bos_ch3

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Crystal HillStephen Lechtenberg

Anand McGee Allison Purtell Jason Torres

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Reconstruct Market Boundaries

Challenge: Successfully identify, out of thepossibilities that exist, commercially compellingblue ocean opportunities

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Six Paths Framework:

Clear patters for creating blue oceans

They have general applicability across industry sectors, and they lead companies into the corridorof commercially viable blue ocean ideas

These paths challenge the fundamentalassumptions underlying many companiesstrategies

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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 thestrategic group they are in Focus on the same buyer group, whether it’s the purchaser,

user, or influencer Define the scope of the products and services offered by

their industry similarly Accept their industry’s functional and emotionalorientation

Focus on the same point in time-and often on currentcompetitive threats-in formulating strategy

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Path 1:Look Across Alternative

Industries Companies compete not only with the other

companies in its own industry but also with companiesin those other industries that produce alternativeproducts or services.

Alternatives are broader than substitutes

-Example: Starbucks

Substitutes: House Blend, French Blend, Latin AmericanBlends, Asian Pacific Blends, etc.

Alternatives: Tazo Teas for Coffee

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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 alternativeindustries

Space between alternative industries providesopportunities for value innovation

By focusing on the key factors that lead buyers to tradeacross alternative industries and eliminating orreducing everything else, you can create a blue oceanof new market space

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Examples: Companies Looking

Across Alternative Industries Home Depot:

Offer the expertise of professional home contractors atmarkedly lower prices than hardware stores

By delivering the decisive advantages of both alternativeindustries, and eliminating or reducing everything else,they have transformed the ordinary homeowners intodo-it-yourselfers

Southwest Airlines:

Concentrated on driving as the alternative to flying,provided the speed of air travel at the price of car travel

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Examples cont: Starbucks Starbucks looked across alternative industries and

entered the markets of:

Ice-Cream

CD’s, books

Drinkware-cups, mugs, tumblers

Instant Coffee

Brewing Equipment

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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 Lauren

Lexus

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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, cheapto join and manage.

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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

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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

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NABI Hungarian bus company that applied Path 4 to U.S.

transit bus industry

Competition competed on offering the lowestpurchase price for buses

But,

Designs outdated

Delivery times were late Quality was low

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NABI Discovered it was costs that came after initial bus was

purchased

Maintenance over it’s 12 year cycle

Repairs after accidents

Fuel usage

Wear and tear

Rusting Rising demand for cleaner air

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NABI Finds Total Solution Normally made of steel

Heavy

Corrosive Hard to replace parts after accidents

NABI adopted fiberglass when making it’s buses

Solution that killed 5 birds with one stone

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Fiberglass Buses Cut costs by being corrosion free

Light weight cut fuel consumption and emissions

After accidents they didn’t have to replace a wholepanel rather they could cut the damaged area andreplace it

Lighter weight also meant lower powered engines and

fewer axles which cut costs And gave more space inside the bus

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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

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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

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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.

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Cemex The world’s third largest cement producer.

Created a blue ocean by shifting from functional toemotional.

Mexico’s poor didn’t have enough money to purchasebuilding materials.

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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.

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Functional Orientation Service Industries

Direct Line Group has done away with traditionalbrokers.

Eliminating emotional orientation

Vanguard Group, Charles Schwab

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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

Don’t predict future

How the trend will bring Value

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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

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Conceiving New Market Space

Think across conventional Boundaries

Don’t rely on trial/error, predicting, intuition Engage in structured process

Questions?

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