Chapter 6
Getting The Strategic Sequence Right
Objectives
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•
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Steps to be adopted for creating a BOS
Their right sequence
How to test buyer utility
How to price your product strategically
Introduction
• The success of a company is not only depends upon the
large size of the Blue ocean created but also on the
profit wise growth
• We are going to discuss how to reduce the risk factor
through proper sequencing of blue ocean strategies
Getting The Strategic Sequence Right
• Creation of the Blue Ocean Strategy must be in proper
sequence from the beginning
• This gives a strong base and step-by-step build up
Sequence of Blue Ocean Strategy
Buyer Utility
Is there exceptional buyer utility in
your id ea?
No-Rethink
Yes
Price
Is your price affordable to the mass
of buyers?
No-Rethink
Yes
Cost
After setting aside your cost, will
your price earn profit?
No-Rethink
Yes
Adoption
What are the adoption hurdles?
Are you addressing them?
Yes
A commercially viable Blue
Ocean Strategy
No-Rethink
Buyer Utility
• Starting point
• You need not rethink about the project or whole
project idea back
Price
• Also one of the important factors
• Buyer utility and price factors directly affect the
revenue side of the company’s business model
• Net buyer value = Buyer’s utility - price
Cost
• Price and cost are directly proportional to each other
• Profit = Price – Cost
• The cost side project the company’s profitability and
increases its value
Adoption
• Last step of the Blue Ocean Strategy sequence
• Sometimes the management has to face stiff resistance
from partner even
Testing Utility
• Buyer utility is itself self-explanatory
• Is the most important characteristic of a strategy
Testing Utility: Case study • Case study of an Engineering marvel : Philips
– Creation of a CD player named CD-i
– Tagline: “Imagination machine”
– Multifunctional device: video machine, music system etc
Testing Utility: Case study • The officials who were behind the new offering were
overzealous on focusing on the sophistication of the
software technology on which CD-I was produced
• Focus, divergence and the compelling tagline are
important factors to create a strategy
The Six Utility Levers
• The six levers of utility of a buyer:
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Customer productivity
Simplicity in function
Convenience in usage
Minimum risks in overall utilization
Fun and image
Environment friendliness
Buyer’s Experience Cycle
• Six stages:
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Purchase
Delivery
Use
Supplement
Maintenance
Disposal
Buyer’s Experience Cycle
• Questions regarding the six stages:
• ‘Purchase’ stage
– How long it takes to find a product of year choice?
– How secure is the transaction?
• ‘Delivery’ stage
– How long it will take to deliver the product?
– How difficult is the installation?
• ‘Use’ stage
– Is it easy to store when not in use?
– Dose the product give what it boost of?
Buyer’s Experience Cycle
• ‘Supplements’ stage
– How about its accessibility?
– How much time is required to avail this extra object?
• ‘Maintenance’ stage
– Does it require periodical maintenance?
– How easy/difficult is its maintenance?
• ‘Disposal’ stage
– Does it yield any waste matter?
– How costly is its disposal?
Buyer’s Experience Cycle
• Example:
• Ford model
• Before its introduction to the market there were five
hundred players offering custom made luxury cars
• The stumbling block to utility was not in refining the
image or style of the autos
Buyer’s Experience Cycle
• In one sweep the Fords Model T eliminated the utility
blocks – car of the masses
• The car was meant for everyday use
Strategic Pricing
• Pricing for an offering should be done taking utmost
care
• The companies have to target on volumes than on the
price hike
Strategic Pricing
• A grave problem faced by the products – imitations
and free riding
• All companies rightly look at the similar products or
services already in the market
Strategic Pricing
• First step in setting a strategic price is to identify the
price corridor of the mass
• Consider the offerings with the same function and
different in form and shape
Strategic Pricing
• Consider the example of the Cirque Du Soleil
• It delivered the customers of all sorts of evening
entertainment activities the differed in form and shape
• The price bandwidth that captures the largest group of
target purchaser and users is the price corridor of the
people
Strategic Pricing
• After identifying the price corridor, next stage is
specifying the a level within the price corridor
• Two main factors:
– The degree of legal protection given to your offering
– Equipping with most sophisticated, exclusive and expensive
production plant
Strategic Pricing
• Guidelines for adopting the strategic price corridor:
– High degree of legal and resource protection - upper level
pricing since it is difficult to imitate
– Some degree of legal and resource protection - mid level
pricing because of less possibility of imitation
– Low degree of legal and resource protection – vulnerable
for imitation and can be easily emitted
Target Costing
• Next step after Strategic planning
• A blue ocean strategy depends upon the strategic
pricing as well as the cost structure to leap up the
profit margin
• Price – Cote = Profit
Target Costing
• Example:
• Ford eliminated the multiple options in the Model T –
one and only one model in one color only
Target Costing
• The first of the Principal levers to bring the cost factor
to a target level is cutting short, time for
manufacturing and cost innovation at all levels of
production
Target Costing
• To illustrate the idea let us take an example of Swatch
• Swatch switched over to plastic cases from the
conventional metallic cases
Target Costing
• Swatch’s engineers also developed simple design
eliminating and reducing the inner parts of watch
• Partnership with Capgemine and Accenture to set up
global sales force overnight without shelling out extra
cost
Target Costing
Profit Maximization and
Value Innovation
The Strategic Price
The Target
Profit
The Target Cost
Streamlining and
Cost Innovations
Partnering
Pricing
Innovation
Adoption
• Last step for launching an offer
• The employees will have to be shuffled a little bit in an
overall new project
• Business partners must be brought into the confidence
through discussions and meetings
Adoption
• After adopting the employees and business partners,
it’s the turn of the general public
• They must be brought to understand the
environmental problems that may come up due to new
project
Adoption
• Educating the three stakeholders – employees,
partners and general public – is the key challenge for a
company to face and solve the amicably
• Blue Ocean Idea (BOI) Index – utility, price, cost,
adoption
Adoption
• Examples:
• Motorola’s Iridium – too costly due to high production
costs
• In contrast to these failures NTT DoCoMo’s i-mode
introduced the internet on cell phones
Summary
• Four strategic sequence – buyer utility, price, cost,
adoption
• These four steps must followed by the companies in
order to create the viable blue ocean strategy
• Various questions to be asked regarding the buyer
utility, price, cost and adoption
End of Chapter 6
Getting The Strategic Sequence Right