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Blue Ocean Strategy Chapter 6: Get the Strategic Sequence Right. Team 3 Sarah Ellens Coleman Crook Ashton Davis Jessica Crumpton Kevin Levesque. The Right Strategic Sequence. Buyer Utility Price Cost Adoption. Steps. Utility- is there a reason to buy it? If no, Park idea or rethink

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blue ocean strategy chapter 6 get the strategic sequence right

Blue Ocean StrategyChapter 6: Get the Strategic Sequence Right

Team 3

Sarah Ellens

Coleman Crook

Ashton Davis

Jessica Crumpton

Kevin Levesque

the right strategic sequence
The Right Strategic Sequence

Buyer Utility

Price

Cost

Adoption

steps
Steps
  • Utility- is there a reason to buy it?
    • If no, Park idea or rethink
  • Price- price should not determine purchase
    • Should still attract buyers
  • These two address revenue side of a business model and ensure a leap in buyer value
  • Buyer Value=Utility-Price
steps cont
Steps cont.
  • Cost- can you produce the product at target cost and still have a healthy profit margin?
    • Strategic Price= Price easily accessible to the mass of target buyers
    • Cost should not drive prices, change idea or innovate
  • Adoption hurdles- done in the beginning to ensure success
    • Key because of significant departure from red oceans
testing for exceptional utility
Testing for Exceptional Utility

Phillips CD-I –”imagination Machine” video machine, music system, game player and teaching tool

Do not assume leading technology equals sales (Virgin space flight)

Value innovation does not mean technological innovation

buyer utility map
Buyer Utility Map

Outlines levers companies can pull to deliver exceptional utility to buyers as well as experiences can have with the product or service

Identify range of spaces product of service may fill

six stages of the buyer experience cycle
Six Stages of the Buyer Experience Cycle

From purchase to disposal

Each stage managers can ask a set of questions to gauge quality of experience

Purchase- how long to find? Placement? Secure transaction environment? Timely?

Delivery- Time? Unpack/Install difficulty? Arrange delivery/difficulty?

Use- Training? Storage? Effective? Bells and whistles?

Supplements- Need other parts/costs? Time? Pain?

Maintenance- Required? Upgrade easy? Cost?

Disposal- Create waste? Disposal easiness? Legal issues? Cost?

the six utility levers
The Six Utility Levers

Utility Levers: the ways companies can unlock exceptional utility for buyers.

the utility levers
The Utility Levers

Customer productivity

Simplicity

Convenience

Risk

Fun and image

Environmental friendliness

stages of buyers experience cycle
Stages of Buyers experience cycle

The Buyer Utility Map

The buyers experience broken down into six stages.

Purchasing

Delivery

Use

Supplements

Maintenance

Disposal

southwest airlines
Southwest Airlines
  • Purchase online, over-the-phone, at the airport
    • How close is the airport?
  • Delivery – among the largest airline companies Southwest had the 2nd best on time record
  • Use – Product requires pilots and service crew
southwest airlines continued
Southwest Airlines continued…

Supplements – gas, airport, and human resources

Maintenance – product needs continual check-ups

Disposal – Planes need space and time

identify the price corridor of the mass
Identify the Price Corridor of the Mass
  • Different form, Same function:
    • Many companies that create blue oceans attract customers from other industries who use a product or services that performs the same function as the new one but takes a very different physical form.
  • Different form and function, Same objective:
    • Listing the croups of alternative products and services allows mangers to see the full range of buyers they can poach from other industries as well as from nonindustrial.
slide16

This provides a straightforward way to identify where the mass of target buyers is and what prices these buyers are prepared to pay for the products and services currently in use.

  • Southwest Airlines has a prices corridor of the mass covered the group of people paying, on average, $400 to by an economy-class short-haul ticket to about $60 for the cost of going the same distance by car.
specify a level within the price corridor
Specify a Level Within the Price Corridor

Degree to which the product or services is protected legally through patents or copy rights

Degree to which the company owns some exclusive asset or core capability, such as an expensive production plant, that can block imitation.

from strategic pricing to target costing
From Strategic Pricing to Target Costing

To maximize the profit potential of a blue ocean idea, a company should start with the strategic price and then deduct its desired profit from the price to arrive at the target cost.

from strategic pricing to target costing1
From strategic pricing to target costing

Addresses the profit side of the business model

Strip out costs

Model T – Assembly line

Three principal levers to hit the cost target

first principal lever
First Principal Lever

Streamlining operations

Introducing cost innovations from manufacturing to distribution

Swatch

second principal lever
Second Principal Lever

Partnering with other companies

Trying to carry out all activities themselves

Fast and effective securing of capabilities

Sometimes these first two levers are not enough to hit target cost

third principal lever
Third Principal Lever

Changing the pricing model of the industry

Videotapes– from selling to renting

Even after target cost is met, pricing innovation may still be pursued

stakeholders
Stakeholders

No matter the business model success isn’t guaranteed in a blue ocean idea. Fear and resistance may arise from:

  • Employees
  • Business Partners
  • The General Public
employees
Employees

Explain the changes to the employees, address potential threats and how those will be resolved.

Example:

  • Merrill Lynch announcing online brokerage service.
business partners
Business Partners

Those that have a vested interest want to know how the implementation of a new business idea will effect current revenues from existing offerings.

Example:

  • Southwest offering international flights
the general public
The General Public

Hesitation among the general public can be triggered by a product that is very new and innovative; therefore threatening social or political norms.

Example:

  • Monsanto producing genetically modified foods.