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Blue Ocean Strategy: Chapter 3. 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:.

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blue ocean strategy chapter 3

Blue Ocean Strategy: Chapter 3

Crystal Hill

Stephen Lechtenberg

Anand McGee

Allison Purtell

Jason Torres

reconstruct market boundaries
Reconstruct Market Boundaries
  • Challenge: Successfully identify, out of the possibilities that exist, commercially compelling blue ocean opportunities
six paths framework
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
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 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 emotional orientation
  • Focus on the same point in time-and often on current competitive threats-in formulating strategy
path 1 look across alternative industries
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
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
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
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
path 2 look across strategic groups within industries
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
curves for women
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
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
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
  • 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
  • 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
nabi finds total solution
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
fiberglass buses
Fiberglass Buses
  • Cut costs by being corrosion free
  • Light weight cut fuel consumption and emissions
  • After accidents they didn’t 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
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
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
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.
  • The world’s third largest cement producer.
  • Created a blue ocean by shifting from functional to emotional.
  • Mexico’s poor didn’t have enough money to purchase building materials.
patrimonio hoy
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
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
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
assessing trends
Assessing Trends
  • Three principles:
    • The trends must be decisive to your business
    • They must be irreversible
    • 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
Conceiving New Market Space
  • Think across conventional Boundaries
  • Don’t rely on trial/error, predicting, intuition
  • Engage in structured process
  • Questions?