1. Blue Ocean Strategy Ch. 3 Reconstruct Market Boundaries
Team 4:
Ty Parasiliti
Josh Fernino
Lance Hollister
Chris Kerschen
Brent Hare
Vincent Ukwu
Victor Hemmati

2. Overview Six Paths Framework:
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 Product and Service Offerings
Path 5: Look Across Functional or Emotional Appeal to Buyers
Path 6: Look Across Time

3. Path 1: Look Across Alternative Industries

4. Path 1: Look Across Alternative Industries
Alternatives VS. Substitutes
Substitutes: products in different forms that have the same functionality
Alternatives: products with different functions that serve the same purpose
Buyers will ALWAYS weigh alternatives, even if unconsciously
Sellers consider alternatives less frequently

5. Path 1: Look Across Alternative Industries
Why do sellers not think the same way?
Small changes WITHIN AN INDUSTRY will trigger responses from rivals
Changes in alternative industries often go unnoticed
This behavior provides space between alternative industries for value innovation

6. Example of NetJets
Created fractional jet ownership for corporate travelers
Grew larger than many airlines in less than twenty years
Created their blue ocean by looking across alternative industries
Commercial airlines
Private jet ownership

7. Example of NetJets Advantages of commercial airlines
Avoids fixed costs of a private jet aircraft
Companies can purchase only the amount of tickets they need (reduces variable costs)
What NetJets offers
Partial ownership starting at $375K
Smaller planes, smaller airports, and limited staff keep costs low

8. Example of NetJets Advantages of private jets What NetJets offers
Dramatically cuts total travel time
Reduces hassle of congested airports
Allows point-to-point travel
What NetJets offers
Offers access to 5,500 airports nationwide
Available in four hours’ notice

9. Path 2: Look Across Strategic Groups Within Industries
Blue Oceans can also be created by looking across strategic groups

10. Strategic Groups
Companies in a particular industry that pursue a similar strategy
Based on two dimensions
Price
Performance
Key to creating blue oceans is to break out of this narrow tunnel vision

11. Curves Grown Significantly
Total Revenues exceeding $1 Billion
Curves built on advantages of two main strategic groups
Health clubs
Home exercise programs

12. Traditional Health Club
Trendy facilities
Unnecessary Amenities
Aim for socializing

13. Curves vs. Health Club Health club is not appealing to most
Exercising at home can lead to laziness and excuses to not work out
Key is working out with others

14. Curves: Ideal No useless amenities
Machines are organized to facilitate interchange among members
No mirrors
$30 vs. $100

15. Curves: Ideal Curves is not competing with health club norms
New blue ocean demand
Over 8,000 stores expected at end of 2004
Global expansion

16. Other Examples Lexus offers luxury at a cheaper price Sony Walkman
Champion enterprises
Prefabricated homes
High-end finishing touches

17. Path 3: Look Across the Chain of Buyers

18. Path 3: Look Across the Chain of Buyers
There is a chain of “buyers” who are directly or indirectly involved in the buying decision
Purchasers: pay for the product or service
Users: people who use the product or service
Influencers: influence a decision one way or the other
These groups may overlap, but often differ

19. Path 3: Look Across the Chain of Buyers
Individual companies in an industry target different customer segments:
Pharmaceutical industry focuses on influencers: doctors
Office equipment industry focuses on purchasers: corporate purchasing departments
Clothing industry focuses mainly on users
Challenging an industry’s conventional wisdom can lead to discovery of new blue ocean

20. Novo Nordisk
Novo Nordisk, the Danish insulin producer, saw that by changing their focus from selling to doctors, they would sell directly to patients
Came up with the NovoPen
Then later the NovoLet, which brought about the Innovo
His strategy shifted the industry landscape and transformed the company from an insulin producer to a diabetes care company

21. Bloomberg
Bloomberg is an online financial information industry, providing news and prices in real time to the brokerage and investment community
Thought to focus on traders and analysts and not IT managers
Formed a system that offers traders better value, easy to use terminals and keyboards labeled with familiar financial terms
Built in “what if” scenarios for convenience

22. Path 3 Concluded
By questioning conventional definitions of who can and should be the target buyer, companies can often see new ways to unlock value
What is the chain of buyers in your industry?
Which buyer group does your industry typically focus on?
If you shifted the buyer group of your industry, how could you unlock new value?

23. Path 4: Look Across Complementary Product and Service Offerings

24. Path 4: Look Across Complementary Product and Service Offerings
Rivals converge within the bounds of their industry’s product and service offerings.
e.g. Movie Theatres and Babysitters
“Imagine a movie theatre with a babysitter service.”

25. Untapped Value
The key is to define the total solution buyers seek when they choose a product or service.
Way to do this is by thinking about what happens before, during, and after your product is used.
e.g. Babysitting and parking, operating and application software, airline ground transportation

26. NABI (Hungarian Bus Company)
Applied Path 4 to the $1 billion U.S. bus transit industry.
Municipally owned bus companies v. NABI
NABI discovered the main source of costs were those that came with the purchase, like repairs, fuel usage, and the wear and tear over the years.

27. Cont.
NABI created a bus unlike anything every seen in that industry. They used fiberglass in place of steel.
Gained SEVERAL benefits from the transformation.
NABI captured 20% of the industry since its inception in 1993, and creating a win-win situation for itself.

28. Philips Electronics
Similar to the thinking of NABI, Philips looked at the larger problem of brewing tea in Britain.
People figured the problem lies in the kettle when in fact, the problem was with the lime in the water.
Created the filtered kettle.

29. Path 5: Look Across Functional or Emotional Appeal to Buyers

30. Path 5: Look Across Functional or Emotional Appeal to Buyers
Path 5 looks at the competition in an industry not just in the scope of its products and services but also on two possible bases of appeal.
Functional Appeal
Emotional Appeal

31. Path 5: Look Across Functional or Emotional Appeal to Buyers
Functional Appeal
Some industries compete based on price and function largely on calculations of utility, their appeal is rational.
Emotional Appeal
Other industries compete largely on feelings: their appeal is emotional, more personal.

32. Path 5: Look Across Functional or Emotional Appeal to Buyers
Company behavior affects buyer expectations in a reinforcing cycle.
The way companies have competed in the past, has given consumers a taste of what to expect.
Over time functional oriented industries become more functional and emotional oriented industries become more emotional.
This removes new insight into what attracts customers.

33. Path 5: Look Across Functional or Emotional Appeal to Buyers
When companies are willing to challenge the functional-emotional orientation of their industry, they often find new market space.
Emotionally oriented industries may offer extras that add price without enhancing functionality. Removing those extras that add price will create lower-priced, lower-cost, more fundamentally simpler business model.
Functionally oriented industries can often combine commodity products with new life by adding a dose of emotion and, in doing so, can stimulate new demand.

34. Path 5: Look Across Functional or Emotional Appeal to Buyers
Path 5 raises three questions about an industry:
Does your industry compete on functionality or emotional appeal?
If you compete on emotional appeal, what elements can you strip out to make if functional?
If you compete on functionality, what elements can be added to make it emotional?

35. Path 6: Look Across Time

36. Path 6: Look Across Time
All industries are subject to external trends that affect their businesses over time
Rapid rise of the internet
Global movement toward protecting the environment
These trends can help create blue ocean opportunities

37. Path 6: Look Across Time
Key insights into blue ocean strategy rarely come from projecting the trend itself
They arise from business insights into how the trend will change value to customers and impact the company’s business model
By looking across time managers can actively shape their future and lay claim to a new blue ocean

38. Path 6: Look Across Time
Three principles are critical to assessing trends across time, through the basis of a blue ocean strategy
They must be decisive
Must be irreversible
Must have a clear trajectory

39. Path 6: Look Across Time Many trends can be observed at any one time-
For Example:
A discontinuity in technology
The rise of a new lifestyle
A change in regulatory or social environments
Usually only one or two will have a decisive impact on any particular business

40. Path 6: Look Across Time
In identifying a trend, you can look across time to figure out what the market would look like if the trend were taken to its logical conclusion
Working back from that vision of a blue ocean strategy, one can identify what must be changed today to unlock a new blue ocean

41. Path 6: Look Across Time A Prime Example:
Apple observed the flood of illegal music file sharing that began in the late 1990s
Technology allowed anyone to access free music, instead of buying CDs
Apple capitalized on this trend by launching the iTunes music online store
Today the iTunes music store offers more than 700,000 songs and now accounts for 70% of the legal music download market

42. From Head-to-Head Competition to Blue Ocean Creation
Conclusion
From Head-to-Head Competition to Blue Ocean Creation
Head-to-Head Competition
Blue Ocean Creation
Industry
Focuses on rivals within its industry
Looks across alternative industries
Strategic Group
Focuses on competitive position within strategic group
Looks across strategic groups within industry
Buyer Group
Focuses 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
Time
Focuses on adapting to external trends as they occur
Participates in shaping external trends over time