • Curves facilities now exist in most towns all
    over the U.S. and North America and have expanded
    into Europe

51
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Reconstructing Market Boundaries
  • Look Across Strategic Groups Within Industries
    CURVES
  • Asked What makes women trade either up or down
    from these two strategic groups?
  • Makes its franchises easy to afford
  • profitable within the first couple of months
  • All over the U.S. / North America and Europe

52
53
Reconstructing Market Boundaries
  • Look Across Strategic Groups Within Industries
    Group Others
  • Polo Ralph Lauren
  • Toyotas Lexus as a Luxury Car
  • Sonys Walkman in the late 1970s
  • Champion Enterprises prefabricated housing

53
54
Reconstructing Market Boundaries
  • Look Across The Chain of Buyers
  • Typically, industry focuses on who the target
    buyer is.
  • In reality, there is a chain of buyers
  • purchasers, users, and influencers
  • Each hold different definitions of value

54
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Reconstructing Market Boundaries
  • Look Across The Chain of Buyers
  • Individual companies in an industry often target
    different customer segments.
  • large vs. small customers
  • An industry typically converges on a single buyer
    group
  • Pharmaceutical industry - influencers
  • Office Equipment industry - purchasers
  • Clothing industry - users

55
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Reconstructing Market Boundaries
  • Look Across The Chain of Buyers
  • Novo Nordisk created a blue ocean in the insulin
    industry and transformed from an insulin producer
    to a diabetes care company.
  • Industry focused on doctors - shifted to users
    (patients) rather than doctors.
  • NovoPen 1st user-friendly insulin delivery
    system
  • NovoLet prefilled disposable insulin pen
  • Innovo electronic memory records

56
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Reconstructing Market Boundaries
  • Look Across The Chain of Buyers
  • Industry focused on purchasers (IT managers)
  • Bloomberg saw traders analysts making the
    crucial decisions for their employers
  • -Designed system to offer users better value
    with a easy-to-use, broker-friendly computer
    system
  • -Also added information and purchasing services
    to enhance their personal lives
  • In return the traders analysts exerted their
    power within the firm to drive IT managers to
    purchase from Bloomberg.

57
58
Reconstructing Market Boundaries
  • Look Across Complementary Product Service
    Offerings
  • What is the context in which your product or
    service is used?
  • What happens before, during, and after?
  • Can you identify the pain points?
  • How can you eliminate these pain points through a
    complementary product or service offering?
  • Untapped value is often hidden in complementary
    products and services. Define the total
    solution buyers seek when they choose a product
    or service.

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Reconstructing Market Boundaries
  • Complementary Product and Service Offerings
  • Examples
  • Virgin Entertainments Megastores
  • Dyson Vacuums
  • Zenecas Salick Cancer Centers

59
60
Reconstructing Market Boundaries
  • Alternative Industries QUESTION
  • What was the deal with NTT DoCoMos i-mode?

60
61
Reconstructing Market Boundaries
  • What was DoCoMos Blue Ocean?

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Reconstructing Market Boundaries
  • Look Across Alternative Industries DoCoMo
  • Largest telecommunications company in Japan
  • Changed the way people communicate and access
    information
  • Created blue ocean by thinking of why people
    trade across alternatives of mobile phones and
    the internet

62
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Reconstructing Market Boundaries
  • Look Across Alternative Industries DoCoMo
  • Largest telecommunications company in Japan -
    Changed the way people communicate and access
    information
  • Created blue ocean by thinking of why people
    trade across alternatives of mobile phones and
    the internet
  • Deregulation of telecommunication industry in
    Japan, it was easy for new competitors to enter
    the market
  • Result rising costs, and the average revenue per
    consumer fell
  • Broke out of red ocean by creating wireless
    transmission of voice, text, data, and pictures

63
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Reconstructing Market Boundaries
  • Look Across Strategic Groups Within Industries
  • Companies in an industry that pursue similar
    domain
  • Mercedes, BMW, and Jaguar all focus on
    outcompeting one another in the luxury car
    segment versus
  • Economy car makers who focus on excelling over
    one another in their strategic group.

64
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Reconstructing Market Boundaries
  • Look Across Strategic Groups Within Industries
    QUESTION
  • What company does the author focus on?

65
66
Reconstructing Market Boundaries
  • Look Across Time
  • All industries are subject to external trends
    that effect their businesses over time
  • Internet
  • Going Green to protect the planet
  • Most companies adapt incrementally / passively as
    trends emerge focusing
  • projecting the trend itself
  • paceing themselves to keep up with the trend.
  • HOW Get out of Red Oceans and develop a Blue
    Ocean strategy?

66
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Reconstructing Market Boundaries
  • Look Across Time
  • Example Internet
  • buying text books online
  • cheaper to purchase books online
  • trend increasing - local stores beware will have
    to see how they can create a blue ocean strategy

67
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Reconstructing Market Boundaries
  • Look Across Time
  • Example protecting the planet.
  • Many companies adapted to consumer needs such as
    creating hybrid vehicles.
  • however these companies are still competing
    within the red ocean.

68
69
Reconstructing Market Boundaries
  • Look Across Time
  • Blue oceans arise from seeing how the trend will
    change value to customers - Three Principles
  • Trends must be decisive to your business
  • Trends must be irreversible
  • Trends must have a clear trajectory
  • Example The Asian Crisis of 1997 vs. the Euro

69
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Reconstructing Market Boundaries
  • Look Across Time
  • Digital music downloading Apples iTunes
  • Legal, easy to use, flexible
  • While more digital music stores enter the market,
    Apple kept a blue ocean with the iPhone.
  • High-Speed data exchange Cisco Systems
  • File share downloading by kazaa, limewire, and
    napster was rapidly growing however - illegal,
    sound quality was bad, few complete cds

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Reconstructing Market Boundaries
  • Look Across Time Questions
  • What trends have a high probability of impacting
    your industry, are irreversible, and are
    evolving?
  • How will these trends impact your industry?
  • Given this, how to start unprecedented customer
    utility

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From Head-to-Head Competition to Blue ocean Creation From Head-to-Head Competition to Blue ocean Creation From Head-to-Head Competition to Blue ocean Creation
Head-to-Head Competition Head-to-Head Competition Blue Ocean Creation
Industry Focuses on rivals within its industry Looks across alternative industry Looks across alternative industry
Strategic group Focuses on competitive position Within strategic group Looks across strategic groups within industry Looks across strategic groups within industry
Buyer Group Focuses on better serving the buyer group Redefines the industry buyer group Redefines the industry buyer group
Scope of product or service offering Focuses on maximizing the value of product service offerings within the bounds of its industry Looks across to complementary product and service offerings Looks across to complementary product and service offerings
Functional emotional orientation Focuses on improving price performance within the functional-emotional orientation of its industry Rethinks the functional-emotional orientation of its industry Rethinks the functional-emotional orientation of its industry
Time Focuses on adapting to external trends as they occurs Participants in shaping external trends over time Participants in shaping external trends over time
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The Big Picture, Not the Numbers
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The Big Picture, Not the Numbers
  • Visual Awakening
  • Compare your business with your competitors by
    drawing your as is strategy canvas.
  • See where your strategy needs to change.

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The Big Picture, Not the Numbers
  • Visual Exploration
  • Go into the field to explore the six paths to
    creating blue oceans.
  • Observe the distinctive advantages of alternative
    products and services.
  • See which factors you should eliminate, create,
    or change.

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The Big Picture, Not the Numbers
  • Visual Strategy Fair
  • Draw your to be strategy canvas based on
    insights from field observations.
  • Get feedback on alternative strategy canvases
    from customers, competitors customer, and
    noncustomers.
  • Use feedback to build the best to be future
    strategy

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The Big Picture, Not the Numbers
  • Visual Communication
  • Distribute your before-and-after strategic
    profiles on one page for easy comparison.
  • Support only those projects and operational moves
    that allow your company to close the gaps to
    actualize the new strategy.

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In My view it should be Big PictureTHEN the
numbers
80
The Big Picture, THEN the mumbers
  • If you are driving innovation from below.. good
    visuals like value-curves are often key to
    getting quick buy-in from upper management.
  • But some (what MB type are they??) will quickly
    want to drill down into supporting data so be
    ready to back it up.

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