1. Chapter 3 (BOS) Reconstruct Market Boundaries
Kelly Bredensteiner
Christine Cox
Cailtin Greenwood
Michele Haynes

2. Reconstruct Market Boundaries
Main principle is to reconstruct market boundaries to break from the competition and create blue oceans
Successfully identify commercially compelling blue ocean opportunities
There is a systematic pattern for reconstructing boundaries to create blue oceans
There are six assumptions companies have that keep them in the red ocean

3. Six Assumptions
Define their industry similarly and focus on being the best within it
Look at their industry through the lens of generally accepted groups (such as luxury automobiles, economy cars, and family vehicles), and strive to stand out in the strategic group they play in
Focus on the same buyer group, be it the purchaser (as in the office equipment industry), the user (as in the clothing industry), or the influencer (as in the pharmaceutical industry)

4. Six Assumptions continued
Define the scope of the products and services offered by their industry similarly
Accept their industry’s functional and emotional orientation
Focus on the same point in time- and often on current competitive threats- in formulating strategy

5. How to Get into the Blue Ocean
To break into the blue ocean, there are six paths that a company can follow
Path 1: Look Across Alternative Industries
Path 2: Look Across Strategic Groups Within Industries
Path 3: Look Across the Chain of Buyers
Path 4: Look Across Complementary Products and Service Offerings
Path 5: Look Across Functional or Emotional Appeal to Buyers
Path 6: Look Across Time

6. Path 1: Look Across Alternative Industries
A company not only competes with other firms in their industry but also with companies in those other industries that produce alternative products or services
Alternatives are products or services that have different functions and forms but the same purpose
Ex: Movies vs. Restaurant
Two very different experiences
Restaurant- Food and Conversation
Movies- Visual entertainment
Both are designed to enjoy a night out

7. NetJets
NetJets is a company that created its own blue ocean by looking across alternative industries
Mainly compared itself with commercial airline travel
NetJets offers:
Fractional jet ownership
One-sixteenth ownership
50 hours of flying time a year
Starting at $375,000.

8. About NetJets Purchased by Berkshire Hathaway 500 or more aircrafts
Operating 250,000 flights
Travels to 140 countries
Aimed directly at corporate travel
Biggest segment of airline customers

9. What Makes NetJets Successful
Flexible
Plane will be ready with only a 4 hour advance notice
Short travel time
Point-to-point travel
Hassle-free travel experience
Minutes from car to plane rather than hours
Increased reliability
Strategic pricing
Minimum costs due to smaller airplanes, the use of smaller regional airports, and limited staff

10. NetJets’ Competition
There have been companies that tried to duplicate NetJets’ strategy
Of the 57 companies that have gone into the fractional jet operations, all went out of business
This leaves NetJets at the very top of the industry

11. NTT DoCoMo’s i-mode
Another product from Japan that created its own blue ocean was the i-mode
With the deregulation of telecommunications in Japan, extreme competition was the norm
Launched in 1999
Converged the mobile phone and data transmission
Mobile phone with a few applications from the Internet that were the most popular (weather, news, phone directory, and games)
Very simple one button access to the Internet

12. Advantages Over Other Companies
Reduced the over flow of information that the Internet provided on a PC
Already connected to the Internet so no dial-up was necessary
All on one bill so there was no need to transfer credit card information over the internet
Although it was 25% more expensive when most cell phones, it was cheaper than a PC and had high mobility

13. NTT DoCoMo’s Competition
All of the other companies that tried to duplicate the i-mode made the phone too complicated and sophisticated rather than a simple one button access to popular online applications
Increased market to youth and senior citizens
No major competitors
By 2003, there were 40.1 million subscribers
Revenues went from $2.6 million in 1999 to $8 billion in 2003

14. Path 2: Look Across Strategic Groups Within Industries
Blue Oceans Can be unlocked by looking across strategic groups.
Strategic Groups are generally ranked in a hierarchical order
Price and Performance
Focus on improving competitive position within strategic group
Key to creating a blue ocean in existing strategic groups is to understand which factors determine customers’ decisions to trade up or down from one group to another.
Strategic groups refers to a group of companies within an industry that pursue a similar strategy.
Price and Performance
every jump in price tends to bring a corresponding jump in some dimensions of performance
Improving position
Example: Mercedes, BMW, and Jaguar focus on outcompeting each other in the luxury cars

15. Curves (Women’s Fitness)
Started franchising in 1995, acquiring more than 2mill members in more than 6 thousand locations with revs exceeding more than 1 Billion
Was thought that it was entering an oversaturated market, making its offering to customers who would not want it and making its offerings blander than the competitions
Built on two strategic groups in the U.S. fitness industry
Traditional health clubs and home exercise programs
Growth was triggered almost entirely through world of mouth
-Health clubs
-catered to both men and women offering full range of exercise and sporting options in upscale urban areas
-customers typically spend a few hours there enjoying saunas, juice bars, instructors and enjoying the social atmosphere as well as exercise time
-Home exercise programs
-such as exercise videos, books, and magazines
-small fraction of cost, and used at home, require little or no equipment. Instructions are minimal bc they are confined to video or book and and mag. Examples

16. The BIG Question
What made women trade either up or down between these strategic groups?
Women don’t want to see men while working out
Not enough time to spend hours at the gym
Also the locations present traffic challenges which increase stress and discourages going to the gym
Women trade up to health clubs because it is to easy to find an excuse when working out at home.
When working out at home its hard to be disciplined unless you are already a committed sports enthusiast, it is much easier ane more motivating working out with people.

17. Eliminating the Unwanted to Get it Right
Curves has eliminated all the aspects of the health blub that are of little interest
Machines are set up in a circle to encourage interchange among members
Nonjudgmental atmosphere
Members move around the machines and in 30 min. the circle is complete and so is a full workout
Curves created a new blue ocean demand
The machines are specificially designed for women, by reducing impact stress and build strength and muscle.
By reducing and focusing service on essentials prices fall to around $30 per month opening the market to a broad mass of women

18. Others Creating Blue Oceans
Ralph Lauren created blue ocean of “high fashion with no fashion”
Toyota’s Lexus created new blue ocean by offering the quality of the high-end luxury cars with prices closer to the lower-end Cadillac’s.
Ralph Lauren – designer name elegance of stores, luxury of materials captures what customers look for in fashion. It also have a great updated classical look and price capture the best of the classical lines
by combining the most attractive factors of both groups (high fashion with good prices) and eliminating or reducing everything else Ralph Lauren captured shares from both segments and new customers

19. Path 3: Look Across the Chain of Buyers
The purchasers who pay for the product or service may differ from the actual users, and in some cases there are important influencers as well.
Industries typically converge on a single buyer
Examples:
Pharmaceutical industry focuses on influencers the doctors
Office equipment industry focuses on purchasers
Clothing industry sells predominantly to users

20. Challenging
By challenging the industry’s conventional wisdom about what buyer group to target can lead to the discovery of new blue ocean.
Example
Insulin produces for people who are diabetic
Originally focused on influencers such as doctors
Novo Nordisk created a blue ocean by shifting the focus to the patients themselves
The NovoPen was the first user-friendly insulin delivery soltion
Look across buyer groups, companies can gain new insights into how to redesign their value curves to focus on a previously overlooked set of buyers
Example
-Originally insulin had to be given with vials and syringes and needles and patients feel uncomfortable with having to inject insulin in public
-The NovoPen looked like a fountain pen, contained an insulin cartridge and made for easy carriage in one self contained unit with about a weeks worth of insulin. The pen had integrated click meechanism with made it possible for the blind to use and be able to control the dosing.
-Nordisk also created the Novolet a prefilled disposable injection pen with a dosing system and the Innovo to manage the delivery of insulin through built-in memory and to display the dose and previous doses

21. Bloomberg
Until the early 1980’s the online financial industry only provided news and prices to the brokerage and investment community.
Bloomberg designed a system specifically to offer traders better value with an easy to use system with familiar financial terms
Bloomberg focused on the users
Question conventional definitions and who the target buyer companies can then see new ways to unlock value
The industry originally focused on purchasers (the IT managers) who valued standardized systems which made their lives easier
Bloomberg also added a “what if” scenario to the computers that would compute returns on alternative investments
By focusing on the users he was able to make it that traders can use services to buy items such as flowers and jewelry or to make travel arrangements when they had time.

22. Path 4: Look Across Complementary Product and Service Offerings
Untapped value is often hidden in complementary products and services
The objective is to define the total solution buyers seek when they choose a product or service
Key questions to ask:
What is the context in which a product or service is used?
What happens before, during, and after?
Can the pain points be identified?
How can pain points be eliminated through a complementary service or product offering?

23. NABI: Hungarian Bus Company
Companies competed to offer the lowest purchase price
Industry problems: outdated designs, late delivery times, low quality, prohibitive price of options
Question: Why were bus companies only concerned with the initial purchase price?
Discovered major costs came after the bus was purchased
Result: created a unique bus

24. Examples Barnes and Noble Virgin Entertainment’s Megastores
Dyson Vacuums
Zeneca’s Salick Cancer Centers

25. Path 5: Look Across Functional or Emotional Appeal to Buyers
Industries should compete on:
Rational Appeal
Compete on price and function
Emotional Appeal
Compete on feelings
Appeal is typically a result of the way companies competed in the past

26. Challenge Often discover new market space Two Patterns:
Emotionally orientented industries offer extras that add price with out enhancing functionality
Taking away the extras may create a simpler, lower-priced, lower-cost business model
Functionally oriented industries can add more emotion to their products to stimulate demand

27. Quick Beauty House Traditional Japanese haircuts QB House
Took about an hour because of rituals
Time spent cutting hair only a fraction the time
Price was about $27 to $45
QB House
Recognized many people didn’t want to waste an hour
Removed the emotional service of the haircut
Cut time is about ten minutes
Price was reduced to $9

28. Cemex World’s 3rd largest cement producer
Cement houses were the dreams of people in Mexico
Most people could not afford it
Launched Patrimonio Hoy Program
Shifted orientation of cement from a functional product to the gift of dreams
System of tandas: community savings scheme
Competitors were selling cement while Cemex was selling dreams

29. Path 6: Looking Across Time
What NOT to do:
Most companies adapt to change gradually, incrementally, and passively
Most companies pace their actions just to keep up with trends.
Don’t be most people!

30. Path 6: Looking Across Time
What you should do:
Look Across Time
If you:
Project how a trend will change customer value and impact company business model not just react to trend.
Look at the customer value today and compare to what it might be tomorrow
Then you:
can ACTIVELY shape strategy and the future of the business, and be ready to seek out a new blue ocean

31. Steps to Looking Across Time
Assess trends
Envision what the market might look like in the future based on the trends
Change strategy today to reflect the possible blue oceans of tomorrow

32. Step 1: How to Actively Assess Trends
In order for trends to be the foundation of your strategy, they must:
Be decisive to your business
Many trends affect your business (In an energy company- affected by season, fuel prices, legislation, etc.)
Usually only one or two have a DECISIVE impact (legislation and higher emissions standards)
Be irreversible
Thomas Friedman, Hot Flat and Crowded: Companies won’t and should not invest in expensive capital and R&D if new cap and trade legislation will expire in the future(as it has in the past), reversing the race to cleaner forms of energy.
Have a clear trajectory
Financial Crisis- no one knows where it was going or where it will lead- not a good foundation for strategy

33. Steps 2&3: Envisioning and Changing
What will the market look like based on the trends?
Ex: Apple and the IPOD
Trend- illegal music sharing becoming more rampant, but not efficient or diverse
Vision- To provide shareable music online
Change: through iTunes which mitigates efficiency, diversity and legal problems
Ex: Thomas Friedman article
Trend And Vision
energy conservation trends suggest energy costs will rise and policies will turn attention to data center efficiency
Strategy:
Current: data centers bill customers based on SPACE allocation
Have to maximize energy efficiency, but how? Cisco- rather than focus on peak processing rates (current practice) focused on tailoring process rates to use.
Result: Cisco spends less energy on less processing power and produces more output, and customers demand this business model because bills are based on ENERGY consumption, not space. The more efficient model is cheaper.

34. Review: Path 6
What trends will impact your industry, are irreversible, and have a clear path?
How will they impact your industry?
How can you create unprecedented customer value from this impact?

35. Review: Paths 1-6

36. Remember: Blue Ocean Strategy
Is NOT about predicting or preempting trends
Is NOT trial and error
It IS a structured 6-path process that reorders the market in a new way to find blue oceans