Blue Ocean Strategy: Chapter 3, Reconstruct Market Boundaries

Blue Ocean Strategy: Chapter 3, Reconstruct Market Boundaries Stuart Jones, Charles Knight, Matthews Worede, Luis Garcia, Michael Tibbitts, Jacob Eassa

Reconstruct Market Boundaries principle of blue ocean strategy: Reconstruct 1st market boundaries to break from the competition and create blue oceans Challenge: Successfully identify commercially compelling blue ocean opportunities

6 Paths Framework 6 Basic approaches to remaking market boundaries Have a general application across industries Present companies with commercially viable Blue Ocean ideas Based on looking at familiar data from a new perspective Challenge the assumptions governing many company’s strategies that keep these companies trapped in Red Oceans

Assumptions by Companies When Forming Their Strategies Define their industry similarly and focus on being best within it Look at their industry as strategic groups, and try to be best in their strategic group Focus on the same buyer group Define the scope of the products and services offered by their industry similarly Accept their industry’s functional or emotional orientation Focus on the same point in time as well as current competitive threats

6 Paths Framework Companies need to look across: – – – – Alternative industries Strategic Groups Buyer Groups Complementary product and service offerings – Functional-Emotional orientation of an industry

Path 1: Looking Across Alternative Industries Substitutes vs alternatives: cinema vs restaurant Companies neglect to think about actions from companies in alternative industries NetJets: – Created a blue ocean by looking at alternative industries – Problem: flying commercial or private jet? – NetJets offers part ownership of a corporate jet- convenience of a private jet at the price of a commercial airline ticket – Access to more than 550 airport, as opposed to 30 for commercial – Low call time- 4 hours notice

Path 1: Looking Across Alternative Industries NTT DoCoMo: i-mode – Red ocean in telecommunication industry in Japan due to deregulation – Ease of use of mobile phones vs infinite amount of info on internet – i-mode was a cell phone that cost more than a typical mobile phone, but less than a computer; most importantly, it cut down on the data and focused only on what the user needed. – Brought billing into one simple bill, instead of a flurry of bills. By focusing on key factors that lead buyers to trade across alt industries and eliminating everything else, businesses can create blue oceans

PATH 2: Look Across Strategic Groups Within Industries

Strategic Groups Strategic groups: a group of companies within an industry that pursue a similar strategy To break out of this tunnel vision which factors determine customers’ decisions trade up and down from one group to another

Strategic Canvas Examples Look within the industry Identify what you are good at Trade up and down

Dimensions Price & Performance A jump in price brings a jump in performance Improve competitive within strategic groups You create a new strategic group Best of both worlds

Strategic Group Mapping High Medium Low Customer Locations Security Exclusivity Products

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Path 3 Corporations Purchasing Agent – Concerned with costs Corporate User – More concerned with ease of use Companies in industries tend to target different customer segments (i.e. large vs. small) – Ex: The pharmaceutical industry focuses overridingly on influencers: doctors

Path 3 Main Concept By challenging an industry’s conventional wisdom about which buyer group to target can lead to the discovery of a new blue ocean. If a company looks across buyer groups, companies can gain new insights.

Novo Nordisk Example -Novo Nordisk, Danish insulin producer that created a blue ocean in the insulin industry -Insulin industry, like pharmaceutical industry, focused on the key influencers: doctors. -The industry then geared its attention and efforts to produce purer insulin in response to doctors' goal for better medication -Since companies were only competing on the purity of insulin, the technology behind the injections never progressed. -Novo Nordisk broke away from the competition and created a blue ocean by shifting the industry's long standing focus on doctors, to the patients.

Novo Nordisk Example -Novo noticed that insulin presented the patient with significant challenges in the administering phase. -The usual vials of insulin left patients to handle syringes, needles, the insulin, and administering the correct dosage. -This led Novo to the blue ocean opportunity of the "NovoPen", which was launched in 1985. -The NovoPen resembled a normal pen that contained an insulin cartridge with roughly one weeks worth of insulin. -The pen had an integrated click mechanism, making it extremely simple to control the dosing and administer the insulin.

Novo Nordisk Example -Patients could carry the pen with them and inject with ease and convenience. -To dominate the blue ocean the NovoPen had unlocked, Nordisk followed up with the NovoLet in 1989. -The NovoLet was a prefilled disposable insulin injection pen with a dosing system for even greater convenience and ease of use. -In 1999, the Innovo was introduced. With an integrated memory and cartridge based delivery system, the Innovo could display the dose, the last dose, and the elapsed time to ensure proper dosage and schedule. -Nordisk's blue ocean strategy shifted the industry from an insulin producer to a diabetes care company. -Novo Nordisk now controls more than a 60% share in Europe and 80% in Japan of insulin prefilled devices.

Bloomberg Example Bloomberg was one of the largest and most profitable business information providers in the world. In 1980’s bloomberg realized the industry focused on purchasers: IT managers. Bloomberg decided it was the traders and analysts who made the real impact. When markets are active, traders and analysts must make rapid decisions, making every second count.

Bloomberg Example Bloomberg designed a system specifically to offer traders better value. The system included two flat-panel monitors so that traders could see all the information they needed. Bloomberg included an analytic capability so the users could run “what if” scenarios to compute returns on investments. Once Bloomberg switched focus to the users, he was able to see the paradox of traders and analysts’ personal lives

Bloomberg Example The traders and analysts had tremendous income but not spare time to enjoy it. Bloomberg added information and purchasing services that enhanced traders’ and analysts personal lives. By shifting its focus upstream from purchasers to users, Bloomberg created a value curve that was different from any seen in the industry. Traders and Analysts worked together to force the IT managers to purchase Bloomberg terminals.

Path 4: Look Across Complementary Product and Service Offerings Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers seek when they choose a product or service Think about what happens before, during, and after your product is used

Visa Example In order to capitalize on blue oceans Visa could: – Offer a credit building seminar for younger customers – Offer a credit report rating service to customers

NABI Hungarian bus company Not satisfied with the way the bus industry catered to its customers – Companies consumed with offering buses at the lowest possible price – Decreased quality and costed municipalities more in repair and maintenance over time

NABI continued Created a fiberglass bus – Cut maintenance costs – Made body repairs faster – Cut fuel emissions (fiberglass is lighter than steel) – Lower manufacturing costs and more room inside the buses All of this created a value curve that diverted from the industry’s average curve

NABI continued While NABI charged a higher price for its buses, the design and quality of the buses lowered maintenance and fuel costs over the buses lifespan making their design more practical Created unprecedented industry factors – Aesthetic design – Customer friendliness Lower floors made it easier to board and gave more room for seats

NABI Captured 20% of the U.S. market More than 1 billion in orders Named by the Economist Intelligence Unit in 2002 as one of the 30 most successful companies in the world. All of this is a result of successfully identifying blue ocean opportunities and looking across complementary product and service offerings

Things to Consider What is the context in which your product or service is used? What happens before, during, and after? Can you identify the pain points? How can you eliminate these pain points through a complementary product or service offer?

Path 5 Functional appeal Emotional Appeal Overview of companies/Industries the implemented both.

Functional appeal QB house barber shop in japan, created a blue ocean strategy shift from an emotional one to a highly functional one. Took an hour haircut ritual, to a 10 minute quick trip Results large market share growth and expansion in china, Malaysia Singapore.

Emotional appeal Cemex’s changed the cement business in Mexico. Sold in retail bag, in a do-it yourself fashion. Very unattractive market, most families needed cement to build but were not interested in spending there money on cement. Most families spend their extra income on parties, festivals, and quinceanera. Created a festive environment through a system called patrimonio. Cemex’s enjoys 15% market share selling the cement at a

Trend Investment banks, and insurance companies are moving towards a more functional approach Getting rid of brokers and increasing their reliability on technology

Path 6: Look Across Time

Forming the Basis of Blue Ocean Strategy Three Principles of Developing a Blue Ocean Strategy – Trends must: be decisive to your business. be irreversible. have a clear trajectory.

Trends Observable Trends: – A Discontinuity in technology – Rise of a new lifestyle – A change in Regulatory Environments – A change in Social Environments Usually only one or two will have any decisive impact on a particular business. It is possible to identify a trend or major event without being able to predict its direction

Responding to External Trends All industries are affected by external trends. They are tasked with identifying and adapting to these trends, while developing strategies that allow them to capitalize on them wherever possible. Managers and projecting trends. Developing blue ocean strategies. Looking across time-from the value a market delivers today to value it might deliver tomorrow.

Look Across Time Process for Developing a Blue Ocean Strategy 1. Identify a trend that follows the Three Principles. 2. Consider the Blue Ocean that would conclude from following this trend through. 3. Work backwards from that conclusion and determine what steps would need to be taken to reach it. 4. Determine what must be changed today to unlock this new blue ocean.

A Look at the Rise of Apple Observed illegal music file sharing of the 1990’s. Visualized the conclusion of the trend. Transition from physical CD’s. MP3 players. Itunes - Breaking key customer annoyance factors. Protecting their blue oceans.

A Look at Visa Today 1. Longer 0% percent APR Periods. 2. Creative Perks. 3. Varied reward redemption choices. 4. Mobile payment opportunities. 5. Chip and PIN cards.

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