Blue Ocean Strategy: Reconstruct Market Boundaries

•Joel Hand •Rachel Harless•Jessica Moore •Priscilla Cones

•Andrew Merlino •Clete Donovan•Amanda Carey

Six Paths Framework • Six assumptions which many companies build their

strategies around

• Keeps companies trapped in red oceans

• Companies must break these boundaries to form blue oceans

• Managers must look across these boundaries • Across alternative industries, strategic groups, etc…

Reconstructing Market Boundaries

• Creating Blue Oceans• Reconstruct market boundaries • Identify the possibilities that exist • Look at the six paths framework

• Six paths • Six basic approaches to remaking market boundaries• Leading companies to visible blue ocean ideas

Path 1: Look Across Alternative Industries

• Companies compete with their competitors as well as alternatives to their product or services

• Substitutes

• Alternatives

-Example: Coca-Cola• Substitutes: Pepsi, Dr. Pepper• Alternatives: Tap Water, Freshly squeezed fruit or vegetable juice, Wine,

Milk, Coffee

Path 1: Look Across Alternative Industries

Buyers implicitly weigh purchasing alternatives, often unconsciously

Sellers rarely think about how their customers make trade-offs with alternatives

Space between alternative industries provides opportunities for value innovation

By focusing on the key factors that lead buyers to trade across alternative industries and eliminating or reducing everything else, you can create a blue ocean of new market space

NetJets

• Successful company using Fractional Jet Ownership as its blue ocean strategy

• For only $375,000 (plus pilot, maintenance, and other monthly costs), a corporation can own one sixteenth share of a $6 million aircraft

• Point to point flights

• Alternative Charters

• Favorite foods and drinks

Examples: Companies Looking Across Alternative Industries

• Home Depot: • Expertise of professional home contractors at markedly lower prices than

hardware stores• They have transformed ordinary homeowners into do-it-yourselfers

• Southwest Airlines:• Speed of air travel at price of car travel

Coca-Cola• Coca-Cola looked across alternative industries and entered the

markets of:• Sporting Events• Bowling Alleys• Movie Theaters• Make themselves available to all thirsty consumers

Path 2: Look Across Strategic Groups Within Industries

• Unlock Blue Oceans by looking across strategic groups

• Can be ranked in order by two dimensions:• Price and performance

Creating a Blue Ocean

• Breaking out of a “tunnel vision” focus

• Understanding factors driving customer’s decisions to trade up or down from one group to another

• Breaking an “oversaturated” market

• Targeting Strategic Groups• Traditional health clubs and home exercise programs

• Advantages/Strengths• Eliminated the rest

• Not competing directly with other health groups• Created new Blue Ocean demand

Other Examples:• Toyota Lexus

• High quality luxury, but lower prices

• Sony Walkman• Inexpensive boom boxes and transistor radios

• Champion Enterprises• Prefabricated Houses and on site developers

• Coca-Cola

Path 3: Look across the chain of buyers

• Chain of Buyers

• Competitors come together on a common definition of a target buyer

• There is a chain of buyers

• Buyers are directly or indirectly involved in the buying decision

Three Buyer Categories

1. Purchasers

2. Users

3. Influencers

• Individual companies often target different customer segments

• -ex: Large vs small customers

• An industry typically comes together at a single buyer group

• Such as:

• Pharmaceutical industry on influencers: doctors

• Office equipment industry on purchasers: corporate purchasing department

• Clothing industry sells predominately to users

When someone challenges industries wisdom about which buyer group to target can lead to new ocean discoveries.  

Novo Nordisk

• Danish insulin producer

• Created blue ocean in insulin industry

• Changed focus from influencers (doctors) to users (patients)

• Created NovoPen, first user friendly insulin delivery solution

• Novo Nordisk’s blue ocean strategy shifted the industry landscape.

• It changed the company from an insulin producer to diabetes care industry.

Bloomberg

• Until 1980’s Reuters and Telerate dominated online financial information industry

• Reuters and Telerate focused on purchasers (IT managers)

• Bloomberg redesigned system catered to traders

• Made a system that was easy to use:• Keyboards labeled in financial terms• Two flat panel monitors to see all information• Built in analytic capability to run “what it” scenarios

 Other Industries Blue Ocean

Changes• Canon

• Shifted from corporate purchasers to users

• Made small desktop copier industry

 

• SAP

• Shifted focus of business application software from functional user to corporate purchaser

• Created successful real-time integrated software business

• Coca Cola focuses heavily on the purchasers and users of the product.

Path 4: Look Across Complementary Product and Service Offerings

• Before, During, After

-Example: Movie theatre/ Babysitting

• Key: Find the Total Solution

• Example: Coca-Cola

NABI

• Rags to Riches- 1 Billion

• The Highest cost factors= During process

Started a Blue Ocean

• Adopted Fiberglass

• “Killed 5 birds with one stone”

• Raised Customer Service Level

Other Examples• The British Teakettle

• Barnes & Nobles

• Virgin Entertainment

• Dyson

Competition in Industries

• Two bases of appeal: functional/rational, emotional

• Rarely intrinsically one or the other

• Challenge orientation of industry

QB House• Japanese Barber Shop industry

• 57,000 visitors (1996) to 3.5 million (2002)

• Created “no-nonsense” haircuts

• Reduced extra service, time, and costs

• Improved savings and hygiene

Cemex

• Cement production industry in Mexico

• Launched Patrimonio Hoy program

• Created Supertanda

• “Sold a dream”

• Achieved differentiation while cutting costs

• Increased usage of PET recycling

• Less energy/resources, preserves fossil fuels

Path 6

• By looking at external trends with the right perspective, it can show you how to create blue ocean opportunities.

• Key insights into blue ocean strategy arise from business insights into how the trend will change value to customers and impact the company’s business model.

3 Principles that are critical to assessing trends across time

• 1. Must be decisive to your business

• 2. Must be irreversible

• 3. Must have a clear trajectory

The Euro

• Has been evolving along a constant trajectory as it has been replacing Europe’s multiple currencies.

• It is decisive, irreversible, and clearly developing a trend in financial services.

• These are the principles upon which blue oceans can be created as the European Union continues to enlarge.

Apple & iTunes • Trend of illegally downloading music

• This trend was underscored by the fast growing demand for MP3 players

• Apple capitalized on this decisive trend with a clear trajectory by launching the iTunes online music store in 2003.

• Partnered with 5 major music companies

• They created a marketplace where you are legally allowed to only download the specific songs.

• Broke key customer annoyance

• Apple’s iTunes is unlocking a blue ocean in digital music, with the added advantage of increasing the attractiveness of its already hot iPod player.

Cisco Systems

• Cisco Systems created a new market space by thing across time trends.

• Started with a decisive and irreversible trend that had a clear trajectory

• The growing demand for high-speed data exchange

• Created high-speed value for customers in a seamless networking environment.

• 80% of all traffic on the Internet goes through Cisco’s products.

From Head-to-Head Competition to Blue Ocean Creation

• Through reconstructing existing market elements across industry and market boundaries, they will be able to free themselves from head-to-head competition in the red ocean.

 Relation to Coke

• Coca Cola continually develops programs that ensure the creation of social and economic value by fostering the quality of life of our employees, promoting a culture of health and well-being, supporting our surrounding communities and minimizing our operations’ environmental impact. This relates to the “Functional-emotional orientation, which under the Blue Ocean Creation, rethinks the functional-emotional orientation of its industry.