Blue Ocean Strategy

1. Blue Ocean Strategy By: W. Chan Kim & Renee Mauborgne

2. PART 1 Chapters 1 - 4

3. Analytical Tools and Frameworks • Strategy Canvas • Four Actions Framework • Eliminate-Reduce-Raise-Create Grid

4. 3 Characteristics of Blue Ocean Strategy 1. Focus 2. Divergence 3. Compelling Tag Line

5. Value Innovation Costs ValueInnovation Buyer Value

6. Value Innovation

7. Red Ocean Versus Blue Ocean Strategy In the red ocean, differentiation costs because firms compete with the same best-practice principle

8. Red Ocean Versus Blue Ocean Strategy

9. The Six Principles of Blue Ocean Strategy This figure highlights the six principles driving the successful formulation and execution of blue ocean strategy and the risks that these principles attenuate.

10. The Six Principles of Blue Ocean Strategy

11. Strategy Canvas The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy. High Low Wine range Above-the-line marketing Vineyard prestige and legacy Price Use of enological terminology Aging quality Wine complexity

12. Strategy Canvas High Low

13. Four Actions Framework + Eliminate/Reduce/Raise/Create Grid Reduce The four actions framework offers an technique that breaks the trade-off between differentiation and low cost and to create a new value curve. It answers the four key questions of what industry takes for granted and needs to be eliminated; what factors need to be reduced below industry standards; what factors need to be raised above industry standards; and what should be created that the industry has never offered. Which factors should be reduced well below industry standards? Eliminate A New Value Curve Create Which factors should be created that the industry has never offered? Which of the factors that the industry takes for granted should be eliminated? Raise Which factors should be raised well above the industry’s standard? The eliminate-reduce-raise-create grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve. By driving companies to fill in the grid with the actions of eliminating, reducing, raising, and creating, the grid provides four immediate benefits: it pushes them to simultaneously pursue differentiation and low costs; identifies companies who are only raising and creating thereby raising costs; makes it easier for managers to understand and comply; and it drives companies to scrutinize every factor the industry competes on.

14. Four Actions Framework + Eliminate/Reduce/Raise/Create Grid Reduce Four Actions Framework Eliminate Create A New Value Curve Raise The Eliminate-Reduce-Raise-Create Grid

15. Visualize Strategy Visual Awakening; See where you are Visual Exploration; See how others see you Visual Strategy Fair; See where you could be Visual Communication; Draw a Map for everyone (Pioneer-Migrator-Settler Map)

16. Reconstructing Market Boundaries Six Paths Framework Look Across Alternative Industries Look Across Strategic Groups Within Industries Look Across the Chain of Buyers Look Across Complementary Products and Service Offerings Look Across Functional or Emotional Appeal to Buyers Look Across Time

17. Look Across Alternative Industries Blue Ocean: A company not only competes with other firms in its own industry but also with companies in those other industries that produce alternate products or services Red Ocean: Define their industry similarly and focus on being the best in it

18. Look Across Strategic Groups Within Industries • “Strategic Groups” refer to a small group of companies within an industry that pursue a similar strategy. • Create a hierarchical order for these companies • Understand which factors determine customers'’ decisions and either trade up or down from one group to another • Curves

19. Look Across the Chain of Buyers There is a chain of buyers who are directly or indirectly involved in the buying decision Purchases who pay for the service may be different from the ones that use it and can become important influencers What is the chain of buyers in your industry? If you shifted the buyer group of your industry, how could you unlock new value?

20. Look Across Complementary Products and Service Offerings Few products or services are used in a vacuum. Think about what happens before, during and after your product / service is used Movies / Popcorn Hungarian Bus Company

21. Look Across Functional or Emotional Appeal to Buyers Even the most mundane products or services can find an emotional appeal QB House Cemex Starbucks

22. Look Across Time All industries are subject to external trends that affect their businesses over time Example the internet Blue Oceans are not often derived from projecting the trend itself, but rather they arise from business insights into how the trend will change value to customers and impact the company’s business mode

23. Four Steps of Visualizing Strategy The four steps of visualizing strategy builds on the six paths of creating blue oceans and involves a lot of visual stimulation in order to unlock people’s creativity. The four steps include visual awakening, visual exploration, visual strategy fair, and visual communication.

24. Four Steps of Visualizing Strategy

25. Pioneer, Settler, Migrator Map Pioneers Migrators Settlers Today Tomorrow

26. Pioneer, Settler, Migrator Map Pioneers Migrators Settlers Today Tomorrow

27. PART 2 Chapters 5 - 9

28. Three Tiers of Noncustomers There are three tiers of noncustomers that can be transformed into customers. Third Tier Second Tier First Tier Your Market

29. Three Tiers of Noncustomers

30. Sequence of Blue Ocean Strategy An important part of blue ocean strategy is to “get the strategic sequence right.” This sequence fleshes out and validates blue ocean ideas to ensure their commercial viability. No-- Rethink Yes No-- Rethink Yes No-- Rethink Yes No-- Rethink Yes A Commercially Viable Blue Ocean Idea

31. Sequence of Blue Ocean Strategy No-- Rethink Yes No-- Rethink Yes No-- Rethink Yes No-- Rethink Yes A Commercially Viable Blue Ocean Idea

32. Buyer Utility Map The buyer utility map helps managers look at this issue from the right perspective. It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a product or service. The Six Stages of the Buyer Experience Cycle 1. Purchase 2. Delivery 3. Use 4. Supplements 5. Maintenance 6. Disposal Customer Productivity Simplicity Convenience The Six Utility Levers Risk Fun and Image Environmental friendliness

33. Buyer Utility Map The Six Stages of the Buyer Experience Cycle 4. Supplements 5. Maintenance 6. Disposal 1. Purchase 2. Delivery 3. Use Customer Productivity Simplicity Convenience The Six Utility Levers Risk Fun and Image Environmental friendliness

34. Buyer Experience Cycle A buyer’s experience can usually be broken into a cycle of six stages, running more or less sequentially from purchase to disposal. Each stage encompasses a wide variety of specific experiences. At each stage, managers can ask a set of questions to gauge the quality of buyer’s experience. Purchase Delivery Use Supplements Maintenance Disposal How long does it take to find the product you need? Is the place of purchase attractive and accessible? How secure is the transaction environment? How rapidly can you make a purchase? How long does it take to get the product delivered? How difficult is it to unpack and install the new product? Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this? Does the product require training or expert assistance? Is the product easy to store when not in use? How effective are the product’s features and functions? Does the product or service deliver far more power or options than required by the average user? Is in overcharged with bells and whistles? Do you need other products and services to make this product work? If so, how costly are they? How much time do they take? How easy are they to obtain? Does the product require external maintenance? How easy is it to maintain and upgrade the product? How costly is maintenance? Does use of the product create waste items? How easy is it to dispose of the product? Are there legal or environmental issues in disposing of the product safely? How costly is disposal?

35. Buyer Experience Cycle Purchase Delivery Use Supplements Maintenance Disposal

36. Uncovering Blocks to Buyer Utility Uncovering blocks to buyer utility can identify the most compelling hot spots to unlock exceptional utility. By locating your proposed offering on the thirty-six space of the buyer utility map, you can clearly see how, and whether the new idea not only creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting noncustomers into customers.

37. Uncovering Blocks to Buyer Utility

38. Price Corridor of the Mass This tool helps managers find the right price for an irresistible offer, which, by the way, isn’t necessarily the lower price Step 1: Identify the price corridor of the mass. Step 2: Specify a price level within the price corridor. Three alternative product/service types: Different form and function, same objective Same form Different form, same function High degree of legal and resource protection Difficult to imitate Upper-level pricing Some degree of legal and resource protection Price Corridor of the Mass Mid-level pricing Low degree of legal and resource protection Easy to imitate Lower-level pricing

39. Price Corridor of the Mass Step 1: Identify the price corridor of the mass. Step 2: Specify a price level within the price corridor. Three alternative product/service types: Different form and function, same objective Same form Different form, same function High degree of legal and resource protection Difficult to imitate Upper-level pricing Some degree of legal and resource protection Price Corridor of the Mass Mid-level pricing Low degree of legal and resource protection Easy to imitate Lower-level pricing

40. Profit Model of Blue Ocean Strategy The profit model of blue ocean strategy shows how value innovation typically maximizes profit by using the three levers of strategic price, target cost, and pricing innovation. The Strategic Price The Target Profit The Target Cost Streamlining and Cost Innovations Partnering Pricing Innovation

41. Profit Model of Blue Ocean Strategy

42. Blue Ocean Idea Index The blue ocean idea index is a simple but robust test demonstrating how the sequence of utility, price, cost, and adoption form an integral whole to ensure commercial success through blue ocean strategy. DoCoMo I-mode Japan Motorola Iridium Philips CD-i - - + - - + - - + - +/- +

43. Blue Ocean Idea Index