Transcript of Kelly Bredensteiner Christine Cox Cailtin Greenwood Michele Haynes.
- Slide 1
- Kelly Bredensteiner Christine Cox Cailtin Greenwood Michele
Haynes
- Slide 2
- Reconstruct Market Boundaries Main principle is to reconstruct
market boundaries to break from the competition and create blue
oceans Successfully identify commercially compelling blue ocean
opportunities There is a systematic pattern for reconstructing
boundaries to create blue oceans There are six assumptions
companies have that keep them in the red ocean
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- Six Assumptions Define their industry similarly and focus on
being the best within it Look at their industry through the lens of
generally accepted groups (such as luxury automobiles, economy
cars, and family vehicles), and strive to stand out in the
strategic group they play in Focus on the same buyer group, be it
the purchaser (as in the office equipment industry), the user (as
in the clothing industry), or the influencer (as in the
pharmaceutical industry)
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- Six Assumptions continued Define the scope of the products and
services offered by their industry similarly Accept their industrys
functional and emotional orientation Focus on the same point in
time- and often on current competitive threats- in formulating
strategy
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- How to Get into the Blue Ocean To break into the blue ocean,
there are six paths that a company can follow Path 1: Look Across
Alternative Industries Path 2: Look Across Strategic Groups Within
Industries Path 3: Look Across the Chain of Buyers Path 4: Look
Across Complementary Products and Service Offerings Path 5: Look
Across Functional or Emotional Appeal to Buyers Path 6: Look Across
Time
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- Path 1: Look Across Alternative Industries A company not only
competes with other firms in their industry but also with companies
in those other industries that produce alternative products or
services Alternatives are products or services that have different
functions and forms but the same purpose Ex: Movies vs. Restaurant
Two very different experiences Restaurant- Food and Conversation
Movies- Visual entertainment Both are designed to enjoy a night
out
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- NetJets NetJets is a company that created its own blue ocean by
looking across alternative industries Mainly compared itself with
commercial airline travel NetJets offers: Fractional jet ownership
One-sixteenth ownership 50 hours of flying time a year Starting at
$375,000.
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- About NetJets Purchased by Berkshire Hathaway 500 or more
aircrafts Operating 250,000 flights Travels to 140 countries Aimed
directly at corporate travel Biggest segment of airline
customers
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- What Makes NetJets Successful Flexible Plane will be ready with
only a 4 hour advance notice Short travel time Point-to-point
travel Hassle-free travel experience Minutes from car to plane
rather than hours Increased reliability Strategic pricing Minimum
costs due to smaller airplanes, the use of smaller regional
airports, and limited staff
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- NetJets Competition There have been companies that tried to
duplicate NetJets strategy Of the 57 companies that have gone into
the fractional jet operations, all went out of business This leaves
NetJets at the very top of the industry
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- NTT DoCoMos i-mode Another product from Japan that created its
own blue ocean was the i-mode With the deregulation of
telecommunications in Japan, extreme competition was the norm
Launched in 1999 Converged the mobile phone and data transmission
Mobile phone with a few applications from the Internet that were
the most popular (weather, news, phone directory, and games) Very
simple one button access to the Internet
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- Advantages Over Other Companies Reduced the over flow of
information that the Internet provided on a PC Already connected to
the Internet so no dial-up was necessary All on one bill so there
was no need to transfer credit card information over the internet
Although it was 25% more expensive when most cell phones, it was
cheaper than a PC and had high mobility
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- NTT DoCoMos Competition All of the other companies that tried
to duplicate the i- mode made the phone too complicated and
sophisticated rather than a simple one button access to popular
online applications Increased market to youth and senior citizens
No major competitors By 2003, there were 40.1 million subscribers
Revenues went from $2.6 million in 1999 to $8 billion in 2003
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- Path 2: Look Across Strategic Groups Within Industries Blue
Oceans Can be unlocked by looking across strategic groups.
Strategic Groups are generally ranked in a hierarchical order Price
and Performance Focus on improving competitive position within
strategic group Key to creating a blue ocean in existing strategic
groups is to understand which factors determine customers decisions
to trade up or down from one group to another.
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- Curves (Womens Fitness) Started franchising in 1995, acquiring
more than 2mill members in more than 6 thousand locations with revs
exceeding more than 1 Billion Was thought that it was entering an
oversaturated market, making its offering to customers who would
not want it and making its offerings blander than the competitions
Built on two strategic groups in the U.S. fitness industry
Traditional health clubs and home exercise programs
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- The BIG Question What made women trade either up or down
between these strategic groups? Women dont want to see men while
working out Not enough time to spend hours at the gym Also the
locations present traffic challenges which increase stress and
discourages going to the gym Women trade up to health clubs because
it is to easy to find an excuse when working out at home.
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- Eliminating the Unwanted to Get it Right Curves has eliminated
all the aspects of the health blub that are of little interest
Machines are set up in a circle to encourage interchange among
members Nonjudgmental atmosphere Members move around the machines
and in 30 min. the circle is complete and so is a full workout
Curves created a new blue ocean demand
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- Others Creating Blue Oceans Ralph Lauren created blue ocean of
high fashion with no fashion Toyotas Lexus created new blue ocean
by offering the quality of the high-end luxury cars with prices
closer to the lower-end Cadillacs.
- Slide 19
- Path 3: Look Across the Chain of Buyers The purchasers who pay
for the product or service may differ from the actual users, and in
some cases there are important influencers as well. Industries
typically converge on a single buyer Examples: Pharmaceutical
industry focuses on influencers the doctors Office equipment
industry focuses on purchasers Clothing industry sells
predominantly to users
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- Challenging By challenging the industrys conventional wisdom
about what buyer group to target can lead to the discovery of new
blue ocean. Example Insulin produces for people who are diabetic
Originally focused on influencers such as doctors Novo Nordisk
created a blue ocean by shifting the focus to the patients
themselves The NovoPen was the first user-friendly insulin delivery
soltion
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- Bloomberg Until the early 1980s the online financial industry
only provided news and prices to the brokerage and investment
community. Bloomberg designed a system specifically to offer
traders better value with an easy to use system with familiar
financial terms Bloomberg focused on the users Question
conventional definitions and who the target buyer companies can
then see new ways to unlock value
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- Path 4: Look Across Complementary Product and Service Offerings
Untapped value is often hidden in complementary products and
services The objective is to define the total solution buyers seek
when they choose a product or service Key questions to ask: What is
the context in which a product or service is used? What happens
before, during, and after? Can the pain points be identified? How
can pain points be eliminated through a complementary service or
product offering?
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- NABI: Hungarian Bus Company Companies competed to offer the
lowest purchase price Industry problems: outdated designs, late
delivery times, low quality, prohibitive price of options Question:
Why were bus companies only concerned with the initial purchase
price? Discovered major costs came after the bus was purchased
Result: created a unique bus
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- Examples Barnes and Noble Virgin Entertainments Megastores
Dyson Vacuums Zenecas Salick Cancer Centers
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- Path 5: Look Across Functional or Emotional Appeal to Buyers
Industries should compete on: Rational Appeal Compete on price and
function Emotional Appeal Compete on feelings Appeal is typically a
result of the way companies competed in the past
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- Challenge Often discover new market space Two Patterns:
Emotionally orientented industries offer extras that add price with
out enhancing functionality Taking away the extras may create a
simpler, lower-priced, lower-cost business model Functionally
oriented industries can add more emotion to their products to
stimulate demand
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- Quick Beauty House Traditional Japanese haircuts Took about an
hour because of rituals Time spent cutting hair only a fraction the
time Price was about $27 to $45 QB House Recognized many people
didnt want to waste an hour Removed the emotional service of the
haircut Cut time is about ten minutes Price was reduced to $9
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- Cemex Worlds 3 rd largest cement producer Cement houses were
the dreams of people in Mexico Most people could not afford it
Launched Patrimonio Hoy Program Shifted orientation of cement from
a functional product to the gift of dreams System of tandas:
community savings scheme Competitors were selling cement while
Cemex was selling dreams
- Slide 29
- Path 6: Looking Across Time What NOT to do: Most companies
adapt to change gradually, incrementally, and passively Most
companies pace their actions just to keep up with trends. Dont be
most people!
- Slide 30
- Path 6: Looking Across Time What you should do: Look Across
Time If you: Project how a trend will change customer value and
impact company business model not just react to trend. Look at the
customer value today and compare to what it might be tomorrow Then
you: can ACTIVELY shape strategy and the future of the business,
and be ready to seek out a new blue ocean
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- Steps to Looking Across Time 1. Assess trends 2. Envision what
the market might look like in the future based on the trends 3.
Change strategy today to reflect the possible blue oceans of
tomorrow
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- Step 1: How to Actively Assess Trends In order for trends to be
the foundation of your strategy, they must: 1. Be decisive to your
business Many trends affect your business (In an energy company-
affected by season, fuel prices, legislation, etc.) Usually only
one or two have a DECISIVE impact (legislation and higher emissions
standards) 2. Be irreversible Thomas Friedman, Hot Flat and
Crowded: Companies wont and should not invest in expensive capital
and R&D if new cap and trade legislation will expire in the
future(as it has in the past), reversing the race to cleaner forms
of energy. 3. Have a clear trajectory Financial Crisis- no one
knows where it was going or where it will lead- not a good
foundation for strategy
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- Steps 2&3: Envisioning and Changing What will the market
look like based on the trends? Ex: Apple and the IPOD Trend-
illegal music sharing becoming more rampant, but not efficient or
diverse Vision- To provide shareable music online Change: through
iTunes which mitigates efficiency, diversity and legal problems Ex:
Thomas Friedman article Trend And Vision energy conservation trends
suggest energy costs will rise and policies will turn attention to
data center efficiency Strategy: Current: data centers bill
customers based on SPACE allocation Have to maximize energy
efficiency, but how? Cisco- rather than focus on peak processing
rates (current practice) focused on tailoring process rates to use.
Result: Cisco spends less energy on less processing power and
produces more output, and customers demand this business model
because bills are based on ENERGY consumption, not space. The more
efficient model is cheaper.
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- Review: Path 6 What trends will impact your industry, are
irreversible, and have a clear path? How will they impact your
industry? How can you create unprecedented customer value from this
impact?
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- Review: Paths 1-6
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- Remember: Blue Ocean Strategy Is NOT about predicting or
preempting trends Is NOT trial and error It IS a structured 6-path
process that reorders the market in a new way to find blue
oceans