Chapter 3: Reconstruct MArket Team 6: Andrew Platter, Charles Nell, Collin Voyles, Brice Freedle

Patterns to create blue ocean Six Path's Framework Out with old ways of thinking Every thought must be out of the box, away from the norm Must break the six fundamental assumptions most companies use to find Blue Ocean markets

Six typically used assumptions 1.) Closely relate to company currently in Blue Ocean 2.) Look at industry categories in the same way as everyone else 3.) Look at Buyer groups in the same way as everyone else 4.) Follow industry standards for scope of company products 5.) Stick to their company's direction 6.) Focus on competitor's when forming new strategy

New way of thinking 6 phases to creating a Blue Ocean Market Think differently Break up common thoughts and industry standards

Phase 1- Look across alternative industry No substitutes, creating ALTERNATIVES (CPA, Financial Software, Pencil Paper) Alternative ( Movie Theater/ Restaurant) Buyers constantly look at alternatives in the market Sellers must consider to create Blue Ocean

NetJets Recognized majority of commercial travel has to do with business Recognized flaws in both Private jets and commercial airlines Created an alternative that pulls positives within both industry's

Do co mos I-mode Recognized flaws in computers and phones Created first smart phone Accommodated parts of both to create great success

Smaller examples Home Depot- Making advice and DIY projects cheaper and less difficult with help of hired professional advisors Southwest Airlines- Affordability of car travel Quicken- Cheap alternative to do company financial books

QUESTIONS TO ASK ABOUT YOUR COMPANIES What are the alternative industries in your industry?

Path 2: Look Across Strategic Groups within industries Strategic group: a group of companies within an industry that pursue a similar strategy Price & Performance Competitive position BMW Mercedes Jaguar

Curves Built its blue ocean by drawing on the strengthens of two strategic groups Traditional health clubs Home exercise programs

Strategy Canvas

QUESTIONS TO ASK ABOUT YOUR COMPANIES What are the strategic groups in your industry? Why do customers trade up for the higher group, and why do they trade down for the lower group?

Path 3: Look across the Chain of “Buyers” Purchasers Ex: corporate purchasing departments Users Ex: direct customers Influencers Ex: doctors

Novo Nordisk Created a blue ocean in the insulin industry Shifted the focus from influencers to users

Bloomberg Created a blue ocean in the online-financial information industry Shifted the focus from purchasers to users

QUESTIONS TO ASK ABOUT YOUR COMPANIES What is the chain of buyers in your industry? What buyer group does your industry typically focus on?

Path 4: Look Across Complementary Product and Service Offerings Few products and services are used in a vacuum. Untapped value is often hidden in complementary products and services.  The key is to define the total solution buyers seek when they choose a product or service. (What happens before, during, and after your product is used?) NABI (Hungarian Bus Company) Shifted their focus away from offering a low initial purchase price in exchange for cheaper life-cycle costs. Substituted fiberglass for steel, making body repairs faster, cheaper, and easier. Busses were also 30-35% lighter cutting fuel costs, and making them more environmentally friendly. Higher purchase price allowed NABI to make their busses more comfortable for consumers, increasing ridership by more than 30%. Dyson

Path 5: Look Across Functional or Emotional Appeal to Buyers Industry competition converges on two bases of consumer appeal: Rational: Compete principally on price and utility Emotional: Compete on feelings The appeal of most products or services is a result of how companies have competed in the past. Important questions for companies to think about: Does your industry compete on functionality or emotional appeal? If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete on functionality, what elements can be added to make it emotional? When companies are willing to challenge the functional/emotional orientation of their industry, they often find new market space.

Quick Beauty House: Emotional to Functional Traditional Barbershop Industry in Asia:  Focused on emotional appeal Involved ritualistic processes performed by the barber including hot towels, massages, beverages, and special hair or skin treatments Customers paid $27-$45 for a haircut, which took an hour on average to complete. QB House: Stripped away emotional service elements and focused on basic cuts Created “air wash” and “traffic light” system  Reduced price of a haircut to only $9 and hourly revenue earned per barber increased by nearly 50%. By shifting the appeal of the Japanese barbershop industry from emotional to highly functional, Quick Beauty House created a blue ocean. One outlet in 1996 to over 200 shops in 2003. Increased number of visitors from 57,000 in 1996, to 3.5 million in 2002.

Cemex: Functional to Emotional Cemex created a blue ocean in the Mexico cement industry by shifting the perception of cement from a functional building material to a “gift of dreams”.  “Patrimonio Hoy” Program After Cemex launched with this new emotional appeal, demand for its cement soared and they have received several awards.

QUESTIONS TO ASK ABOUT YOUR COMPANIES Does your industry compete on functionality or emotional appeal What elements can we strip from our emotional appeal to be more functional or add to our functional appeal to be more emotional.

PHASE 6: LOOK ACROSS TIME EXTERNAL TRENDS AFFECT BUSINESSES OVER TIME MANAGERS FOCUS ON PROJECTING IN WHICH DIRECTION THESE TRENDS WILL EVOLVE MANAGERS GAIN MANY OF THEIR KEY INSIGHTS FROM FROM BUSINESS INSIGHTS HOW THE TREND WILL CHANGE VALUE FOR CUSTOMERS HOW WILL IT IMPACT THE COMPANY BUSINESS MODEL

ASSESSING TRENDS ACROSS TIME THREE PRINCIPLES TO ASSESSING TRENDS (TRENDS MUST ) 1. BE DECISIVE TO YOUR BUSINESS 2. BE IRREVERSIBLE  3. HAVE A CLEAR TRAJECTORY

APPLE ILLEGAL DIGITAL MUSIC DOWNLOADS HIT AN ALL TIME HIGH IN 2003 NAPSTER, KAZZA, LIMEWIRE 2 BILLION ILLEGAL FILES EVERY MONTH THE MUSIC INDUSTRY WAS CANABALIZING ITSELF APPLE DEVELOPED A LEGAL MUSIC DOWLOADING PLATFORM  THEY DEVELOPED INOVATIVE DEVICES AND SUPERIOR SEARCH FUNCTIONS THEY WERE THE FIRST TO SELL INDIVIDUAL TRACKS

ITUNES ITUNES ONLINE MUSIC STORE OPENED IN 2003 ITUNES NOW ACCOUNTS FOR %60 OF THE DIGITAL MUSIC MARKET WITH OVER 32 MILLION SONGS, MOVIES TV SHOWS AND PODCASTS.  ITUNES DEVELOPED ITS ONLINE STORE WHILE ALSO PROMOTING ITS COMPLIMENTARY PRODUCT THE IPOD

LESSER EXAMPLES CISCO SYSTEMS CNN THEY SAW A NEED FOR HIGH SPEED DATA EXCHANGE THEY CREATED FASTER ROUTERS AND TECHNICAL EQUIPMENT  CNN SAW A TREND FOR AN INCREASE IN GLOBALIZTION CREATED THE FIRST 24 HOUR GLOBAL NEWS NETWORK

QUESTIONS TO ASK ABOUT YOUR COMPANIES What trends have a high probablity of impacting your industry? How will these trends impact your industry? How can you open up unprecedented customer utility?

Conceiving new market space

Questions??