REACH BEYOND EXISTING DEMAND

Chapter 5

Introduction Focus on maximizing size of Blue

Ocean being created Companies must challenge two

conventional strategies Focus on existing customersDrive for finer segmentation

Finer segmentation often creates smaller target markets

Maximizing Size of Blue Oceans Companies must focus on

noncustomers Build commonalities in buyer’s value Example: Callaway Golf

Focused on why people weren’t playing golfFound it was too difficult to hit the ballIntroduced their product Big Bertha

The Goal The Goal: Find insight to get

noncustomers to become customers Example: Coca Cola

The Three Tiers First: Buyers who minimally purchase

your industry offering=Necessity Second: Buyers who have seen what’s

offered but don’t use. Example: Callaway

Third: Have never thought of your market or industry offerings

Graphic Representation

First-Tier Noncustomers Soon-to-be noncustomers are those who

minimally use the current market offerings to get by as they search for something better

Upon finding better alternative, they eagerly jump shipTend to sit on the edge of the market

Market Results Market grows stagnant as soon-to-be

noncustomers increaseThis develops an opportunity for untapped

demand waiting to be released

Pret A Manger Expanded Blue Ocean by tapping into

demand of first tier noncustomer People second guessed their choice of

eating at restaurants because they wanted healthier, faster, and less expensive options

Key Commonalities First-tier noncustomer had three

commonalitiesWanted lunchWanted it fresh and healthyWanted it at a reasonable price

Pret A Manger Formula Offers restaurant quality sandwiches

made fresh everyday Finest ingredients Makes food available faster than

restaurants and fast food Sleek setting Reasonable prices

Pret A Manger Style Clean, Art Deco style 30+ choices of sandwiches $4-$6 Made in specific shop Fresh ingredients that are delivered that

specific day Also offers additional healthy options

Ordering Experience Fast food: queue-order-pay-wait-

receive-sit down Pret A Manger: browse-pick up-pay-

leave90 seconds in store average

How is it possible? Makes their ready-made sandwiches at

a high volume with high standardization assembly

No made-to-order and no serving customer

The Lesson Noncustomers tend to offer far more

insight on how to unlock and grow a Blue Ocean than relatively content-existing customers

Pret A Manger Today Sells more than 25 million sandwiches

annually 130 UK stores Now in Hong Kong and New York With $160 million in sales, McDonalds

bought 33% of its shares

Second-Tier Noncustomers

Refusing noncustomersDon’t use/can’t afford current market

offeringsFind them unacceptable or beyond their

means

JCDecaux Discovered problem:

Outdoor advertisement space undesirableBillboards and transport ads

○ No time for people to experience the ad Discovered solution:

“Street furniture” in 1964Municipalities offer stationary locations

○ Bus stops downtown

JCDecaux Success “Street furniture”

Permitted richer contents and more complex messages

Campaigns could begin in 2-3 days as opposed to 15 days for billboards

Extensive contracts8-25 yearsMostly variable costs

○ Maintenance and renewal of furniture

JCDecaux Today Number one street furniture-based ad

space provider worldwide Possess 283,000 panels in 33 countries

Third-Tier Noncustomers Farthest from your current customers These are unexplored noncustomers Customers have not been targeted or

seen as potential customers by any player in the industryTooth whitening example

U.S. Defense Aerospace Industry Problem

Inability to control aircraft costsKey vulnerability in long-term military

strength of U.S.Soaring costs/shrinking budgets

○ Leaving no viable plan to be able to replace the aging fleet of fighter aircraft

U.S. Defense Aerospace Industry Needs by branch:

The Navy- durable aircraft that would survive the stress of landing on carrier decks and maintainability

The Marines- the need for short takeoff vertical landing (STOVL) and robust countermeasures

The Air Force- fastest and most sophisticated aircraft with super tactical agility and stealth technology

Three separate segments needing to be combined to cut costs

U.S. Defense Aerospace Industry The Joint Strike Fighter (JSF) program

challenged this industry practice JSF searched for key commonalities

across the three branches JSF found that the highest-cost

components of the three branches were the same: avionics (software) and the enginesJSF is now called the F-35

U.S. Defense Aerospace Industry Need

To build one aircraft for all three divisions Combing those key factors while reducing or

eliminating everything else Result: ONE aircraft and a dramatic

decrease in costs. Price per aircraft went down and value went up

The JSF reduced costs from $190 million per aircraft to $33 million

U.S. Defense Aerospace Industry In Fall 2001, Lockheed Martin was given

the $200 billion JSF contractThe largest military contract in history

Pentagon believes in continued success because the F-35 has won support from all three branches

Go for the Biggest Catchment

No set rule on which tier of noncustomers to focus on

Focus tier that represents the biggest catchment at the time

Explore if there are overlapping commonalities across all three tiers

Go for the Biggest Catchment

Companies focus on retaining existing customers and seek further market segmentation

This strategy is not likely to create a Blue Ocean

The point is to challenge the existing, taken for granted strategic orientations

Maximizing Scale of Blue Ocean Reach beyond demand to noncustomers De-segment opportunities to formulate

new strategies If no strategies are found, move on to

exploit differences among existing customers

Central Idea It is not enough to maximize the size of

the Blue Ocean you are creatingA profit must be reached to create a win-win

outcome