Blue Ocean Strategy Flashcards
What statistics suggest searching for blue oeans is a good strategy?
86% of growth projects for companies are in red oceans but only account for 39% of total profits. 14% were aimed at blue oceans but accounted for 61% of profits.
What is the overall goal of blue ocean strategy?
Value innovation, better buyer value at a lower cost. Instead of focusing on the competition, make the competition irrelevant through a leap in value for customers and your company, opening a new uncontested market space.
What are 5 key differences between Red Ocean (RO) and Blue Ocean (BO) strategies?
RO: Compete in existing market space
BO: Create uncontested market space
RO: Beat the competition
BO: Make the competition irrelevant
RO: Exploit existing demand
BO: Create and capture new demand
RO: Make the value/cost tradeoff
BO: Break the value/cost tradeoff
RO: Align the whole system of a firms activities with the strategic choice of differentiation or low cost
BO: Align the whole system of a firm’s activities in pursuit of differentiation and low cost
What is a “strategy canvas” and how is it used?
What are the 3 ways it can it be used to assist BO strategy?
X axis = low to high, where the company is positioned strategically on the y axis factor
Y axis = Strategic factor that matters to the customers
Lines are plotted along datapoints for each of the factors that represent where multiple companies perform.
It can be used to assist BO strategy -
1) New factors should be considered outside of the current competitive landscape
2) Current factors that are high but irrelevant should be decreased
3) Currrent factors that are low but could be important may be increased.
In Red Oceans where competitors are consistently competing on the same factors, look to the above three exercises to change
What is the purpose of the four action framework?
What questions are asked and answered as part of the four action framework?
To reconstruct buyer value elements and craft a new value curve on the strategy canvas. To get a new look at old potentially outdated assumptions through the lens of new truth.
Questions;
1) Which of the factors that the industry takes for granted should be eliminated?
2) Which factors should be reduced well below the industry standard?
3) Which factors should be raised well above the industry standard?
4) Which factors should be created that the industry has never offered?
What are the three characteristics of a good strategy?
What are the downsides of each characteristic if lacking in a strategy?
1) Focused
2) Differentiated from competition
3) Tagline to buyers is clear
If not focused - cost structure high, business model complex
If not differentiated - nothing standing apart in the marketplace
If no tagline to buyers, will be internally driven and changes for changes sake will take place
What is needed to break out of the accepted boundaries of competition and create a new blue ocean strategy (5 paths to consider)?
Look across -
1) Alternative industries
2) Strategic groups
3) Buyer groups
4) Complimentary service offerings
5) Functional-emotional orientation
6) Time
Why should you look across alternative industries to create a blue ocean strategy, and what questions can assist in the search?
Alternative industry analysis looks not just at substitute products, but alternatives. Focusing on the key factors that lead buyers to trade across multiple industries and eliminating or reducing everything else can create a blue ocean of new market space.
What are alternative industries to your industry?
Why do customers trade across them?
Ex: Netjets looking at corporate jets that were purchased vs. first class alternatives, and creating a fractional purchase or pay per use program.
Why should you look across strategic groups within industries to create a blue ocean strategy?
What questions should you ask to assist in the search?
Strategic groups are typically differentiated between price and performance. Undestanding the buyers decision to trade up or down on those factors can assist in create a new blue ocean strategy.
What are the strategic groups in our industry?
Why do customers trade up for the higher group, or down for the lower one? The more specific the better.
Ex: Curves in fitness industry creating women only low cost social healthclub option after perceiving the gap between large expensive gyms with men and home workouts.
Why should you look across the chain of buyers when searching for a new blue ocean strategy? What questions should you ask that can assist in the search?
Differentiating between the buyers and the users can lead to different criteria for each, and potentially shift your targeting or marketing directly to the user.
What is the chain of buyers in our industry?
Who is buying and who is using? What do each care about?
If you shifted the buyer group (toward the user, or someone else), how could you unlock new value?
Ex: Novo Nordisk designing their insulin product for consumers (easy to use, syringe free) and marketing directly to patients as opposed to doctors.
Why should you look across complimentary product and service offerings when searching for a blue ocean strategy? What questions should you ask that can assist this search?
Thinking about what happens before, during, and after your product is used can stimulate ideas around new products or services to provide for buyers.
What is the context in whch your product or service is used?
What happens before, during, and after the product is used that could lead to new offerings for buyers?
Ex: NABI determined most of the cost of municipal busses came during maintenance. Created a great, energy efficient product that massively reduced maintenance costs and improved customer experience.
Why should you look across the functional/emotional appeal to buyers when creating a blue ocean strategy? What questions can you ask to assist in the search?
When challenging the traditional functional/emotional appeal, you can find new market space.
Does our industry compete on functional or emptional appeal?
If we compete on emptional appeal, what elements could we strip out to make it functional?
If we compete on functional appeal, what elements can be added to make it emotional?
Ex: Viagra shift from medical to lifestyle, or Financial Services companies shifting from relationship to hard functionality and data.
Why should you look across time to design your blue ocean strategy? What questions can assist your search?
Looking across time and preparing for the future can shift the value a market delivers today to what it will deliver tomorrow. Thinking in terms of scenarios and “anti-fragility” based on potential futures can provide catalysts and reduce risks.
What trends have a high probability of impacting our industry, are irreversible, and are evolving in a clear trajectory?
How will this impact our business, and how can we take advantage of this?
Ex: Apple’s foresight into digital music created an industry leader in digital music purchases.
How do you think about reaching beyond existing demand?
Consider the three tiers of “non-customers”
What is a Tier 1 Non-Customer? How do you address this customer, and what is an example of a business who attracted this type of customer?
Tier 1- Buyers who minimally purchase companies offerings and waiting to jump ship. Doesn’t really fulfill their needs.
Need a leap in value to capture these customers. Ask why these customers want to jump ship and look for commonalities across customers. Will provide insight into fixing the problem.
Ex: Pret A Mange - created quick serve premium business lunches solved problem of long and expensive lunches for employees.
What is a Tier 2 Non-Customer? How do you address this customer, and what is an example of a business that attracted this type of customer?
Customers who know about your industry/product/service but consciously refuse because offerings are unacceptable or beyond their means.
Look at the key reasons second-tier customers refuse your offering. What are the commonalities among their responses?
Ex: JCDecaux vendor of French outdoor ad space innovated the Billboard market, and bought outdoor furnishings for municipalities for advertising. They paid for the furniture, and entered into long term contracts with municipalities to advertise.
What is a Tier 3 Non-Customer? How do you address this customer, and what is an example of a business who attracted this type of customer?
Customers who have never considered your product/service/offering.
Consider how these customers may benefit from your offering.
Ex: Joint Strike Fighter (JSF) massively reduced costs in fighter jets by producing th F35, 70% of which is common across military branches but allows for specific customizations.
Working to get the strategic sequence correct for your Blue Ocean Strategy, what are the factors to model and in what order?
Buyer Utility - Is there exceptional buyer utility in your idea?
Price - Is price easily accessible to the target mass of buyers?
Cost - Can you attain your cost target to profit at your strategic price?
Adoption - What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?
What is the Buyer Utility Map? How do you use it?
The buyer utility map outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a product or service.
The map is a grid of the six stages of the buyer experience on the X axis and the Six Utility Levers on the Y Axis. Buyer Utility is found when there is a massive improvement in one or more of the utility levers, and one or more the the six stages of the buyer experience cycle.
What are the six utility levers in the Buyer Utility Map?
1) Customer Productivity
2) Simplicity
3) Convenience
4) Risk
5) Fun and Image
6) Environmental Friendliness
What are the six stages of the buyer experience cycle used in the Buyer Utility Map?
1) Purchase
2) Delivery
3) Use
4) Suppliments
5) Maintenance
6) Disposal
What is the strategic pricing component of the Blue Ocean Strategy sequence? Why is it important?
Ensures your buyers both can and want to pay for your product.
Things to consider;
Network Externalities - all or nothing products where you sell many or none
Excludability - If a company can prevent others from using it
What is the process of setting the right price for an offering using the Price Corridor of the Target Mass?
Step 1 - Find the price corridor of the target mass. List products that take different form but provide same function, and products that take different form but provide same objective.
The goal here is to price the offering not just within your industry, but against substitutes and alternatives.
Step 2 - Specify a level within the price corridor.
High degree of legal or resource protection - Upper bound
Some degree of legal or resource protection - Mid bound
No degree of legal or resource protection - Lower bound
What is target costing? What are the three levers to reduce cost when target costing?
Starting with the strategic price, and deduct desired profit margin to get target cost.
Lever 1 - Streamlining operations and introducting cost innovations from manufacturing to distribution
Lever 2 - Partnering with someone else to strategically share complimentary resources.
Lever 3 - Changing the pricing model of the industry.
