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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