1. Blue Ocean Strategy Chapter 6
Brandon Seitz, Laycie Duncan, Dylon Wieland, Regan Raines

2. Strategic Sequence Buyer Utility Price Cost Adoption Buyer Utility
Does offering unlock exceptional utility?
Strategic Price
Does product have an attractive price?
Cost
Can you still earn a profit after production costs?
Adoption Hurdles
Are there any blocks for rolling out the new idea?
Price
Cost
Adoption

3. Testing for Exceptional Utility
Value Innovation VS Technology Innovation
Technology Trap
Philips’ CD-i
Develop strategic profile that passes Litmus test
Focused, divergent, having a compelling tagline
The Buyer Utility Map
Helps managers identify a product’s full range of potential utilities

4. Six Stages of the Buyer Experience Cycle
Buyer Utility Map
Six Stages of the Buyer Experience Cycle 1.
Purchase 2.
Delivery 3.
Use 4.
Supplements 5.
Maintenance 6.
Disposal
Customer Productivity
Simplicity
Convenience
Risk
Fun and Image
Environmental Friendliness
The Six Utility Levers

5. Six Stages of Buyer Experience
Purchase
How long does it take to find?
Delivery
How long does it take to be delivered?
Use
How effective is the product?
Supplements
Does this require other products?
Maintenance
Is it easy to maintain?
Disposal
Does it create waste?

6. Six Utility Levers Ways for company to unlock utility for customer,
Customer Productivity
Simplicity
Convenience
Risk
Fun and Image
Environmental Friendliness

7. Costco Digital Market 2018 Blue Ocean Offering Current Industry Focus1.
Purchase 2.
Delivery 3.
Use 4.
Supplements 5.
Maintenance 6.
Disposal
Customer Productivity
Simplicity
Convenience
Risk
Fun and Image
Environmental Friendliness
1. 2 day delivery and one day with instacart
2. Improved interface
3. Tablets for in store online purchases
Blue Ocean Offering
Current Industry Focus

8. From Exceptional Utility to Strategic Pricing
To secure a strong revenue stream → set the right strategic price
Ensures that buyers not only want your product but have ability to pay for it
Important to know from the start what price will capture mass target of buyers
Two reasons for this:
Companies discovering that volume generates higher returns that it used to
Nature of goods becomes more knowledge intensive; companies bear much more of their costs in product development rather than manufacturing
The value of a product or service may be closely tied to total number of people using it
This phenomenon is known as network externalities- people will not buy a product or service when it is used by few others
Rise of knowledge-intensive products creates potential for free riding
Rival good- use of such good precludes its use by another
Nonrival good- one firm does not limit its use by another

9. Continued
The cost and risk of developing an innovative idea are borne by the initiator, not the follower
Excludability- ability to prevent others from using it
For example: because of limited access or patent protection
Once ideas are out there, knowledge naturally spills over to other firms
Lack of excludability reinforces risk of free riding
Many of the most powerful blue ocean ideas have tremendous value but no technological discoveries
Resulting in neither patentable nor excludable services and products→ hence vulnerable to imitation
The strategic price you set for your offering must not only attract large numbers of buyers but also retain them
Given high potential for free riding→ must earn offering’s reputation on day 1
Brand reputation increasingly relying on word-of-mouth marketing

10. Price Corridor of the Mass
Step 1: Identify the price corridor of the mass
Step 2: Specify a price level within the price corridor

11. Step One: Identify the Price Corridor of the Mass
In setting a price→ companies first look at products and services that most closely resemble their idea in terms of form
Main challenge: determining a strategic price (understanding the price sensitivities of those people who will be comparing the new product or service with a host of very different-looking products and services offered outside the group of traditional competitors
Good way to look at outside industry boundaries→ list products and services that fall into two categories:
Different forms but performs the same function
Different forms and functions but share the same over-arching objective

12. Step Two: Specify a Level Within the Price Corridors
Helps managers determine how high a price they can afford to set within the corridor without inviting competition from imitation products or services
Assessment depends on two principal factors:
Degree to which the product/service is protected legally through patents/copyrights
Degree to which the company owns some exclusive asset or core capability that can block imitation
Companies would be wise to pursue mid to lower boundary strategic pricing from the start if any of the following apply:
Their blue ocean offering has high fixed costs and marginal variable costs
Their attractiveness depends heavily on the network externalities
Their cost structure benefits from steep economies of scale and scope

13. From Strategic Pricing to Target Costing
3rd step in the strategic sequence
Work backwards to meet desired cost
Strategic Price - Profit Margin = DESIRED COST
Aggressive cost reductions ex. Cirque du Soleil & Ford
3 principal levers to blue waters

14. STREAMLINING, COST INNOVATIONS
Reduce high-cost, low-value added activities
Changes to raw materials
General Mills
Lower- cost locations
Walmart, Southwest Airlines
Digitalize activities
Bed Bath & Beyond

15. Swatch 30% lower cost than any other watch company
Strategic price: $40 compared to the market average $75
High-cost swiss labor required radical change
Plastic, instead of metal and leather
Simplification of design. Ex. parts from 150 to 51
Change in assembly. Welding instead of screws

16. PARTNERING Secure needed capabilities fast and effectively
Utilize other companies’ expertise that is readily available
IKEA
Partners with over 2000 manufacturing companies
Over 20,000 items
SAP
Oracle, R/2, R/3: development costs, central database
Capegemini, Accenture: consulting firm, global sales force
Extensive ecosystem

17. PRICING INNOVATION
Changing the pricing model used, not the strategic price
TIME-SHARE
Netjets
Housing
SLICE-SHARE
FREEMIUM
Compelled to upgrade
Gives a sample
Costco, Spotify, Gaming apps, Adds free

18. The profit model of blue ocean strategy
THE STRATEGIC PRICE
THE TARGET PROFIT
THE TARGET COST
STREAMLINING & COST INNOVATIONS
PARTNERING
PRICING INNOVATION

19. From Utility, Price, and Cost to Adoption
Even with an unbeatable business plan, this still might not be enough for commercial success of a blue ocean idea.
This is because a blue ocean idea threatens the status quo, and for that reason it may provoke fear and resistance in the three main stakeholders of a company: the employees, business partners, and the general public.
Before going forward with a blue ocean idea the company must first overcome such fears by educating the fearful.

20. Adoption of its Employees, Business Partners and the General Public
Employees - Before companies go public with an idea and set out to implement it, they should make a concerted effort to communicate to employees that they are aware of the threats posed by the execution of the idea. (Ex. Merrill Lynch’s management and Netflix)
Business Partners - Potentially even more damaging than employee dissatisfaction is the resistance of partners who fear that their revenue streams or market positions are threatened by a new business idea. (Ex. SAP and ASAP)
General Public - Opposition to a new business idea can also spread to the general public, especially if the idea threatens established social or political norms. The effects can be dire. (Ex. Monsanto)

21. The Blue Ocean Idea (BOI) Index