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Reconstruct Market Boundaries The 1st principle of Blue Ocean Strategy:
Reconstruct market boundaries to break from the competition and create blue oceans.
Is there systematic patterns for reconstructing market boundaries to create blue oceans?
If so, are these patterns found across all types of industries?
6 Paths FrameworkLook across:
Alternative IndustriesStrategic GroupsChain of BuyersComplementary Product OfferingsFunctional/Emotional AppealTime
6 Fundamental Assumptions1. Define their industry similarly and focus on being the
best within it2. Look at their industries through the lens of generally
accepted strategic groups, and strive to stand out within that group
3. Focus on the same buyer group, be it the purchaser, the user, or the influencer
4. Define the scope of the P&S offered by their industry similarly
5. Accept their industry’s functional or emotional orientation
6. Focus on the same point in time – and often on current competitive threats – in formulating strategy
Path 1: Look Across Alternative IndustriesSubstitutes are P&S that have different forms
but offer the same functionality/core utilityTo sort out personal finances you can use financial
software, hire a CPA, or use pencil and paper
Alternatives include P&S that have different functions and forms but the same purposeCinemas vs. restaurants Same objective: Enjoy a night out
NetJetsCreated the blue ocean of fractional jet
ownership Corporate travelers are the mass of
customers in the aviation industryWhy do corporations choose commercial
airlines?Why do corporations choose corporate jets?
Benefits• Own 1/16th of an aircraft• 50 hours of flight time per year• Can fly 4 hours after a request• $375,000 per year plus pilot and maintenance • 30 airports vs. 5,500• Flight times dramatically shorter
Washington D.C to Sacramento 10.5 hours vs. 5.2 hours
• You can eat your favorite meals on the plane
ResultsSuccess has been attributed to its flexibility,
shortened travel time, hassle-free travel experience, increased reliability, and strategic pricing
There revenues grew 30-35% from 1993-2000
Path 2: Strategic Groups in IndustryBlue oceans can be created by looking across
alternative industries and strategic groupsStrategic Groups- Group of companies within
an industry that pursue a similar strategyRanked in two dimensions
PricePerformance
Example: Mercedes, BMW, and Jaguar
Path 2: Strategic Groups in IndustryExample: CurvesOver saturated market Created veritable blue ocean of women
struggling with fitnessAdvantage on two strategic groups
Traditional health clubsHome exercise programs
Path 2: Strategic Groups in IndustryExample: Ralph Lauren
High fashion with no fashionUpdated classical look and price capture best
of classical lines such as Brooks Brothers and Burberry
Combine attractive factors of both groups and eliminate everything else
Captured shares from both segments but drew in many new customers
Path 3: Chain of BuyersDirectly and indirectly involved in buying
decisionsPurchasers, Users, and InfluencersMay overlap, but differ in many ways
Path 3: Chain of BuyersExamples:
Pharmaceutical industry focuses on influencers: Doctors
Office Equipment industry focuses on purchasers: corporate purchasing departments
Clothing industry focuses on Users
Path 3: Chain of BuyersInsulin created blue oceanHelped change pharmaceutical industry from
influencers to usersNovoPen
Patients can easily carry a weekly supply of insulin Inject with ease
InnovoBuilt in memory system to display dose, last dose, and
elapsed time
Path 3: Chain of BuyersShifting can create new values to the
industry
See new ways to unlock value
Path 4: Look Across Complementary Product and Service OfferingsIn most industries, rivals converge within the
bounds of their industry’s product and service offerings (vacuum)
Costs of complementary goods and services of another product or service are considered when purchasing
For example, the theater example Operators should consider babysitting and parking costs
for customers
Complementary Products“Untapped” value often hidden within
complementary products and servicesSuch as JC Penney, customers that buy shoes also need
to buy socksApplication and Operating software that are used along
with computer hardware
Key is to define the total solution buyers seek when choosing a product or serviceWhat happens before, during, and after product is used
Path 4: AppliedNABI Philips Electronics
NABI, a Hungarian bus company, applied path 4 to the U.S. transit bus industry
Rivals competed to offer lowest prices
Designs outdated, delivery times late, quality low, maintenance costs were high
NABI acted on the complementary services Fiberglass, Eco friendly, Low
manufacture costs
British tea kettle industry, very important to British culture
Flat sales, shrinking profit
Lime scale found in water
Water supply is complementary serviceFilter
• NABI’s curve, unlike any other before in the industry
• By recognizing complementary services, cut costs from corrosion, prevention maintenance, and fuel consumption
Path 4: Concepts to Creating a Blue OceanRedefine Scope of Services
B&N from books to intellectual exploration and coffee bars
Satisfy customer’s complete demands Virgin Entertainment combine CD’s, video games, stereos,
audio equipment
Eliminate superfluous costsNABI & Dyson eliminates need for bags
Accommodate convenience of customer Zeneca’s Salick cancer centers combine all specialized
treatments
Path 5:Look Across Functional or Emotional Appeal to BuyersFunctional and emotional appeals are
embedded within industriesFunctional- compete on price and functionEmotional- compete on feelings of
products/servicesOpportunity for Blue Ocean
Functional and Emotional AppealSwitching from Functional to Emotional
Example: Viagra and Swatch
Switching from Emotional to FunctionalExample: Quick BeautyHouse
JCPenney’s Emotional AppealSwitch from Emotional to Functional
Started fashionableMoved towards efficiency
Supply chain management Low prices
Path 6: Look Across TimeExternal trends affect companiesMost act passively and adapt incrementallyTrends that have affected companies
Example: internet and protecting the environment.
Look Across TimeOpportunity for Blue Oceans
Future Telling? Managers project change
Systematic Approach Decisive to business Irreversible Clear Trajectory
Example: AppleNapster & Kazaa vs iTunes
JCPenney • Traditional Department
Store• Overtime Adapted
Technology– Self checkout kiosk
• Did not necessarily work– Customer demographics• Elderly
Conceiving New Market SpaceBlue Oceans
Not about predicting trendsCome about through structural process
Reconstructing existing market Free from head-to-head competiton