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Reach beyond existing demand

Chapter 5. Reach beyond existing demand. Introduction. Focus on maximizing size of Blue Ocean being created Companies must challenge two conventional strategies Focus on existing customers Drive for finer segmentation Finer segmentation often creates smaller target markets.

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Reach beyond existing demand

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  1. Chapter 5 Reach beyond existing demand

  2. Introduction • Focus on maximizing size of Blue Ocean being created • Companies must challenge two conventional strategies • Focus on existing customers • Drive for finer segmentation • Finer segmentation often creates smaller target markets

  3. Maximizing Size of Blue Oceans • Companies must focus on noncustomers • Build commonalities in buyer’s value • Example: Callaway Golf • Focused on why people weren’t playing golf • Found it was too difficult to hit the ball • Introduced their product Big Bertha

  4. The Goal • The Goal: Find insight to get noncustomers to become customers • Example: Coca Cola

  5. The Three Tiers • First: Buyers who minimally purchase your industry offering=Necessity • Second: Buyers who have seen what’s offered but don’t use. Example: Callaway • Third: Have never thought of your market or industry offerings

  6. Graphic Representation

  7. First-Tier Noncustomers • Soon-to-be noncustomers are those who minimally use the current market offerings to get by as they search for something better • Upon finding better alternative, they eagerly jump ship • Tend to sit on the edge of the market

  8. Market Results • Market grows stagnant as soon-to-be noncustomers increase • This develops an opportunity for untapped demand waiting to be released

  9. Pret A Manger • Expanded Blue Ocean by tapping into demand of first tier noncustomer • People second guessed their choice of eating at restaurants because they wanted healthier, faster, and less expensive options

  10. Key Commonalities • First-tier noncustomer had three commonalities • Wanted lunch • Wanted it fresh and healthy • Wanted it at a reasonable price

  11. Pret A Manger Formula • Offers restaurant quality sandwiches made fresh everyday • Finest ingredients • Makes food available faster than restaurants and fast food • Sleek setting • Reasonable prices

  12. Pret A Manger Style • Clean, Art Deco style • 30+ choices of sandwiches • $4-$6 • Made in specific shop • Fresh ingredients that are delivered that specific day • Also offers additional healthy options

  13. Ordering Experience • Fast food: queue-order-pay-wait-receive-sit down • Pret A Manger: browse-pick up-pay-leave • 90 seconds in store average

  14. How is it possible? • Makes their ready-made sandwiches at a high volume with high standardization assembly • No made-to-order and no serving customer

  15. The Lesson • Noncustomers tend to offer far more insight on how to unlock and grow a Blue Ocean than relatively content-existing customers

  16. Pret A Manger Today • Sells more than 25 million sandwiches annually • 130 UK stores • Now in Hong Kong and New York • With $160 million in sales, McDonalds bought 33% of its shares

  17. Second-Tier Noncustomers • Refusing noncustomers • Don’t use/can’t afford current market offerings • Find them unacceptable or beyond their means

  18. JCDecaux • Discovered problem: • Outdoor advertisement space undesirable • Billboards and transport ads • No time for people to experience the ad • Discovered solution: • “Street furniture” in 1964 • Municipalities offer stationary locations • Bus stops downtown

  19. JCDecaux Success • “Street furniture” • Permitted richer contents and more complex messages • Campaigns could begin in 2-3 days as opposed to 15 days for billboards • Extensive contracts • 8-25 years • Mostly variable costs • Maintenance and renewal of furniture

  20. JCDecaux Today • Number one street furniture-based ad space provider worldwide • Possess 283,000 panels in 33 countries

  21. Third-Tier Noncustomers • Farthest from your current customers • These are unexplored noncustomers • Customers have not been targeted or seen as potential customers by any player in the industry • Tooth whitening example

  22. U.S. Defense Aerospace Industry • Problem • Inability to control aircraft costs • Key vulnerability in long-term military strength of U.S. • Soaring costs/shrinking budgets • Leaving no viable plan to be able to replace the aging fleet of fighter aircraft

  23. U.S. Defense Aerospace Industry • Needs by branch: • TheNavy- durable aircraft that would survive the stress of landing on carrier decks and maintainability • The Marines- the need for short takeoff vertical landing (STOVL) and robust countermeasures • The Air Force- fastestand most sophisticated aircraft with super tactical agility and stealth technology • Three separate segments needing to be combined to cut costs

  24. U.S. Defense Aerospace Industry • The Joint Strike Fighter (JSF) program challenged this industry practice • JSF searched for key commonalities across the three branches • JSF found that the highest-cost components of the three branches were the same: avionics (software) and the engines • JSF is now called the F-35

  25. U.S. Defense Aerospace Industry • Need • To build one aircraft for all three divisions • Combing those key factors while reducing or eliminating everything else • Result: ONE aircraft and a dramatic decrease in costs. Price per aircraft went down and value went up • The JSF reduced costs from $190 million per aircraft to $33 million

  26. U.S. Defense Aerospace Industry • In Fall 2001, Lockheed Martin was given the $200 billion JSF contract • The largest military contract in history • Pentagon believes in continued success because the F-35 has won support from all three branches

  27. Go for the Biggest Catchment • No set rule on which tier of noncustomers to focus on • Focus tier that represents the biggest catchment at the time • Explore if there are overlapping commonalities across all three tiers

  28. Go for the Biggest Catchment • Companies focus on retaining existing customers and seek further market segmentation • This strategy is not likely to create a Blue Ocean • The point is to challenge the existing, taken for granted strategic orientations

  29. Maximizing Scale of Blue Ocean • Reach beyond demand to noncustomers • De-segment opportunities to formulate new strategies • If no strategies are found, move on to exploit differences among existing customers

  30. Central Idea • It is not enough to maximize the size of the Blue Ocean you are creating • A profit must be reached to create a win-win outcome

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