2Reconstructing Market Boundaries The first principle of blue ocean strategy is to reconstruct market boundaries to break from the competition and create blue oceans.
3Chapter Goals Are there systematic patterns? Are these patterns applicable across all types of industry sectors?Six Paths of remaking market boundaries
4Red Ocean StrategyDefine industry similarly and focus on being the best within itGenerally accept strategic groups, and strive to stand out in the their groupFocus on the same buyer groupDefine the scope of the products and services offered by their industry similarlyAccept their industry’s functional or emotional orientationFocus on the same point in time—and often on current competitive threats—in formulating strategy
5Six Paths Path 1: Look Across Alternative Industries Path 2: Look Across Strategic GroupsPath 3: Look Across the Chain of BuyersPath 4: Look Across Complimentary Product and Service OfferingsPath 5: Look Across Functional or Emotional Appeal to BuyersPath 6: Look Across Time
6Path 1 Look Across Alternative Industries Substitutes Alternatives Example: A night out!
7NetJetsSuccessful company using Fractional Jet Ownership as its blue ocean strategyFor only $375,000 (plus pilot, maintenance, and other monthly costs), a corporation can own one sixteenth share of a $6 million aircraftPoint to point flightsAlternative ChartersFavorite foods and drinks
8NetJets Commercial Airlines Corporate Jets Low Capital Cost High Travel TimeCrowded airportsD.C. to Sacramento10.5 hour flightHigh Capital CostNo layoversSmall regional airportsD.C. to Sacramento5.2 hour flight
9NetJets’ Position IndustryB: Private Corporate Jets IndusrtyA: Traditional AirlinesIndustryB: Private Corporate JetsNETJETS
11What is I-Mode? Cell phone with Killer Apps Goal: To make an affordable I-phone!!!
12Path 2: Look Across Strategic Groups Within Industries Blue Ocean Strategy is diversified through companies and their industrial make upThey market themselves towards foreseeable customers of their products or services
13Example BusinessesCurves is a women’s fitness business that has flourished.They target the women who have the thought of staying healthy yet aren’t the highest motivated.Located to be easily visitedNo men aroundMachines in positions to motivate socializingMachines suite women’s preferances“full range aerobic and strength training machines, juice bar, instructors, locker room (shower, sauna)”
14Examples Ralph “high fashion with no fashion” luxury Toyota’s Lexus-high end Mercedes, BMW, and Jaguar at a price closer to the lower-end Cadillac and LincolnSony with the Sony Walkman-appealed to people working out and commutersChampion Enterprises- prefabricated houses that were cheap and allowed for the lower income to participate in living- appealed to wide variety
15Best BuyThey marketed themselves as a large electronic business with great customer serviceThey labeled themselves with the “Geek Squad”Able to help out customers with anything electronic to installing electronics in vehicles
16Path 3: Look Across the Chain of Buyers Purchasers of a product can be different from users and influencersGroups can overlap, have different definitions of valueCorporate user vs. consumer user
18Path 3: Look Across the Chain of Buyers Bloomberg in the online financial industryPreviously dominated by Reuters and TelerateFocused on purchasers – IT managers, who valued their standardized programs that made their lives easierBloomberg focused on the users, traders and analystsEasy terminals and keyboards, two panel monitors, built in analytic capabilityAdded ways for analysts to purchase items to enhance their personal lives
19Path 4: Look Across Complementary Product and Service Offerings Few services are used in a vacuum. In most cases, other products and services affect their valueMovie theatersEase and cost of getting a babysitter and parking the car affect the perceived value of going to the moviesThink about what happens before, during, and after your product is used
20Path 4: Look Across Complementary Product and Service Offerings NABI, a Hungarian bus companyThe industry had low quality buses for low costThe low quality affects the bus needing more work done, thus spending more moneyCreated a bus build from fiberglass, killed 5 birds with one stoneFaster body repairs, cut fuel costs, fewer axels and lower powered engines, lower manufacturing costs, more space inside the busValue curvecost more initially, but worth it. Revamped bus industry
21Path 4: Look Across Complementary Product and Service Offerings Philips Electric in the British teakettle industryLime scale found in tap water after boiling was a pain to remove from the teakettlePhilips created a mouth filter on the teakettle to capture lime scale as the water is pouredKick started on a strong growth trajectory of British people all replacing their teakettles with new filtered teakettles
22Path 4: Look Across Complementary Product and Service Offerings Borders and Barnes & NobleDon’t just sell books, sell the pleasure of readingLounges, knowledgeable staff, coffee barsCelebrates reading, learning, intellectual exploration
23Path 5: Look across functional or emotional appeal to buyers Competition in an industry tends to converge not only on an accepted notion of the scope of the products but also on one of two possible bases of appeal.Companies compete on calculations of utility or largely on feelings.
24Competing on what you know! Most prestigious companies compete on what they did in the past.Behavior affects buyer’s expectationsMarket research rarely reveals new insights into what attracts customers.
25Emotional vs. Functional Functionally industries in the challenge to change focus on finding new market space.Infuse commodity products.Emotionally orientated industries offer many extras that add price without enhancing functionally.Relationships improve business.
26Transitioning into functional Companies over time still have the emotional appeal but are transitioning into more of a functional approach.If your company competes on functionality, what elements can be incorporated so you still show emotion?
27Path 6: Look Across TimeExternal trends affect all businesses over timeEx. Internet and going greenWhich direction will a technology evolve?How it will be adoptedWhether it will become scalableHow will the trend change value to customers?
28Accessing Trends Across Time To form the basis of Blue Ocean Strategy…..Must be decisive to your businessMust be irreversibleMust have clear trajectoryEx: discontinuing technology, rise of new lifestyle, change in environment (regulatory or social)
29The Euro Has been replacing Europe’s multiple currencies Blue Oceans can continue to be created as the European Union keeps enlarging
30Apple 1990’s illegal music downloading Napster, Kazaa, LimeWireBy 2003, more than 2 billion illegal music files downloaded every monthNo more desire to purchase CDs…need for digital music2003 Apple launched iTunes
31iTunes Legal, easily usable, flexible song downloads Cheaper than purchasing a CDSound quality and excellent browsing and searching functionsWide range of song options available, unlike when searching for illegal downloadsProtected recording companies by having copyright protection
32Cisco Systems Growing demand for high-speed data exchange Create breakthrough value for customersFast data exchanges and seamless networking environmentValue innovation and technology
33Blue Oceans using Path 6 CNN HBO How will trends impact your industry? 24-hour global news networkRising globalizationHBOSex and the CityTrend of more urban, successful women having trouble finding love and marrying later in lifeHow will trends impact your industry?How can you open up unprecedented customer utility?
35Conceiving New Market Space Recording market realities in a new way:Reconstructing existing market elements across industry and market boundaries, leading them to free themselves from head-to-head competition in the red oceanNow reframe strategy planning process to focus on the big picture and apply these paths in forming your blue ocean strategy!