Team 4:
Brent Hare
Ty Parasiliti
Josh Fernino
Vincent Ukwu
Lance Hollister
Chris Kerschen
Victor Hemmati
The Right Strategic Sequence
Testing for Exceptional Utility
From Exceptional Utility to Strategic Pricing
From Strategic Pricing to Target Costing
From Utility, Price, and Cost to Adoption
The Blue Ocean Idea (BOI) Index
Companies need to build their blue ocean
strategy in what is called the Sequence of
Blue Ocean Strategy
The sequence goes:
◦
◦
◦
◦
Buyer Utility
Price
Cost
Adoption
Does your offering unlock exceptional utility?
There is no blue ocean potential without this
point
Options include:
◦ Park the idea
◦ Rethink it
◦ Reach an affirmative answer
Companies don’t want to rely solely on price
to create demand
Is your offering priced to attract the mass of
target buyers for a compelling ability to pay
for your offering?
These first two steps address the revenue
side of a company’s business model
Can you produce your offering at the target
cost and still earn a healthy profit margin?
Don’t let cost drive prices
When target costs cannot be met, forgo the
idea because the blue ocean will not be
profitable
What are the adoption hurdles in rolling out
your idea?
Addressing adoption hurdles early on ensures
the successful actualization of your idea
Because blue ocean strategies represent a big
departure from red oceans, it’s key to
address adoption hurdles up front
These four steps ensure a commercially
viable Blue Ocean idea
Creating Exceptional Value
Value innovation is not the same as
technology innovation.
Companies are obsessed by novelty of their
product or service, especially if new
technology plays a part
Starting point:
◦ Create a strategic profile that passes test
Of being focused
Of being divergent
Of compelling taglines that speak to buyers
◦ Create a buyer utility map
Helps managers look at things in the right perspective
This shows how a company can identify the most compelling
hot spots to unlock exceptional utility:
When testing for exceptional utility ask:
◦ Where are the greatest blocks to utility across the
buyer experience cycle for your customers and non
customers?
◦ Does your offering effectively eliminate these
blocks?
When a company’s offering passes this test, it
is ready to move to the next step.
•
•
•
To secure a strong revenue stream for your
offering, you have to set the right strategic
price.
Many companies may take the reverse course
and test the product in different situations
before deciding to low their pricing.
It is crucial to know how the company will set
its pricing strategy from the start.
First, companies are discovering that the
greater the volume will generate more returns
that it use to.
e.g. Windows XP, cost billions to make, but
the following copies were trivial by just
placing them on CD’s
Second, the value of a product or service may be
closely related to the total number of people
using it
e.g. Ebay; no one wants to use a site to buy
something when there are not many people
involved in the website
Free-riding: this relates to the nonrival and
partially excludable nature of knowledge
e.g. Someone cannot be working at two places
at once. Or materials cannot be used by two
different places.
Excludability: a function both of the nature of
the good and of the legal system
A good is excludable if its protected from the
company putting a patent on it
Example: Intel and Curves. Intel can exclude
their microprocessors but curves can’t
exclude someone coming in and studying the
layout of their stores.
Companies have to start at day one finding the
right pricing strategy to bring in the customers and
retain them over time.
Word of mouth is a huge brand building tool.
The more a company can make good with their
customers, those customers bring in new
customers based on their own personal
experience.
This a tool that has been created to help managers
find the right price for an irresistible offer
This irresistible offer by the way does not always
have to be the lowest labeled price for that
particular line of product
The tool involves two distinct but interrelated steps
How do companies determine a strategic
price?
◦ Answer: Understand the price sensitivities of the
people who will be comparing your product to many
other products in other industries
Companies must categorize products that fall
into two categories
1. Different form, same function
2. Different form and function, same objective
Different form, same function
◦ Example: Ford’s Model T vs. the horse-drawn
carriage
Different form and function, same objective
◦ Example: Cirque du Soleil vs. restaurant/bar
Listing all these alternatives shows managers
which buyers can be poached
Identify the price bandwidth that captures the
largest groups of target buyers: the Price
Corridor of the Mass
How high of a price can managers set within
the corridor? They must assess
◦ Degree to which the product is protected legally
through patents or copyrights
◦ Degree to which the company owns some exclusive
asset or core capability
Level of patent and asset protection
determines which price bound to choose
◦ Upper
◦ Middle
◦ Lower
Companies should pursue mid- to lowerboundary pricing if:
◦ Their blue ocean has high fixed costs and marginal
variable costs
◦ Their attractiveness depends heavily on network
externalities
◦ Their cost structure benefits from steep economies
of scale and scope
•
•
•
Target Costing addresses the profit side of
the business Model
To maximize profit potential a company
should start with Strategic Price, then
deduct desired profit margin from the price
to arrive at Target Cost
Price-minus costing, and not cost-plus
pricing, is essential if you are to arrive at a
cost structure that is both profitable and
hard for potential followers to match
3 important strategic plans companies use to
meet their Target Cost
1. Streamlining Operations and Introducing
Cost Innovations
2. Partnering
3. Changing Price Model of the Industry
Streamlining Operations and Introducing Cost
Innovations
Can products or service’s raw materials be
replaced by less expensive ones?
Can high-cost, low-value added activities in
your value chain be significantly eliminated?
Can pysical location of your product or
service be shifted from prime locations to
lower-cost locations ?
Partnering
Provides a way for companies to needed
capabilities while dropping their cost
structure
Allows company to leverage other
companies expertise and economies of
scale
Includes gaps in capabilities through
making small acquisitions when doing so,
makes cost structure faster and cheaper
Changing Price Model of the Industry
Used to make desired profit margin without
compromising their strategic price
Adapted price with value of actual use of a
product or service
Prime Example
- Blockbuster from Selling to Renting
The Strategic
Price
The Target
Profit
The Target Cost
Streamlining and
Cost Innovations
Partnering
Pricing
Innovation
Educating the Fearful
Perfect business model doesn’t always
guarantee success of a blue ocean idea
Ultimately threatens the position of the
company, which can provoke fear among the
three main stakeholders: Employees, business
partners, and the public
Before moving on with a new idea, the
company should communicate the plan
Failure to address the concerns of employees
can be very expensive
Merrill Lynch
Make an effort to explain the new idea
Work out the problems so everyone wins
Morgan Stanley
Possibly more important than employees
SAP developed software program ASAP
Problems arose from cooperating with
consulting firms
SAP resolved the issue with their partners by
openly discussing the problem
Opposition of a new product or idea from the
public can also be very devastating to a
company
Monsanto made the mistake of letting others
take charge in their own debate
Imperative for a company to consider all
three groups of stakeholders when evaluating
a new idea
Stakeholders need to be confident and know
that there will be no surprises
Philips
CD-I
Motorola
Iridium
DoCoMo
i-mode
Japan
Utility
Is there exceptional utility? Are
there compelling reasons to buy
your offering?
_
_
+
Price
Is your price easily accessible to
the mass of buyers?
_
_
+
Cost
Does your cost structure meet
the target cost?
_
_
+
Adoption
Have you addressed adoption
hurdles up front?
_
-/+
+
The Right Strategic Sequence
◦
◦
◦
◦
Buyer Utility
Price
Cost
Adoption
Testing for Exceptional Utility
◦ Create a strategic profile that passes test, of being
focused, of being divergent, and of compelling
taglines that speak to buyers
◦ Create a buyer utility map which helps managers
look at things in the right perspective
From Exceptional Utility to Strategic Pricing
From Strategic Pricing to Target Costing
◦ 3 important strategic plans companies use to meet
their Target Cost
1.
2.
3.
Streamlining Operations and Introducing Cost
Innovations
Partnering
Changing Price Model of the Industry
From Utility, Price, and Cost to Adoption
The Blue Ocean Idea (BOI) Index
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