BLUE OCEAN STRATEGY
Chapter 5: Reaching Beyond Existing Demand
PRINCIPLES OF BLUE OCEAN STRATEGY
•
Formulation Principles
• Reconstruct market boundaries
• Focus on the big picture, not the numbers
• Reach beyond existing demand
• Get the strategic sequence right
•
Execution Principles
• Overcome key organizational hurdles
• Build execution into strategy
REACHING BEYOND EXISTING DEMAND
•
Reaching beyond existing demand is the third principle of blue ocean strategy, a
key component of achieving value innovation, and weakens the scale risk
affiliated with creating a new market
•
It shows you how to maximize the size of the blue ocean you are creating
•
Usually to increase its market share, firms will strive to retain and expand its
existing customers
•
This leads to finer segmentation and modifying offerings to meet customer
preferences
•
Therefore, as competition intensifies this customization will increase also and risk
the creation of too-small target markets
OPPOSITE APPROACH
•
Too combat these issues, firms need to take the opposite approach
•
Firms must challenge those two conventional strategy practices:
• Focusing on existing customers
• concentrate and look to noncustomers
• Driving for finer segmentation to accommodate buyer differences
• find and build on the dynamic commonalities that buyers value
•
Callaway Golf decided to ask why people had not taken up golf and discovered the
commonality that many found hitting a small golf ball to be too difficult
• Callaway’s solution was to introduce the Big Bertha golf club which had a larger head
to make it easier to hit a golf ball
• Ended up being a big hit with noncustomers as well as existing customers who were
having trouble mastering the skills needed to hit the ball consistently
THE THREE TIERS OF NONCUSTOMERS
Third Tier
• There are three tiers of
noncustomers that can be
transformed into customers
• The tiers differ in their relative
distance from your market
Second Tier
First Tier
Your Market
FIRST-TIER NONCUSTOMERS
•
“soon-to-be” noncustomers on the edge of your market, who minimally use the
current market offerings waiting for something better to come along
•
Pret A Manger, a British fast-food chain, discovered professionals preferred a
healthier, quicker, less expensive option for lunch as opposed to a pricey, time
consuming sit-down restaurant
•
Their solution: provide restaurantquality sandwiches that are made
fresh each day, cost on average $4-$6
and spend on average only 90 second
in line
SECOND-TIER NONCUSTOMERS
•
“refusing” noncustomers who consciously
choose against your market because they do not
use or cannot afford the markets offerings so
their needs or either ignored or dealt with in
other means
•
The designer clothing industry has ignored the
needs of many American women. The average
American woman wears a size 14 dress but this
is considered “plus-size” and many
manufactures don’t produce clothing past size
12.
THIRD-TIER NONCUSTOMERS
•
“unexplored” noncustomers who have either not been targeted or thought of as
potential customers because their needs have always been assumed to belong to
other markets
•
In the last decade, with consumer preferences changing to healthier products, a
new segment of nonconsumers has been uncovered
VS.
VS.
Introducing…
Girl Watching
GO FOR THE BIGGEST CATCHMENT
•
The potential in each tier varies across time and industries, therefore focus
should be aimed at whatever tier represents the largest potential at the time
•
Also explore the idea that some tiers have commonalities that may overlap which
can expand the scope of latent demand you release
•
Making the strategic decision not to explore noncustomers can result in:
• Your market share becoming smaller and smaller due to increasing
segmentation and customization
• Competitors could attract the noncustomers and potentially your existing
customers with value innovation
• Ex: Aquafina vs. Dasani