Chapter 3 Reconstruct Market Boundaries John Stewart, Katie Klingele, Heather Hignojos

Learning Points Tendencies that companies have when building strategy The 6 Paths Framework Six basic approaches to remaking market boundaries Learn strategy to create new “blue oceans”.

Notion of the “Red Ocean” Define their industry similarly and focus on being the best within it Look at their industry through the lens of generally accepted strategic groups, and strive to stand out. Focus on the same buyer group (purchaser, user, influencer) Define the scope of the products and services offered by their industry similarly. Accept their industry’s functional or emotional orientation. Focus on the same point in time- and often on current competitive threats- in formulating strategy.

Six Paths Framework There are 6 basic approaches to remaking market boundaries. Look Across Alternative Industries Look Across Strategic Groups Within Industries Look Across the Chain of Buyers Look Across Complimentary Product and Service Offerings Look Across Functional or Emotional Appeal to Buyers Look Across Time

Look Across Alternative Industries We want to recognize the difference between alternatives and substitutes Companies can gain a great advantage by distinguishing between the two Alternative vs. Substitutes Substitutes: Coke vs. Pepsi Alternatives: Soft Drink vs. Alcohol Private vs. Commercial Netjets vs. American Airlines

Look Across Strategic Groups Within Industries Blue Oceans can be unlocked by looking across strategic groups A group of companies within an industry that pursue similar strategy Fundamental strategic differences are captured by a small number of strategic groups Finding these differences can make the difference in a thriving company, and a company that has little to no growth

Look Across the Chain of Buyers Competitors converge around a common definition of who the target buyer is In reality, there is a chain of buyers: Purchaser- who pays for the product/ service User- who actually uses the product/ service Influencer- those who help decide whether or not to buy the product/ service

Look Across the Chain of Buyers Cont’d “Challenging an industry’s conventional wisdom about which buyer to target can lead to the discovery of a new blue ocean.” Novo Nordisk- NovoPen A pen for diabetics to carry with them to disperse their insulin injection without having to carry around vials, needles and syringes. Made it more convenient and less embarrassing for the person Has since moved to a Diabetes Care Company NovoLet and Innovo

Look Across the Chain of Buyers Cont’d Bloomberg transformed the business information industry is just the past years Focused on traders and analysts rather than IT managers Designed new technology to help traders focus on their personal lives when trading is slow since they work extremely long hours (booking vacations, flowers, jewelry, etc…) Had keyboards with common key terms so it was easier and quicker to compute prices and other information Used big screens that showed all of the information at one time, rather than having several windows open so the traders would not have to flip from window to window

Look Across Complementary Product and Service Offerings Complimentary products are often an untapped value and are hidden The ease of going to the movies depends on many different things: Parking, movie times, babysitter, cost of movie tickets Movie theaters do not often focus on these Movie theater with a babysitting service? You must look at what is needed before, during, and after using the product/ service

Look Across Complementary Product and Service Offerings Cont’d NABI Hungarian based bus company Wanted to break into the US market Came up with the problems of current busses Made of steel (corrosive) Fuel inefficient Very heavy Cheap to buy, expensive to maintain Found ways to fix these problems Made of fiberglass (easy to repair small portions) Lighter (use smaller engines, less axels, environmentally friendlier) More expensive to buy at first, but cheaper repairs so overall cheaper over the lifespan Able to make the inside décor more pleasant and more seating

Look Across Complementary Product and Service Offerings Cont’d Other Companies that have taken advantage of this: Barnes and Noble Offer a relaxing place to read and study, upscale coffee Philips Electronics Tea kettle with a mouth filter to filter lime deposits in Britain Zeneca Salick Cancer treatment centers all in one place so patients do not have to run all over to get different treatments

Look Across Functional or Emotional Appeal to Buyers Functional Appeal Compete principally on price and function of utility. Emotional Appeal Compete largely on feeling. Companies generally find a new market space when they are willing to change their functional/emotional orientation.

Look Across Functional or Emotional Appeal to Buyers Cont’d Quick Beauty House Emotional to Functional Long, serviced haircuts to short basic haircuts Cemex Functional to Emotional Boosted demand for cement

Look Across Time Industries are exposed to external trends that affect their business overtime. 3 principles to assessing trends across time Must be decisive to your business Must be irreversible Must have a clear trajectory

Look Across Time Cont’d Apple Illegal downloading trend Creation of iTunes Cisco Systems Growing demand for high-speed data exchange 80% of Internet traffic goes through Cisco’s products Coca- Cola Soft drinks being invented Invention of six-pack

Take Away of Chapter Reconstructing existing market elements across industry and market boundaries will allow managers to break free of head-to-head competition in the red ocean.