Blue Ocean Strategy
Prof. W. Chan Kim and Prof. Renee Mauborgne
Dvir Zohar
Dvir@simplesolutions.co.il
Business innovation
2007 – iPhone
changed the cellular
market
2000 – Google
changed the portal
market
2
Background
 Red ocean = strong competition - SWOT analysis, firms try to
compete better in their business environment
 Blue Ocean Strategy reconstructs market boundaries
 Business innovation, challenging the conventional assumptions
14%
Sales
86%
New products
62%
38%
39%
61%
Sales
Profits
* According to survey of 108 large firms in USA
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Example – US wine industry
Strong competition (domestic and
imported wines). Price pressure, high
advertisement costs, high power of
buyers, steady demand
High
Fine wine
Commodities
Low
Price
Terms
and
awards
Sales
effort
Aging
Reputation
Complexity
Variety
4
Four actions to create a new value curve
 New values that have never been
offered
 Raise existing values well above
market standards
Create new values to
create a new market space
 Eliminate Values
 Reduce existing values well below
market standards
Cost reduction
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Example cont. - Australia's Casella Winery
Small and unknown. In 2001 started to market wine to customers who
used to drink beer and cocktails. Most customers didn’t care about
complexity or aging.
They decreased aging (fast incomes) and variety (less inventory), created
simple labels (easy understanding), suggested adventure feeling.
Number one imported wine, fastest growing brand in the history
High
Fine wine
Commodities
Casella
Low
Price
Terms
and
awards
Sales
effort
Aging
Reputation
Complexity
Variety
Soft
drink
Easy to
choose
Adventure
6
7
Path 1- Look Across Alternative Industries
 Products or services may have different forms
 Customers have alternative solutions from different industries
 Analyse why they chose one alternative over the other
8
Example – Netjets
The most lucrative customers in the aviation industry are corporate travelers.
Executives can fly business/first class or purchase a private aircraft.
NetJets offers its customers one-sixteenth ownership
of an aircraft , each one entitled to fifty hours of flight
time per year. A jet is available with four hours’ notice
Seventy thousand flights, a multibillion-dollar business
High
Private airplane
Netjets
Business flight
Low
Investment
On going
cost
Cost per
flight
Time
Easiness
Flexibility
Service
9
Path 2 - Look Across Strategic Groups
within Industries
 Each branch has strategic groups which distinct in two
dimensions:
– Price
– Performance
 You should understand which factors determine customers’
decisions to trade up or down between groups
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Example: Curves - women’s fitness company
Redefining market boundaries between health clubs( 12% of the entire
population) and home exercise programs for women
Smaller spaces at nonprime locations, low price,
simple machines for women, circle,
nonjudgmental atmosphere
Two million members, revenues of US$ 1 billion
Traditional health clubs
High
Curves
Low
Home exercise
Price
Services
Equipment
Trainers
Discipline
Non
judgmental
atmosphere
Arrival
time
Women
company
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Path 3 - Look Across the Chain of Buyers
 Many people are involved in the purchase decision (buyers,
end users, consultants, market leaders and more)
 An industry typically converges on a single buyer group
(pharmaceutical industry – doctors, Office equipment purchasing departments, Computers – IT departments)
 Challenging which buyer group to target can lead to the
discovery of a blue ocean
 Example - Novo Nordisk
– Insulin producer
– The industry focused on doctors, who wanted pure insulin
– Novo Nordisk examined patients’ needs and developed
NovoPen, the first user-friendly insulin delivery solution
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Path 4 – Product scope
 Most products require complementary services to be effective
 A firm should understand the connection between its product
to these services, what do customers do before and after using
its product and to offer other values
 Examples –
– Barnes & Noble - lounges and coffee bars to
create an environment that celebrates reading.
In six years, emerged as one of the two largest
bookstore chains in the United States
– Movie theaters – offered baby sitting services
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Path 5 - Functional or emotional orientation
 Usually - major functional or emotional factor that drives the
purchasing decision
 Firm should think if it can change the relevant factor
 Examples:
– Swatch – changed the low end watches market
from functional to emotional one
– Body Shop made the opposite for the cosmetics products
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Path 6 – Looking across the time
 Companies should understand trends and their influence
 Examples –
– Apple - Observed the flood of illegal music file sharing.
Launching iTunes in 2003.
Agreement with five major music. Offered
legal individual song downloads.
– Cisco – Observed the need for high speed data transfer
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Six paths to blue ocean
The six conventional boundaries of competition
Industry (Netjets)
Strategic group (Curves)
Buyer group (Novo Nordisk)
From
competing
within
Scope of product or service
To creating
across
(B&N)
Functional – emotional (Swatch)
Time (Apple)
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Three tiers of noncustomers
We want to find an ocean and not a puddle. Looking for “non customers”
Tier
Characteristics
Soon to be non Minimally purchase an
customers
industry’s offering out of
necessity
Refusing non
customers
Saw your industry’s
offerings, but voted
against them
Unexplored
Never thought of your
non customers market’s offerings as an
option
Example
Pret a Manger – Healthy
sandwiches for office workers
JCDecaux - street facilities
(in 1964) for advertisers that
didn’t like bus commercials
Toothpaste producer - offer
whitening products, which
were regarded as dentists’
business
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Strategy Implementation
Current situation analysis – Value diagram
Innovative ideas – 6 paths, 4 actions
High level evaluation
Work plan, Business plan, Review
Implementation
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BOS team main product
Technology
Research
NB7
NB9
NB6
NB2
EB1
EB4
NB4
NB3
NB5
EB2
NB1
EB3
Exist
Strong
Weak
Anchors
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Other Blue Oceans
Ford
GM
Model T
iPad
Microsoft
Office
Checkpoint
Chrysler
IBM
Mini Van
PC
Starbucks
Fox
Dell
Tiv Taam
Amazon
Bloomberg
ECI
DCME
Kodak
Akzo Nobel
Samsung
Wii
Traceless
Paint pot
Petrochemicals
Nokia
McDonald's
eBay
Lauren
Quicken
Nintendo
Microsoft
UPS
Ralph
SAS
90$ finance
SW
Bagir
Washable
suites
Kimberly
Clark
Carlsberg
Google
Elbit
Pilot helmet
Universiti
Sain Malaysia
Raytheon
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 Breakthrough requires different way of thinking
 BOS is a simple and effective process to create
business innovation
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