Blue Oceans
BACHELOR OF
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Part Two:Formulating Blue
Ocean Strategy
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Formulation Principles Risk Factors
Reconstruct market
boundaries
Focus on the big picture,
not the numbers
Reach beyond existing
demand
Get the strategic sequence
right
Lowers Search
risk
Lowers Planning
risk
Lowers Scale risk
Lowers Business
model risk
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Reach Beyond Existing Demand
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Reach Beyond Existing Demand
The Three Tiers of Noncustomers
1st
Tier
2nd
Tier
3rd
Tier
Your
Market
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Reach Beyond Existing Demand
The Three Tiers of
Noncustomers
First Tier : “Soon-to-be”
noncustomers
On the edge of your market
1st
Tier
Your
Market
Waiting to jump ship.Minimally
use the current market offerings
to get by as they search for
something better.
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Reach Beyond Existing Demand
The Three Tiers of
Noncustomers
Second Tier: “Refusing”
noncustomers
Consciously choose against your
market.Their needs are either
dealt with by other mean or
ignored.
2nd
Tier
Harboring within refusing
noncustomers, however, is an
ocean of untapped demand
waiting to be released.
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Reach Beyond Existing Demand
The Three Tiers of
Noncustomers
Third Tier : “Unexplored” Have not
been targeted or thought of as
potential customers by any player in
the industry
3rd
Tier
Their needs and the business
opportunities somehow always been
assumed to belong to other
markets.
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Get the Strategic Sequence Right
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Buyer utility
Is there exceptional buyer utility in your business idea?
BACHELOR OF
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No-Rethink
Yes
Price
Is your price easily accessible to the mass of buyers?
No-Rethink
Yes
Cost
Can you attain your cost target to profit at your
strategic price?
No-Rethink
Yes
Adoption
What are the adoption hurdles in actualizing your
business idea? Are you addressing them up front?
No-Rethink
Yes
A commercially Viable Blue Ocean Idea
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Buyer Experience Cycle
BACHELOR OF
INNOVATION™
A buyer’s experience can usually be broken into a cycle of six stages, running more or less sequentially
from purchase to disposal. Each stage encompasses a wide variety of specific experiences. At each
stage, managers can ask a set of questions to gauge the quality of buyer’s experience.
Purchase
How long does
it take to find
the product you
need?
Is the place of
purchase
attractive and
accessible?
How secure is
the transaction
environment?
How rapidly
can you make
a purchase?
Delivery
How long
does it take
to get the
product
delivered?
How difficult
is it to
unpack and
install the
new product?
Do buyers
have to
arrange
delivery
themselves?
If yes, how
costly and
difficult is
this?
Use
Does the product
require training or
expert assistance?
Is the product easy
to store when not in
use?
How effective are
the product’s
features and
functions?
Does the product
or service deliver
far more power or
options than
required by the
average user? Is
in overcharged with
bells and whistles?
Supplements
Do you need other
products and
services to make
this product work?
If so, how costly
are they?
How much time do
they take?
How easy are they
to obtain?
Maintenance
Disposal
Does the product Does use of
require external the product
maintenance?
create waste
items?
How easy is it to
maintain and
How easy is it
upgrade the
to dispose of
product?
the product?
How costly is
maintenance?
Are there legal
or
environmental
issues in
disposing of
the product
safely?
How costly is
disposal?
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Uncovering Blocks to Buyer Utility
BACHELOR OF
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Uncovering blocks to buyer utility can identify the most compelling hot spots to unlock
exceptional utility. By locating your proposed offering on the thirty-six space of the buyer utilit
map, you can clearly see how, and whether the new idea not only creates a different utility
proposition from existing offerings but also removes the biggest blocks to utility that stand in t
way of converting noncustomers into customers.
Purchase
Delivery
Use
Supplements
Maintenance
Disposal
Customer
Productivity:
In which stage are the biggest blocks to customer
productivity?
Simplicity:
In which stages are the biggest blocks to simplicity?
Convenience:
In which stage are the biggest blocks to convenience?
Risk:
In which stage are the biggest blocks to reducing
risks?
Fun and Image:
In which stage are the biggest blocks to fun and
image?
Environmental
In which stage are the biggest blocks to
environmental friendliness?
Friendliness:
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Buyer Utility Map
The buyer utility map helps managers look at this issue from the right perspective. It outlines all
the levers companies can pull to deliver exceptional utility to buyers as well as the various
experiences buyers can have with a product or service.
The Six Stages of the Buyer Experience Cycle
1.
2.
3.
Purchase
Delivery
Use
4.
5.
SupplementsMaintenance
6.
Disposal
The Six Utility
Levers
Customer
Productivity
Simplicity
Convenience
Risk
Fun and
Image
Environmental
friendliness
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Price Corridor of the Mass
This tool helps managers find the right price for an irresistible offer, which, by the way, isn’t
necessarily the lower price. The tool involves two distinct buy interrelated steps. The first
step involves identifying the price corridor of the mass which deals with customer price
sensitivity and pricing strategies of products offered outside the group of traditional
competitors. The second step deals with specifying a level within the price corridor which
factors in legal protection and exclusive assets.
Step 1: Identify the price
corridor of the mass.
Three alternative product/service types:
Same
form
Different
form, same
function
Step 2: Specify a price level
within the price corridor.
Different form
and function,
same objective
High degree of legal and
resource protection
Difficult to imitate
Mid-level pricing
Price
Corridor of
the Mass
Some degree of legal and
resource protection
Low degree of legal and
resource protection
Easy to imitate
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Reconstructing Market
Boundaries
14
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Reconstructing Market Boundaries
The first principle of blue ocean strategy is to
reconstruct market boundaries:
break from the competition
create blue oceans.
Challenge:
successfully identify $ compelling blue oceans
15
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Reconstructing Market Boundaries
Six Approaches that Look Across:
Alternative Industries
Strategic Groups Within Industries
The Chain of Buyers
Complementary Product and Service Offerings
Functional or Emotional Appeal to Buyers
Look Across Time
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Reconstructing Market Boundaries
Look Across: Alternative Industries
Broader than substitutes
Products & Service Substitutes:
different forms but same functionality
Products & Service Alternatives:
different functionality and forms but same
purpose
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Reconstructing Market Boundaries
Look Across: Alternative Industries:
QUESTION:
Name the 2 examples the book uses?
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Reconstructing Market Boundaries
Look Across: Alternative Industries: FIRST
EXAMPLE CLUE:
Sorting out personal finances
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Reconstructing Market Boundaries
Look Across: Alternative Industries: FIRST
EXAMPLE:
Sorting out personal finances
Installing financial software packages on a computer:
hiring a CPA
using pencil and paper
What is it?:
different forms but same functionality
different functionality and forms but same
purpose
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INNOVATION
™ ™
Reconstructing Market Boundaries
Look Across: Alternative Industries: FIRST
EXAMPLE:
Sorting out personal finances
Installing financial software packages on a computer:
hiring a CPA
using pencil and paper
What is it?:
different forms but same functionality
Helps people manage financial affairs
21
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Reconstructing Market Boundaries
Look Across: Alternative Industries: SECOND
EXAMPLE CLUE:
Cinemas vs. Restaurants
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Reconstructing Market Boundaries
Look Across: Alternative Industries: SECOND
EXAMPLE:
Cinemas vs. Restaurants
Restaurants: offer conversational & gastronomical pleasure
Cinemas: visual entertainment
What is it?:
different forms but same functionality
different functionality and forms but same
purpose
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Reconstructing Market Boundaries
Look Across: Alternative Industries: SECOND
EXAMPLE:
Cinemas vs. Restaurants
Restaurants: offer conversational & gastronomical pleasure
Cinemas: visual entertainment
What is it? CLUE:
Same objective but its not a substitite:
about enjoying a night out - therefore they are alternatives
of each other:
24
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INNOVATION
™ ™
Reconstructing Market Boundaries
Look Across: Alternative Industries: SECOND
EXAMPLE:
Cinemas vs. Restaurants
Restaurants: offer conversational & gastronomical pleasure
Cinemas: visual entertainment
What is it?:
different functionality and forms but same
purpose
25
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Reconstructing Market Boundaries
Look Across: Alternative Industries: RECAP:
Sorting out personal finances
different forms but same functionality
Cinemas vs. Restaurants
different functionality and forms but same purpose
26
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Reconstructing Market Boundaries
Look Across: Alternative Industries: QUESTION:
What was the deal with NetJets?
BACHELOR OF
INNOVATION™
Reconstructing Market Boundaries
BACHELOR OF
INNOVATION™
What was Netjets’ Blue Ocean?
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Reconstructing Market Boundaries
BACHELOR OF
INNOVATION™
fractional jet ownership
29
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INNOVATION
™ ™
Reconstructing Market Boundaries
Look Across: Alternative Industries:
NetJets:
Blue ocean of fractional jet ownership
In less than 20 years, it was the fastest growing
airline company
Over 500 aircraft - Operating in over 40 countries
Purchased by Berkshire Hathaway in 1998
Revenue growth from 30-35% each year
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Reconstructing Market Boundaries
Look Across: Alternative Industries: NetJets
SUMMARY:
NetJets reconstructed market boundaries to
create their blue ocean by looking across
alternative industries
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How did they reconstruct market
boundaries to create their blue
ocean?
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Reconstructing Market Boundaries
They asked:
Why do corporations use commercial
airlines for their travel?
What are the Costs.
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Reconstructing Market Boundaries
They responded:
Offerering customers 1/16th ownership of an aircraft
shared with 15 other customers who all Receive
50 hrs of flight time per year for $375,000
Private jet at the price of a commercial airline ticket
Due to NetJets smaller airplanes, use of smaller
regional airports, and limited staff, their costs are
kept to a minimum
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What are dead head fees?
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™ ™
Dead head fees are:
Additional client costs, calculated per mile, that
apply when the pick up, drop off location, or
The service area is not within 25 miles of the bus
company, or
Charters where the mileage fee is greater than
the hourly fees.
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Reconstructing Market Boundaries
Look Across: Functional or Emotional Appeal to
Buyers
What Industries should compete on
Rational appeal
Emotional appeal
Appeal usually a result of how companies have
competed in the past
Ex: Functionally oriented companies become
more functionally oriented
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Reconstructing Market Boundaries
Look Across: Functional or Emotional Appeal to
Buyers
Change
Emotionally oriented industries offer extras at
extra price without enhancing functionality
By stripping those extras it would create a
fundamentally simpler business model
Functionally oriented industries can add emotion
to their products to stimulate demand
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Reconstructing Market Boundaries
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™ ™
Look Across: Functional or
Emotional Appeal to Buyers
Example: Quick Beauty
House
Traditional Japanese haircuts - took
around an hour because of rituals
Price was around $27 to $45 -Reduced to around $9
Decided working professionals did
not want to waste an hour
Stripped the emotional service of the
haircut - focused on basic cuts
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Reconstructing Market Boundaries
Look Across: Functional or
Emotional Appeal to Buyers
Look Across: Buyers’s Utility and
how they purchase
Example: Cemex
World’s 3rd-largest cement producer:
Blue ocean: functional to emotional
Cement houses were the dreams of the
people of Mexico - unaffordable
Foundation of tandas
While competitors were selling cement,
Cemex was selling dreams
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What defines the
“Bottom of the Pyramid”?
Annual per capita income (1)
More than $20,000
$ 1,500 - 20,000
Less than $ 1,500
(1) Based on purchasing
parity in US $
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Population in millions
75-100
1,500 – 1,750
4,000
Source: U.N. World Development Reports
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Six Assumptions You May Be Making
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1. The poor are not our target customers because with our current cost
structures, we cannot profitably compete for that market.
2. The poor cannot afford and have no use for the products and
services sold in developed markets.
3. Only developed markets appreciate and will pay for new technology.
The poor can use the previous generation of technology.
4. The bottom of the pyramid is not important to the long-term viability
of our business. We can leave Tier 4 to governments and nonprofits.
5. Managers are not excited by business challenges that have a
humanitarian dimension.
6. Intellectual excitement is in developed markets. It is hard to find
talented managers who want to work at the bottom of the pyramid.
Source: C.K. Prahalad and Stuart L. Hart, The Fortune at the Bottom of the Pyramid, strategy + business, Issue
26
Every single one of these assumptions is generally wrong.
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Cemex Launched the Patrimonio
Hoy Project for the Poor People of
Guadalajara (Mexico)
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“How can we give poor people access to the home-owning
experience faster?”
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The Challenge for Poor People:
Building Their Home One Room at a
Time
Cement bag
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“Selfconstruction”
market
“How can we accelerate access to the cement bag for poor
people?”
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Patrimonio Hoy Builds on an
Existing Community Called a Tanda
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Tanda concept
 A tanda is a traditional Mexican community savings scheme.


Every five months, the accumulated savings is won in a lottery
by one of five people, who receives 50 pesos.



For example, 10 people save 1 peso per month.
All participants win the 50 pesos one time only.
Traditionally, the tanda money goes toward festive events.
With Patrimonio Hoy, the winner receives a bag
of cement from Cemex.

The value is in the acceleration of access to the
larger sum, and in the discipline of savings that
is created (community peer pressure).
Communities nearly always play a role in solving bottomof-the-pyramid problems
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A win-win solution for
Cemex and tandas
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Microcredit lending to the tanda:
 Based on solidarity of a group of at least 3
people.
 No collateral required.
 $4 credit for each $1 saved.
Security of supply:
 Frozen prices for 70-week
periods.
 Warehousing services to store
materials according to
customer needs.
Technical advice:
 Customized house growth project for each
family, phased one room at a time.
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Results from the customer’s
standpoint

More than 75,000 families have participated.

Customers in 23 cities served by 48 Cemex offices.


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Families have built the equivalent of 33,000 additional 11square meter rooms.
Accelerated access to home-owning: 1 room in 16
months vs. 48 months historically.
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Results for Cemex
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Results from Cemex’s standpoint
 Excellent credit results:


Demand expansion:




Accelerated cement use.
Creation of a new market valued at $500-600 MM.
Growing quickly.
Branding:



On-time payments better than 99%.
Increased brand loyalty.
Brand preference in other segments based on demonstrated socially
responsible programs.
Generating its own growth resources:

Customers become Cemex cement salespeople.
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Curves
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Reconstructing Market Boundaries
Look Across: Strategic Groups Within Industries:
CURVES
Blue ocean demand for women failing to keep in shape
Built on two strategic groups:
traditional health clubs and home exercise programs
eliminated everything else
Asked: What makes women trade either up or down
from these two strategic groups?
Curves’ low-cost business model makes its franchises
easy to afford and are profitable within the first couple of
months
Curves facilities now exist in most towns all over the U.S.
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Reconstructing Market Boundaries
Look Across: Strategic Groups Within Industries:
CURVES
Asked: What makes women trade either up or
down from these two strategic groups?
Makes its franchises easy to afford
profitable within the first couple of months
All over the U.S. / North America and Europe
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Reconstructing Market Boundaries
Look Across: Strategic Groups Within
Industries: Group Others
Polo Ralph Lauren
Toyota’s Lexus as a Luxury Car
Sony’s Walkman in the late 1970s
Champion Enterprises prefabricated
housing
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Reconstructing Market Boundaries
Look Across: The Chain of Buyers
Typically, industry focuses on who the target
buyer is.
In reality, there is a chain of “buyers”
purchasers, users, and influencers
Each hold different definitions of value
54
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Reconstructing Market Boundaries
Look Across: The Chain of Buyers
Individual companies in an industry often target
different customer segments.
large vs. small customers
An industry typically converges on a single buyer
group
Pharmaceutical industry - influencers
Office Equipment industry - purchasers
Clothing industry - users
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Reconstructing Market Boundaries
Look Across: The Chain of Buyers
Novo Nordisk created a blue ocean in the insulin
industry and transformed from an insulin
producer to a diabetes care company.
Industry focused on doctors - shifted to users
(patients) rather than doctors.
NovoPen = 1st user-friendly insulin delivery
system
NovoLet = prefilled disposable insulin pen
Innovo = electronic memory records
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Reconstructing Market Boundaries
Look Across: The Chain of Buyers
Industry focused on purchasers (IT managers)
Bloomberg saw traders & analysts making the
crucial decisions for their employers
-Designed system to offer users better value with
a easy-to-use, broker-friendly computer system
-Also added information and purchasing services
to enhance their personal lives
In return the traders & analysts exerted their
power within the firm to drive IT managers to
purchase from Bloomberg.
57
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Reconstructing Market Boundaries
Look Across: Complementary Product & Service
Offerings
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 offering?
Untapped value is often hidden in complementary products and
services. Define the total solution buyers seek when they choose
a product or service.
58
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Reconstructing Market Boundaries
Complementary Product
and Service Offerings
Examples
Virgin Entertainment’s
Megastores
Dyson Vacuums
Zeneca’s Salick Cancer Centers
59
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Reconstructing Market Boundaries
BACHELOR OF
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Alternative Industries: QUESTION:
What was the deal with NTT DoCoMo’s i-mode?
60
Reconstructing Market Boundaries
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What was DoCoMo’s Blue Ocean?
61
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Reconstructing Market Boundaries
Look Across: Alternative Industries:
DoCoMo:
Largest telecommunications company in Japan
Changed the way people communicate and access
information
Created blue ocean by thinking of why people trade
across alternatives of mobile phones and the
internet
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Reconstructing Market Boundaries
Look Across: Alternative Industries: DoCoMo:
Largest telecommunications company in Japan - Changed
the way people communicate and access information
Created blue ocean by thinking of why people trade
across alternatives of mobile phones and the internet
Deregulation of telecommunication industry in Japan, it
was easy for new competitors to enter the market
Result: rising costs, and the average revenue per
consumer fell
Broke out of red ocean by creating wireless
transmission of voice, text, data, and pictures
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Reconstructing Market Boundaries
Look Across: Strategic Groups Within Industries
Companies in an industry that pursue similar
domain:
Mercedes, BMW, and Jaguar all focus on
outcompeting one another in the luxury car
segment versus
Economy car makers who focus on excelling over
one another in their strategic group.
64
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Reconstructing Market Boundaries
Look Across: Strategic Groups Within
Industries: QUESTION
What company does the author focus on?
65
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Reconstructing Market Boundaries
Look Across: Time
All industries are subject to external trends that effect their
businesses over time
Internet
“Going Green” to protect the planet
Most companies adapt incrementally / passively as trends
emerge focusing:
projecting the trend itself
paceing themselves to keep up with the trend.
HOW: Get out of Red Oceans and develop a Blue Ocean
strategy?
66
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Reconstructing Market Boundaries
Look Across: Time
Example Internet
buying text books online
cheaper to purchase books online
trend increasing - local stores beware:
will have to see how they can create a
blue ocean strategy
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BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
Reconstructing Market Boundaries
Look Across: Time
Example protecting the planet.
Many companies adapted to consumer
needs such as creating hybrid vehicles.
however these companies are still
competing within the red ocean.
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BACHELOR
BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
Reconstructing Market Boundaries
Look Across: Time
Blue oceans arise from seeing how the trend
will change value to customers - Three
Principles:
Trends must be decisive to your business
Trends must be irreversible
Trends must have a clear trajectory
Example: The Asian Crisis of 1997 vs. the
Euro
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BACHELOR
BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
Reconstructing Market Boundaries
Look Across: Time
Digital music downloading: Apple’s iTunes
Legal, easy to use, flexible
While more digital music stores enter the market, Apple
kept a blue ocean with the iPhone.
High-Speed data exchange: Cisco Systems
File share downloading by kazaa, limewire, and napster was
rapidly growing; however - illegal, sound quality was bad, few
complete cds
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BACHELOR
BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
Reconstructing Market Boundaries
Look Across: Time Questions
What trends have a high probability of
impacting your industry, are irreversible, and
are evolving?
How will these trends impact your industry?
Given this, how to start unprecedented
customer utility
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BACHELOR OF
INNOVATION™
From Head-to-Head Competition to Blue ocean Creation
Head-to-Head
Competition
Blue Ocean Creation
Industry
Focuses on rivals within its
industry
Looks across alternative industry
Strategic
group
Focuses on competitive
position
Within strategic group
Looks across strategic groups within
industry
Buyer Group
Focuses on better serving the
buyer group
Redefines the industry buyer group
Scope of
product or
service
offering
Focuses on maximizing the
value of product & service
offerings within the bounds of
its industry
Looks across to complementary product
and service offerings
Functional
emotional
orientation
Focuses on improving price
performance within the
functional-emotional orientation
of its industry
Rethinks the functional-emotional
orientation of its industry
Time
Focuses on adapting to
external trends as they occurs
Participants in shaping external trends
over time
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BACHELOR OF
INNOVATION™
The Big Picture,
Not the Numbers
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The Big Picture,
Not the Numbers
BACHELOR
BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
Visual Awakening
Compare your business with your
competitors’ by drawing your “as is” strategy
canvas.
See where your strategy needs to change.
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BACHELOR OF
INNOVATION™
innovation.uccs.edu
BACHELOR
BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
The Big Picture, Not the Numbers
Visual Exploration
Go into the field to explore the six paths to
creating blue oceans.
Observe the distinctive advantages of alternative
products and services.
See which factors you should eliminate, create,
or change.
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BACHELOR
BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
The Big Picture, Not the Numbers
Visual Strategy Fair
Draw your “to be” strategy canvas based on
insights from field observations.
Get feedback on alternative strategy
canvases from customers, competitors’
customer, and noncustomers.
Use feedback to build the best “to be” future
strategy
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BACHELOR
BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
The Big Picture, Not the Numbers
Visual Communication
Distribute your before-and-after strategic
profiles on one page for easy comparison.
Support only those projects and operational
moves that allow your company to close the
gaps to actualize the new strategy.
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BACHELOR
BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
In My view it should be
Big Picture
THEN the numbers
innovation.uccs.edu
The Big Picture,
THEN the mumbers
BACHELOR
BACHELOR
OF OF
INNOVATION
INNOVATION
™ ™
If you are driving innovation from
below.. good visuals like value-curves
are often key to getting quick buy-in
from upper management.
But some (what MB type are they??)
will quickly want to drill down into
supporting data so be ready to back it
up.
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