A Presentation by:
Thomas Hutcheson, Kristina Giamportone , Stevie Kindler, Brittney McQuesten,
and Kevin Jones
Get the Strategic Sequence Right
• Buyer Utility
• Price
• Cost
• Adoption
Buyer Utility
• Is there an exceptional buyer utility in your
business idea???
• More simply, is there a reason for the mass
public to purchase what you’re offering.
Testing for buyer utility
• In order to test for buyer utility, you can
compare the utility levers against the buyers
cycle.
• This is called the buyer utility map
Six Utility Levers
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Customer Productivity
Simplicity
Convenience
Risk
Fun and Image
Environmental Friendliness
Six Stages of Buyer Experience Cycle
• Purchase – How long does it take to find the
product?
• Delivery – How long does delivery take and is
the product easy to package?
• Use – Does the product require training?
• Supplements – Does you need other products
or services?
• Maintenance – Is external help required, and
is it costly to maintain?
• Disposal – How costly is disposal and does it
create waste items?
• Companies can then find their buyer utilities
by seeing which utility lever can extend all the
way through the buyer experience cycle.
• This comparison can also be used to test your
product against competitors by analyzing
which utilities the competitor uses.
Model T
Ford Model T
• Utilized the two different levers from current
competitors.
• Convenience – could drive down bumpy and
muddy roads.
• Maintenance – Could be easily fixed and very
easy to learn.
Price
• Is your price easily accessible to the mass of
buyers?
• Or, is your offering priced in order to attract
mass target buyers that have an ability to pay.
• It is essential to know what price will capture
mass amounts of buyers, instead of pricing
based on those who have abundant money.
• Volumes of sales generate higher returns. For
example Microsoft’s Windows XP. Costs the
company billions but was sold in very large
volumes.
• Value of the product may be tied to the
number of people using it.
Risk of Free Riding
• If your product or knowledge is not protected,
then other may use your idea. Therefore you
must have a competitive price.
• Other companies such as Intel have patents
on their microprocessor chips, so they can
price as they please.
Price Corridor of the Mass
• Meant to help managers find the right price in
order to retain customers.
• Step 1: Identify price corridor of the mass.
• Step 2: Specify a price level within corridor.
Target Costing
• Meant to maximize the profit potential of a
blue ocean idea.
• A company should start with the strategic
price and then deduct its desired profit margin
from the price to arrive at the target cost.
• Controlled by 3 levers.
Examples
• Circus du Soleil reduced costs by eliminating
animals and stars.
• Ford reduced early costs by making the
Model T in one color and one model with very
few options.
1. Streamlining Operations
• Finding any cost innovations from
manufacturing to distribution.
• Can products or services materials be replaced
by unconventional and less expensive ones?
• Ex. Metal to plastic, shifting call centers
• Can high-costs, low-value activities in your
value chain be eliminated, or outsourced?
• Can your physical location be shifted to cut
down on costs?
• Can you reduce the steps needed to produce
your product?
Swiss Company
• Set price lower than the market standard.
• Used plastic instead of traditional leather or
metal.
• Engineers simplified design.
• Reduced direct labor costs in design and
manufacturing.
• These cost innovations made them the market
leader.
2. Partnering
• Provides a way to secure needed capabilities
fast, while lowering costs.
• Leverage other companies expertise and
economies of scale.
• Closing the gap in capabilties.
Ex. IKEA and SAP
• IKEA partners with over 1500 companies in
order to receive the lowest costs on material
needed.
• SAP saved hundreds of millions by adopting a
central database.
• SAP also partnered with multiple consulting
firms to gain global sales forces.
3. Changing the Price Model of the
Industry
• By changing the price model, companies do
not have to change the strategic price.
• Early video companies moved from selling
films, to renting them because the price was
far to high to purchase a movie.
• IBM changed from selling to leasing.
Adoption
• Before pushing forward and investing in new
ideas, a company must reduce fear and
resistance from its three stakeholders.
– Employees
– Business Partners
– General Public
Employees
• Failure to solve employee concerns and
answer their questions can become costly.
• Merrill Lynch suffered internal resistance and
division when announcing an online
brokerage service without first addressing
employees.
• If employees understand the change, then the
public will as well.
Business Partners
• Partners can be resistant to new ideas and
fear that their revenue streams or market
positions may be threatened.
• Being open with their partners can allow them
to change along with the new future ideas.
General Public
• If new ideas are innovative, they can disrupt
the public by threatening established social or
political norms.
• Ex. Monsanto, who made genetically modified
foods. Failed to demonstrate to the public the
positives behind genetically modified foods.
Started an uproar with environmental groups.
Blue Ocean Index
• A simple test designed to ensure that
companies utilize the sequence of utility,
price, costs, and adoption.
• Once passed, companies may go from
formulation of strategy to execution.
Intel
• Utilized patents and copyrights to avoid free
riding within their industry.
• Allowed them to be the only producer of
microprocessors, and therefore control their
own price.
• Utilizes a variety of software partners in order
to reduce costs.