Blue Ocean Strategy: Chapter 3 - Texas Tech University

Blue Ocean Strategy: Chapter 3 - Texas Tech University

Crystal Hill Stephen Lechtenberg Anand McGee Allison Purtell Jason Torres Reconstruct Market Boundaries Challenge: Successfully identify, out of the possibilities that exist, commercially compelling blue ocean opportunities Six Paths Framework:

Clear patters for creating blue oceans They have general applicability across industry sectors, and they lead companies into the corridor of commercially viable blue ocean ideas These paths challenge the fundamental assumptions underlying many companies strategies Six Fundamental Assumptions: Keep companies trapped in Red Oceans

Define their industry similarly and focus on being the best within it Look at their industries through the lens of generally accepted strategic groups, and strive to stand out in the strategic group they are in Focus on the same buyer group, whether its the purchaser, user, or influencer Define the scope of the products and services offered by their industry similarly Accept their industrys functional and emotional orientation

Focus on the same point in time-and often on current competitive threats-in formulating strategy Path 1:Look Across Alternative Industries Companies compete not only with the other companies in its own industry but also with companies in those other industries that produce alternative products or services. Alternatives are broader than substitutes -Example: Starbucks

Substitutes: House Blend, French Blend, Latin American Blends, Asian Pacific Blends, etc. Alternatives: Tazo Teas for Coffee Path 1: Look Across Alternative Industries, cont. In making every purchase decision, buyers implicitly weigh alternatives, often unconsciously Sellers rarely think consciously about how their

customers make trade-offs across alternative industries 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 Examples: Companies Looking Across Alternative Industries Home Depot:

Offer the expertise of professional home contractors at markedly lower prices than hardware stores By delivering the decisive advantages of both alternative industries, and eliminating or reducing everything else, they have transformed the ordinary homeowners into do-it-yourselfers Southwest Airlines: Concentrated on driving as the alternative to flying, provided the speed of air travel at the price of car travel

Examples cont: Starbucks Starbucks looked across alternative industries and entered the markets of: Ice-Cream CDs, books Drinkware-cups, mugs, tumblers Instant Coffee Brewing Equipment Path 2: Look Across Strategic Groups Within Industries

Figure out which factors determine customers to trade up or down from one group to another Examples: Ralph Lexus Lauren Curves For Women Women trade up or down between:

At home exercise programs More convenient, but easy to get distracted High end health clubs Lots of men, expensive, inconvenient Developed new concept Women only, more locations, smaller

buildings, cheap to join and manage. Path 3: Look Across the Chain of Buyers Purchasers, users, and influencers Companies usually focus on a single buyer group Create blue ocean by shifting buyer group Novo Nordisk From insulin producers to diabetic care

company Starbucks Selling coffee beans to grocery stores PATH 4: Look Across Complementary Product & Service Offerings Most products and services are affected by other products or services Many companies fail to notice this The key is to define a solution buyers seek when they choose a product or service

A simple way to do this is to think about what happens Before During After NABI Hungarian bus company that applied Path 4 to U.S. transit bus industry Competition competed on offering the lowest purchase price for buses

But, Designs outdated Delivery times were late Quality was low NABI Discovered it was costs that came after initial bus was purchased Maintenance over its 12 year cycle Repairs after accidents Fuel usage

Wear and tear Rusting Rising demand for cleaner air NABI Finds Total Solution Normally made of steel Heavy Corrosive Hard to replace parts after accidents NABI adopted fiberglass when making its buses

Solution that killed 5 birds with one stone Fiberglass Buses Cut costs by being corrosion free Light weight cut fuel consumption and emissions After accidents they didnt have to replace a whole panel rather they could cut the damaged area and replace it Lighter weight also meant lower powered engines and fewer axles which cut costs

And gave more space inside the bus Now we must ask ourselves Context of how our product or service is used What happens before, during and after the product or service is used How to eliminate problem areas through a complementary product or service offering Path 5: Look Across Functional or Emotional Appeal to Buyers

Emotionally Oriented Add price without enhancing functionality . Functionally Oriented Blend commodity products with life by adding emotion. Examples: Swatch, The Body Shop, Quick Beauty House Quick Beauty House Created a Blue Ocean in the Japanese

barbershop industry. Shift from emotional to highly functional Eliminated the time and cost of getting a haircut Re-defined the Japanese barbershop industry. Cemex The worlds third largest cement producer. Created a blue ocean by shifting from

functional to emotional. Mexicos poor didnt have enough money to purchase building materials. Patrimonio Hoy Created around the traditional Mexican system of tandas. Example: Ten individuals contribute 100 pesos per week

for 10 weeks. Lots are drawn to see who wins the 1,000 pesos. Each individual wins one time only. Patrimonio Hoy works in the same way. Functional Orientation Service Industries Direct Line Group has done away with traditional brokers. Eliminating emotional orientation

Vanguard Group, Charles Schwab Path 6: Look Across Time What companies tend to do: Focus on same point in time Passive actions Projecting trend itself External Threats What companies need to do: Look into time Dont predict future

How the trend will bring Value Assessing Trends Three principles: 1) The trends must be decisive to your business 2) They must be irreversible 3) They must have a clear trajectory -Impact on your business -Work back from conclusion -Ex: EU, iTunes, Cisco, CNN, Sex and the City

Conceiving New Market Space Think across conventional Boundaries Dont rely on trial/error, predicting, intuition Engage in structured process Questions?

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