Chapter 5 – Blue Ocean Strategy

Dylan Taylor, Jenny Broussard, Scott Bednorz, Grant Moffett

REACH BEYOND EXISTING DEMAND

Focus mainly on existing customers

Drive for finer segmentation to

accommodate buyer differences

CONVENTIONAL STRATEGY PRACTICES TO CHALLENGE

Look to noncustomers instead of focusing on current customers

Focus on the commonalities that buyers value

MAXIMIZE THE SIZE OF THE BLUE OCEAN

Analyzed noncustomer commonalities

Hitting the golf ball was too difficult

Small club heads took time to master

Big Bertha

Larger club head

Bestseller

CALLAWAY GOLF

Think Noncustomers Before Customers

Think Commonalities Before Differences

Think De-segmentation Before Pursuing

Finer Segmentation

TO REACH BEYOND EXISTING DEMAND…

THREE TIERS OF NONCUSTOMERS

• “Soon-to-be noncustomers”

• Pret A Manager

• From: queue-order-pay-wait-receive-sitto: browse-pick up-pay-leave

• 90 second average store time

FIRST-TIER NONCUSTOMERS

RaceTrac and QuickTrip Customers

On-the-Run car washes (more red ocean)

Online quizzes, commercials and information (more blue ocean)

EXXONMOBIL

Refusing noncustomers”

JCDecaux

Most outdoor ads and billboards not effective

Street Furniture

SECOND-TIER NONCUSTOMERS

Increased time ads were seen

Signed contracts with municipalities for several years

Business plan: base cost of capital and upkeep + lots of revenue from advertisement = lost of profit

SECOND-TIER NONCUSTOMERS

Customers have issues with ExxonMobil business practices

Exxon’s website how the industry has bettered the US, not how Exxon has

EXXONMOBIL

Farthest away from an industry’s existing customers

Unexplored non customersTheir needs are assumed to belong to another market

Tooth Whitening ExampleUsually done by dentistsOral companies entered market

THIRD-TIER NONCUSTOMERS

Inability to control aircraft costs was a vulnerability to US military

Soaring costs, shrinking budgets, and an aging fleet

Navy, Marines, and Air Force all had different views of the perfect fighter plane

The Joint Strike Fighter (JSF) looked at all three of these branches as unexplored noncustomers for a market of high performing, low cost planes

U.S. DEFENSE AEROSPACE INDUSTRY

Two high cost components: avionics and enginesLooked at which features influenced the buying

decision for each branch of the military The Navy

Easy to maintain Durability

The Marines Short takeoff vertical landing (STOVL) Robust countermeasures

The Air Force Fastest aircraft Superior tactical agility

U.S. DEFENSE AEROSPACE INDUSTRY

U.S. DEFENSE AEROSPACE INDUSTRY

U.S. DEFENSE AEROSPACE INDUSTRY

GO FOR THE BIGGEST CATCHMENT

There is no hard-and-fast rule to suggest which tier of noncustomers you should focus on and when.

Focus on the tier that represents the biggest catchment.

You should also explore whether there are overlapping commonalities across all three tiers of noncustomers.

STRATEGIC ORIENTATION

The natural strategic orientation of many companies is toward retaining existing customers and seeking further segmentation opportunities.

Businesses need to challenge these existing, taken-for-granted strategic orientations.

To maximize the scale of their blue ocean they should first reach beyond existing demand as they formulate future strategies.

FALLBACK STRATEGIES

If no such opportunities can be found, businesses can then move on to further exploit differences among existing customers.

They should be aware that they might end up landing in a smaller space.

When competitors succeed in attracting the mass of noncustomers with a value innovation move, many of your customers may be attracted away from your business.

OUTCOME

It is not enough to maximize the size of the blue ocean you are creating.

You must profit from it to create a sustainable win-win outcome.