Reconstructing Market Boundaries Michael Seymour Matt Anderson

Reconstruct Market Boundaries The First Principle of Blue Ocean Strategy The First Principle of Blue Ocean Strategy

Approaches to Reconstruction There are six basic approaches to reconstructing market boundaries: There are six basic approaches to reconstructing market boundaries: 1.Define Industry & Strive to be the best within it 2.Look at Industry through lens of strategic group 3.Focus on Same buyer group 4.Define scope of Products/Services Offered 5.Accept Industry’s Functional/Emotional Orientation 6.Focus on the same point in time when formulating strategy

Path 1: Look Across Alternative Industries Alternatives: Have different form & function but same purpose (“Substitutes”) Alternatives: Have different form & function but same purpose (“Substitutes”) Buyers weigh alternatives (often unconsciously) in EVERY purchase decision Buyers weigh alternatives (often unconsciously) in EVERY purchase decision

Path 2: Look Across Strategic Groups Strategic Group: Group of Companies within an industry that pursue a similar strategy Strategic Group: Group of Companies within an industry that pursue a similar strategy Can be generally ranked by 2 dimensions: Can be generally ranked by 2 dimensions: PricePrice PerformancePerformance

Path 3: Look Across the Chain of Buyers There is a chain of 3 buyers Directly or Indirectly involved in EVERY buying decision There is a chain of 3 buyers Directly or Indirectly involved in EVERY buying decision Purchaser: Pays for product/service Purchaser: Pays for product/service User: Consumes product/service (Often different from purchaser) User: Consumes product/service (Often different from purchaser) Influencer: Sway users and purchasers Influencer: Sway users and purchasers

Path 4: Look Across Complementary Product/Service Offerings Complement: Product or Service that adds value to another (ex: Movie theater with a day care for kids) Complement: Product or Service that adds value to another (ex: Movie theater with a day care for kids) EX: Airport, Movies, Philips, Barnes & Noble EX: Airport, Movies, Philips, Barnes & Noble

Strategy Canvas of the US Municipal Bus Industry High NABI

Path 5: Look Across Functional/Emotional Appeal to Buyers 2 Basic types of appeal 2 Basic types of appeal Rational (Price & Function)Rational (Price & Function) Emotional (Feelings)Emotional (Feelings) Appeal of MOST products/services is often a mix of both Appeal of MOST products/services is often a mix of both Companies can often find new market space by challenging the orientation of their industry Companies can often find new market space by challenging the orientation of their industry EX: QB House, Cemex, Starbucks EX: QB House, Cemex, Starbucks

Path 6: Look Across Time All industries are subject to External Trends All industries are subject to External Trends Analyzing these trends with the right perspective can help create Blue Ocean opportunities Analyzing these trends with the right perspective can help create Blue Ocean opportunities Work back from vision of B.O.S. Work back from vision of B.O.S. EX: Apple’s IPOD & I-Tunes, CNN EX: Apple’s IPOD & I-Tunes, CNN

From Head-to-Head Competition to Blue Ocean Strategy Head-to-Head Competition Blue Ocean Strategy IndustryFocuses on rivals within its industry Looks across alternative industries Strategic GroupFocuses on competitive position within strategic group Looks across strategic groups within industry Buyer groupFocuses on better serving the buyer group Redefines the industry buyer group Scope of product or service offering Focuses on maximizing the value of product and service offerings within the bounds of its industry Looks across to complementary product and service offerings Functional-emotional orientation Focuses on improving price performance within the functional-emotional orientation of its industry Rethinks the functional- emotional orientation of its industry TimeFocuses on adapting to external trends as they occur Participates in shaping external trends over time

To Sum it Up… Think across conventional boundaries of competition Think across conventional boundaries of competition Managers are engaged in a structural process of reordering market realities in a new way Managers are engaged in a structural process of reordering market realities in a new way Tomorrow’s chapter: focuses on ‘The Big Picture, Not the Numbers’ Tomorrow’s chapter: focuses on ‘The Big Picture, Not the Numbers’