CHAPTER 2 ANALYTICAL TOOLS AND FRAMEWORKS Presentation By: Courtney Karcasinas, Robert Brinkmann, Stephen Gonzalez, Adam Hall & Justin Weden

Objectives  Strategy Canvas  The Four Actions Framework  The Eliminate-Reduce-Raise-Create Grid  Three Characteristics of a Good Strategy  Reading the Value Curves

Creation of Blue Oceans  Importance of Analytics  Focus on risk minimization not risk taking  Don’t compete with rivals – Make them irrelevant  Critical Questions for Strategists  How do we break out of this red ocean of bloody competition to make the competition irrelevant?  How do we open up and capture a blue ocean of uncontested market space?

Strategy Canvas  Diagnostic and an action framework for building a compelling Blue Ocean Strategy  Horizontal Axis  Captures the range of factors the industry competes on and invests in.  Vertical Axis  Captures the offering level that the buyers receive across all these key competing factors.  Value Curve  The graphic depiction of a company’s relative performance across its industry’s factors of competition.

The U.S. Wine Industry  3 rd largest aggregate consumption of wine worldwide  $20 billion industry is intensely competitive  The week, poorly run companies are increasingly being swept aside  Intense competition has fueled ongoing industry consolidation

Strategy Canvas of the U.S. Wine Industry in the Late 1990’s High Low Price Terminology Above the line marketing Aging Quality Prestige and Legacy Complexity Range Premium Wine Budget Wine

Shifting the Strategy Canvas  Reorient the strategic focus  Competitors to Alternatives  Customers to Noncustomers  Gain insight  How to redefine the problem the industry focuses on  Thereby reconstruct buyer value elements that reside across industry boundaries  Conventional strategic logic  Drives you to offer better solutions than rivals to existing problems defined by the industry  To redraw the strategic profile  Four Actions Framework

The Four Actions Framework  Which factors should be eliminated?  Which factors should be reduced well below the company standard?  Which factors should be raised above the industry’s standard?  Which factors should be created that the industry has never offered?

Elimination  Eliminate factors your industry have long competed on.  Vineyard prestige and legacy  Factors may longer have value or even detract value.  Wine complexity and aging

Reduction  What products or services have been overdesigned?  Tannins, oak, complexity, and aging  Gain insight into how to drop your cost structure compared to competitors.

 Rarely managers systematically set out to eliminate and reduce factors the industry competes on  Results in mounting cost structures and complex business models

Creation  Discover entirely new sources of value for customers.  Fun and Adventure  Create new demand  Shift strategic pricing of the industry

Raise Above  Uncover and eliminate compromises your industry makes.  Provides insight into how to lift buyer value and create new demand.  Offer buyers a new experience while keeping your cost structure low.  Easy Drinking

Casella Wines  [yellow tail]  Wine as Wine  Created a social drink accessible to everyone  Beer drinkers, cocktail drinkers  Within 2 years it was the fastest growing brand of wine and even surpassed Italy and France  By 2003 annual sales over 4.5 million cases

How?  Large wine companies have strong brands  Did not use a promotional campaign, mass media, or consumer advertising.  Steal sales from competitors?  Grew the market

Grew the market  Brought non-wine drinkers into the market.  Novice wine drinkers drank more  Jug wine drinkers moved up  Expensive wine drinkers moved down to become consumers of [yellow tail].

Three New Factors  Easy Drinking  Soft in taste and primary fruit flavors  Kept the palate fresher  Easy to Select  Chardonnay and Shiraz  Fun and Adventure

Easy Drinking  [yellow tail] reduced and eliminated traditional factors the industry had long competed with.  Tannins, oak, complexity, and aging  Instead they made a simple fruity wine that many customers enjoyed.

Ease of Selection  Instead of over complicating there image with industry awards and jargon, [yellow tail] kept it simple.  Offering only two choices, a Chardonnay and a Shiraz

Fun and Adventure  [yellow tail] enticed retailers by making them ambassadors of [yellow tail] through unique merchandising.  By changing how the product was presented as well as the product itself, the product went from something the public thought was intimidating to something laid back and fun.

[yellow tails] Strategy Canvas Low High Budget Wines Premium Wines [yellow tail]

Eliminate-Reduce-Raise-Create  A supplementary analytic to the four actions framework.  This tool forces companies to not only answer all parts of the framework but to act on them as well.  Providing them with four immediate benefits.

Four Benefits  Pushes companies to pursue differentiation and low costs.  Immediately flags companies focused on raising and creating.  Understood by managers at any level.  Forces companies to scrutinize every factor, allowing them to discover the implicit assumptions they make.

The Case of [yellow tail] EliminateRaise Enological terminology and Distinctions Aging Qualities Above-the-line marketing Price versus Budget Wines ReduceCreate Wine complexity Wine Range Vineyard Prestige Easy Drinking Ease of Selection Fun and Adventure

The Case of Cirque du Soleil EliminateRaise Star Performers Animal Shows Aisle Concession Sales Multiple Show Arenas Unique Venue ReduceCreate Fun and Humor Thrill and Danger Theme Refined Environment Multiple Productions Artistic Music and Dance

Characteristic of Good Strategy  Focus  Divergence  Compelling Tagline

Southwest Airlines  Focus  Friendly Service and Speed  Divergence  Point-to-point travel, not hub-and-spoke system  Compelling Tagline  “The speed of a plane at the price of a car – whenever you need it.”

Lacking a Good Strategy?  No focus - high cost structure and complex business model  No divergence – leads to a “me-too” strategy, won’t stand apart from competition  Poor taglines - motives are internal and not focused on the customers

A Blue Ocean Strategy  If a company or its competitors meet the three BOS criteria  FOCUS  DIVERGENCE  COMPELLING TAGLINE

“Caught in the Red Ocean”  If a company’s value curve converges with competitor chances are it is a red ocean  Strategy lends itself to outdoing competition on cost and quality  Unless industry is independently growing this signals slow growth

“Overdelivery without Payback”  Value curve on a strategy canvas shows high levels on all factors  Does company market share and profitability reflect the investments?  If not: company may be oversupplying customers with these factors

“Incoherent Strategy”  Company’s value curve can be described as “low- high-low-high…”  Signals there is no coherent strategy, rather based on incoherent substrategies  May make sense but does not differentiate the company from competitors

“Strategic Conditions”  Company offers high level on one competing factor while ignoring others  Inconsistencies can also be found between price and offering

“Internally Driven Company”  Language used in a company’s strategy gives insight to how the vision is built  Analyzing the language serves as a timetable for creating industry demand