Reconstruct Market Boundaries[1][1]

8/8/2019 Reconstruct Market Boundaries[1][1]

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Group 4Carly BuellRyan Buell

Brian CoteShana Hartford April Miller

Brittany Snethkamp Austin Stewart


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Blue Ocean Strategyy The first principle of blue ocean strategy is to

reconstruct market boundaries to break from the

competition and create blue oceans.y The challenge is to successfully identify, out of all the

possibilities that exist, commercially compelling blueocean opportunities.


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Systematic Patternsy There are clear patterns for creating blue oceans.y There are six basic approaches to remaking market

boundaries.y These paths challenge the six fundamentalassumptions, on which most companies build theirstrategies, that keep companies trapped competing inred oceans.


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Pat h 1: Look across alternativeindustries

y Alternatives broader than substitutesy

Substitutes: products/services that have differentforms but same functionality y Alternatives: products/services that have different

functions and forms, but same purpose


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Exampley Installing financial software packages on a personal

computer, hiring a CPA, using pencil and papery

3 substitutes to finding the same solution- Sorting outpersonal financesy Cinemas vs. Restaurants

y Restaurants: offer conversational and gastronomical

pleasurey Cinemas: visual entertainmenty Same objective: people enjoying a night out- therefore

they are alternatives of each other


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M aking a purc h ase decisiony Consumers weigh consciously, and unconsciously, the

alternatives to a decisiony

Do I need self-indulgent 2 hours?y What do I need to do to achieve it?y Do I go to a movie, a massage, or go read a book?

Both individual consumers, and industrial buyers partakein a similar thought process


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Sellersy Sellers often forego the intuitive thinking processy Don t take into account the tradeoffs their consumers

havey Space between alternatives= opportunities for value

innovation


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N etJetsy Blue ocean of frictional jet ownershipy

In less than 20 years, they have become the fastestgrowing airline company y Over 500 aircrafty Operating in over 40 countriesy Purchased by Berkshire Hathaway in 1998y Revenue growth from 30-35% each yearNetJets reconstructed market boundaries to create their

blue ocean by looking across alternative industries


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y Why do corporations use commercial airlines for theirtravel?

y Costs.NetJets offers customers 1/ 16th ownership of an aircraft

shared with 15 other customers, each receive 50 hours of

flight time per year for $375,000Customers receive convenience of private jet at the price of

a commercial airline ticketDue to NetJets smaller airplanes, use of smaller regional

airports, and limited staff, their costs are kept to aminimum


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N TT DoCo M o s i-modey Largest telecommunications company in Japany Changed the way people communicate and access

informationy Created blue ocean by thinking of why people trade

across alternatives of mobile phones and the internet


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y Deregulation of telecommunication industry in Japan,it was easy for new competitors to enter the market

y Result: rising costs, and the average revenue perconsumer fell

y

Broke out of red ocean by creating wirelesstransmission of voice, text, data, and pictures


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Creating a blue oceany What are the alternatives industries to your industry?y Why do customers trade across them?y Focus on key factors and eliminate everything else,

creating a blue ocean of new market space is possible


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Pat h 2: Look Across StrategicGroups wit h in Industries

y Strategic Groups - a group of companies within anindustry that pursue a similar strategy

y Example: Mercedes, BMW, and Jaguar all focus onoutcompeting one another in the luxury carsegment versus economy car makers who focus onexcelling over one another in their strategic group.


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y The key to creating a blue ocean acrossexisting strategic groups is tounderstand which factors determinecustomers decisions to trade up ordown from one group to another.

y Example:


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Example: CurvesTexas-based women s fitness company

- Created a veritable blue ocean demand for womenstruggling and failing to keep in shape throughsound fitness.

- Built on the distinctive strengths of two strategic

groups traditional health clubs and home exerciseprograms and eliminated everything else- Question is, 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 firstcouple of months- Curves facilities now exist in most towns all over the

U.S. and North America and have expanded intoEurope


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Creating a blue oceany What are the strategic groups in your industry?y Why do customers trade up for the higher group, and

why do they trade down for the lower one?y The key is to combine the most attractive factors of both groups and eliminate or reduce everything else.


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Path 3: Look Ac ro ss th e Chain of B uyersy T ypically, an industry concentrates on who the single

target buyer is.y In reality, there is a chain of buyers who are directly

or indirectly involved in the buying decision.y purchasers , users , and influencersy Each hold different definitions of value.


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y Individual companies in an industry often targetdifferent customer segments.

y large vs. small customersy An industry typically converges on a single buyer

groupy Pharmaceutical industry influencersy Office Equipment industry purchasersy Clothing industry users


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Look Across the Chain of BuyersChallenging an industry s conventionalunderstanding about which buyer group to targetcan lead to the discovery of new blue ocean.

By looking across buyer groups, companies cangain new insights into how to redesign their value curves to focus on a previously overlookedset of buyers.


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Ex : No vo No rd isk cre at ed a bl ue oc e an in th e in su lin in dus t ry an d t ran sfo rmed f rom an in su linp rodu cer to a d iab e tes ca re co m pan y.

y Industry focused on key influencers (doctors)y

Nordisk saw that it could break away from thecompetition by shifting the company s thinkingto users(patients) rather than doctors.-NovoPen = the 1st user-friendly insulin delivery system-NovoLet = prefilled disposable insulin pen-Innovo = electronic memory records designed tomanage and reduce risk of missing a dose


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EX : Bloo m berg cre at ed a value curve new to th e indus t ry of

bus iness info rm ation p roviders by shiftin g it s foc us upst re am f rom purchasers to users

y Industry focused on purchasers (IT managers)y Bloomberg disagreed and saw the users (traders & analysts)

were 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 livesy In return the traders & analysts exerted their power within

the firm to drive I T managers to purchase from Bloomberg.


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By questioning w h o can and s h ould be t h e targetbuyer, companies can create blue oceans. Ask:

y What is the chain of buyers in your industry?y Which buyer group does your industry typically focus

on?y If you shifted the buyer group of your industry, how

could you unlock new value?


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Path

4: Look AcrossComplementary Product andService Offerings


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y What is the context in which your product or serviceis used?

y What happens before, during, and after?y Can you identify the pain points?y

How can you eliminate these pain points through acomplementary product or service offering?


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y Untapped value is often hidden in complementary products and services.

y The key is to define the total solution buyers seek when they choose a product or service.


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Examples:y Barnes & Nobley Virgin Entertainment s Megastoresy Dyson Vacuumsy Zeneca s Salick Cancer Centers


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Ph

ase 5: Look Across Functional orEmotional Appeal to Buyersy What Industries should compete on

y

Rational appealy Emotional appeal

y Appeal usually a result of how companies havecompeted in the past

y Ex: Functionally oriented companies become morefunctionally oriented


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Ch angey Emotionally oriented industries offer extras at extra

price without enhancing functionality y By stripping those extras it would create a

fundamentally simpler business modely Functionally oriented industries can add emotion totheir products to stimulate demand


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Q uick Beauty Housey Traditional Japanese haircuts

y Most haircuts in Japan took around an hour because of rituals

y Actual cutting of hair was just a fraction of that timey Price was around $27 to $45

y QB Housey Decided working professionals did not want to waste an

houry Stripped the emotional service of the haircuty Focused on basic cutsy Cut time from one hour to 10 minutesy Price was reduced to around $ 9


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Cemexy World s third-largest cement producery Created a blue ocean by going from functional to

emotionaly Cement houses were the dreams of the people of

Mexicoy Most could never afford it because extra money was

always spent on village festivals, baptisms, etc.y Launched P atrimonio Hoy : Shifted orientation from

functional to emotional.y Foundation of tandasy While competitors were selling cement, Cemex was

selling dreams


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Pat h 6: Look Across Timey All industries are subject to external trends that effect

their businesses over timey

Internety Going green to protect the planet

y Most companies adapt incrementally and somewhatpassively as trends emerge.

y They focus on projecting the trend itself and pacethemselves to keep up with the trend they are tracking.y So how to get out of Red oceans and develop a blue

ocean strategy?


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Creating a Blue ocean Strategyy Blue oceans arise from business insights into how the

trend will change value to customers and impact thecompany s business model.

y Three Principles to assessing trends over time:1. Trends must be decisive to your business2. Trends must be irreversible3. Trends must have a clear trajectory

Example: The Asian Crisis of 1997 vs. the Euro


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Creating a Blue Ocean Strategyy To create a blue ocean one must look into the future and

imagine what a developing trend will look like at its logicalconclusion. Then work back from that point to see whatcan be changed today to meet that goal.

y Digital music downloading: Apple s i Tunesy Legal, easy to use, flexibley While more digital music stores enter the market, Apple has kept

developing a blue ocean with the creation of the iPhone.

y High-Speed data exchange: Cisco Systems

y Rise in Globalization: CNN 24 hour global news network


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Q uestions to ask as you look

across time:y What trends have a high probability of impacting your

industry, are irreversible, and are evolving in a cleartrajectory?

y How will these trends impact your industry?y Given this, how can you open up unprecedented

customer utility?


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6 Paths Framework Head-to-headcompetition

Blue Ocean Creation

Industry Focuses on rivals within its

industry Looks across alternative

industries

Strategic GroupFocuses on competitive

position within strategicgroup

Looks across strategicgroups within industry

Buyer GroupFocuses on better serving

the buyer groupRedefines the industry

buyer group

Scope of product orservice offering

Focuses on maximizing the value of product and

service offerings within thebounds of its industry

Looks across tocomplementary product

and service offerings

Functional-Emotionalorientation

Focuses on improving priceperformance within thefunctional-emotional

orientation of its industry

Rethinks the functional-emotional orientation of itsindustry

TimeFocuses on adapting toexternal trends as they

occur

Participates in shapingexternal trends over time

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Reconstruct Market Boundaries[1][1]