Reconstruct Market Boundaries
 The 1st principle of Blue Ocean Strategy:

Reconstruct market boundaries to break from the competition and
create blue oceans.
 Is there systematic patterns for reconstructing market
boundaries to create blue oceans?
 If so, are these patterns found across all types of
industries?
6 Paths Framework
 Look across:
 Alternative Industries
 Strategic Groups
 Chain of Buyers
 Complementary Product Offerings
 Functional/Emotional Appeal
 Time
6 Fundamental Assumptions
1.
2.
3.
4.
5.
6.
Define their industry similarly and focus on being the
best within it
Look at their industries through the lens of generally
accepted strategic groups, and strive to stand out within
that group
Focus on the same buyer group, be it the purchaser, the
user, or the influencer
Define the scope of the P&S offered by their industry
similarly
Accept their industry’s functional or emotional
orientation
Focus on the same point in time – and often on current
competitive threats – in formulating strategy
Path 1: Look Across Alternative Industries
 Substitutes are P&S that have different forms but offer
the same functionality/core utility
 To sort out personal finances you can use financial software, hire a
CPA, or use pencil and paper
 Alternatives include P&S that have different functions
and forms but the same purpose
 Cinemas vs. restaurants
 Same objective: Enjoy a night out
NetJets
 Created the blue ocean of fractional jet ownership
 Corporate travelers are the mass of customers in the
aviation industry
 Why do corporations choose commercial airlines?
 Why do corporations choose corporate jets?
Benefits
• Own 1/16th of an aircraft
• 50 hours of flight time per year
• Can fly 4 hours after a request
• $375,000 per year plus pilot and maintenance
• 30 airports vs. 5,500
• Flight times dramatically shorter
 Washington D.C to Sacramento
 10.5 hours vs. 5.2 hours
• You can eat your favorite meals on the plane
Results
 Success has been attributed to its flexibility, shortened
travel time, hassle-free travel experience, increased
reliability, and strategic pricing
 There revenues grew 30-35% from 1993-2000
Path 2: Strategic Groups in
Industry
 Blue oceans can be created by looking across
alternative industries and strategic groups
 Strategic Groups- Group of companies within an
industry that pursue a similar strategy
 Ranked in two dimensions
 Price
 Performance
 Example: Mercedes, BMW, and Jaguar
Path 2: Strategic Groups in
Industry
 Example: Curves
 Over saturated market
 Created veritable blue ocean of women struggling with
fitness
 Advantage on two strategic groups
 Traditional health clubs
 Home exercise programs
Path 2: Strategic Groups in
Industry
 Example: Ralph Lauren
 High fashion with no fashion
 Updated classical look and price capture best of classical
lines such as Brooks Brothers and Burberry
 Combine attractive factors of both groups and eliminate
everything else
 Captured shares from both segments but drew in many
new customers
Path 3: Chain of Buyers
 Directly and indirectly involved in buying decisions
 Purchasers, Users, and Influencers
 May overlap, but differ in many ways
Path 3: Chain of Buyers
 Examples:
 Pharmaceutical industry focuses on influencers:
Doctors
 Office Equipment industry focuses on purchasers:
corporate purchasing departments
 Clothing industry focuses on Users
Path 3: Chain of Buyers
 Insulin created blue ocean
 Helped change pharmaceutical industry from
influencers to users
 NovoPen
 Patients can easily carry a weekly supply of insulin
 Inject with ease
 Innovo
 Built in memory system to display dose, last dose, and elapsed time
Path 3: Chain of Buyers
 Shifting can create new values to the industry
 See new ways to unlock value
Path 4: Look Across Complementary Product
and Service Offerings
 In most industries, rivals converge within the bounds
of their industry’s product and service offerings
(vacuum)
 Costs of complementary goods and services of another
product or service are considered when purchasing
 For example, the theater example
 Operators should consider babysitting and parking costs for
customers
Complementary Products
 “Untapped” value often hidden within complementary
products and services
 Such as JC Penney, customers that buy shoes also need to buy socks
 Application and Operating software that are used along with
computer hardware
 Key is to define the total solution buyers seek when
choosing a product or service
 What happens before, during, and after product is used
Path 4: Applied
NABI
 NABI, a Hungarian bus
company, applied path 4 to the
U.S. transit bus industry
 Rivals competed to offer lowest
prices
 Designs outdated, delivery times
late, quality low, maintenance
costs were high
 NABI acted on the
complementary services
 Fiberglass, Eco friendly, Low
manufacture costs
Philips Electronics
 British tea kettle industry,
very important to British
culture
 Flat sales, shrinking profit
 Lime scale found in water
 Water supply is
complementary service
 Filter
•
NABI’s curve, unlike any other before in the industry
•
By recognizing complementary services, cut costs from corrosion,
prevention maintenance, and fuel consumption
Path 4: Concepts to Creating a Blue Ocean
 Redefine Scope of Services
 B&N from books to intellectual exploration and coffee bars
 Satisfy customer’s complete demands
 Virgin Entertainment combine CD’s, video games, stereos, audio
equipment
 Eliminate superfluous costs
 NABI & Dyson eliminates need for bags
 Accommodate convenience of customer
 Zeneca’s Salick cancer centers combine all specialized treatments
Path 5:Look Across Functional or
Emotional Appeal to Buyers
 Functional and emotional appeals are embedded
within industries
 Functional- compete on price and function
 Emotional- compete on feelings of products/services
 Opportunity for Blue Ocean
Functional and Emotional Appeal
 Switching from Functional to Emotional
 Example: Viagra and Swatch
 Switching from Emotional to Functional
 Example: Quick BeautyHouse
JCPenney’s Emotional Appeal
 Switch from Emotional to Functional
 Started fashionable
 Moved towards efficiency


Supply chain management
Low prices
Path 6: Look Across Time
 External trends affect companies
 Most act passively and adapt incrementally
 Trends that have affected companies
 Example: internet and protecting the environment.
Look Across Time
 Opportunity for Blue Oceans
 Future Telling?

Managers project change
 Systematic Approach



Decisive to business
Irreversible
Clear Trajectory
 Example: Apple
 Napster & Kazaa vs iTunes
JCPenney
• Traditional Department
Store
• Overtime Adapted
Technology
– Self checkout kiosk
• Did not necessarily work
– Customer demographics
• Elderly
Conceiving New Market Space
 Blue Oceans
 Not about predicting trends
 Come about through structural process

Reconstructing existing market
 Free from head-to-head competiton