Blue Ocean Strategy

Question 1

Blue oceans:

Answer 1

Untapped market space free of competition, where firms can create customers. Blue oceans have the potential to provide rapid profit growth.

Question 2

Red oceans:

Answer 2

Established markets with entrenched industry practices and intense competition for profits.

Question 3

Strategic move:

Answer 3

The set of decisions a firm makes to create blue oceans.

Question 4

Value innovation:

Answer 4

Creating an increase in value to customers while reducing firm costs, rendering competitors irrelevant.

Question 5

Value-cost trade-off:

Answer 5

The paradigm of many competitive strategies in which greater value comes at a greater cost and lower value comes at a lower cost.

Question 6

Strategy canvas:

Answer 6

A tool used to illustrate a company’s competitive strategy.

Question 7

Factors of competition:

Answer 7

Factors that an industry competes on and invests in; for example price.

Question 8

Value curve:

Answer 8

A line made by plotting a company’s profile across a strategy canvas.

Question 9

Four actions framework:

Answer 9

Four questions used to facilitate understanding or formulation of a company strategy.

Question 10

Eliminate-reduce-raise-create (ERRC) grid:

Answer 10

A helpful tool used to complement the four actions framework.

Question 11

A successful blue ocean strategy has three hallmarks:

Answer 11

1. Focus: an emphasis on only key factors of competition
2. Divergence: A break from an industry’s prevailing strategies
3. Compelling tagline: e.g Southwest’s, “The speed of a plane at the price of a car - whenever you need it.”

Question 12

ERRC grid questions:

Answer 12

Eliminate: Which of the factors the industry takes for granted should be eliminated?

Reduce: Which factors should be reduced well below the industry’s standard?

Raise: Which factors should be raised well above the industry’s standard?

Create: Which factors should be created that the industry never offered?

Question 13

Reading value curves, Curves that converge suggest…

Answer 13

a red ocean product

Question 14

Reading value curves, High investment across all factors signifies….

Answer 14

overdelivering without payback: investing in options or features that add little value for consumers

Question 15

Reading value curves, Zigzags indicate…

Answer 15

a corporation with an incoherent strategy. A divergent curve indicates a blue ocean product

Question 16

Price corridor of the mass:

Answer 16

A process for finding an optimal price point involving the following two steps:

1. Identify any existing alternatives to your product, either with differing forms and the same function, or differing form and function, but the same objective.
2. Examine the price and user base of each alternative.

Question 17

Network externalities:

Answer 17

A phenomenon in which people place little value on a product used by few others. This makes setting a strategic price crucial.

Question 18

Rival goods:

Answer 18

Resources only your firm can use at any given time.

Question 19

Nonrival goods:

Answer 19

Resources anyone can use.

Question 20

Low excludability:

Answer 20

Causes a product to be vulnerable if it doesn’t have a limitation on its use by rival firms.

Question 21

Specifying price level within the price corridor:

Answer 21

Upper-level pricing: High degree of legal and resource protection

Mid-level pricing: Some degree of legal and resource protection

Low-level pricing: Low degree of legal and resource protection. Easy to imitate

Question 22

Three levers of cost reduction:

Answer 22

Streamlining, Partnering, and Price Innovation

Question 23

Streamlining:

Answer 23

Simplifying and optimising operations

Question 24

Partnering:

Answer 24

Forming strategic alliances to share cost burden with other firms

Question 25

Pricing innovation:

Answer 25

Changing the way a product or service is monetised, e.g Blockbuster’s choice to rent videotapes to consumers rather than sell them.

Question 26

Price-minus costing:

Answer 26

Strategic price - desired profit margin = target cost

Question 27

Cost-plus pricing:

Answer 27

Cost + desired profit margin = price

Question 28

Strategic sequence:

Answer 28

A four-step process for formulating and evaluating blue ocean ideas.

1. Buyer Utility
2. Strategic Pricing
3. Target Costing
4. Adoption

Question 29

Buyer Utility:

Answer 29

The amount of value a product or service delivers to a buyer. This can be increased either by pulling one of the six utility levers, or by removing blocks to buyer utility

Question 30

Six utility levers:

Answer 30

Customer productivity
Simplicity
Convenience
Environmental friendliness
Risk
Fun and image

Question 31

Six stages of the buyer experience cycle:

Answer 31

1. Purchase
2. Delivery
3. Use
4. Supplements
5. Maintenance
6. Disposal

Question 32

Strategic pricing:

Answer 32

Setting a price that will attract the greatest number of customers in the shortest amount of time.

Question 33

Target costing:

Answer 33

Using insights gained from determining optimal price points to set your target cost of production.

Question 34

Adoption:

Answer 34

Ensure smooth adoption by engaging and educating the three primary stakeholders: employees, business partners, and the general public.

Question 35

Blue Ocean Index:

Answer 35

A birds-eye view of the commercial viability of blue ocean ideas.

Utility: Is there exceptional utility?
Price: Is the price easily accessible to the mass of buyers?
Cost: Does the cost structure meet the target cost?
Adoption: Have you addressed adoption hurdles up front?