Blue Ocean Strategy Flashcards
Blue oceans:
Untapped market space free of competition, where firms can create customers. Blue oceans have the potential to provide rapid profit growth.
Red oceans:
Established markets with entrenched industry practices and intense competition for profits.
Strategic move:
The set of decisions a firm makes to create blue oceans.
Value innovation:
Creating an increase in value to customers while reducing firm costs, rendering competitors irrelevant.
Value-cost trade-off:
The paradigm of many competitive strategies in which greater value comes at a greater cost and lower value comes at a lower cost.
Strategy canvas:
A tool used to illustrate a company’s competitive strategy.
Factors of competition:
Factors that an industry competes on and invests in; for example price.
Value curve:
A line made by plotting a company’s profile across a strategy canvas.
Four actions framework:
Four questions used to facilitate understanding or formulation of a company strategy.
Eliminate-reduce-raise-create (ERRC) grid:
A helpful tool used to complement the four actions framework.
A successful blue ocean strategy has three hallmarks:
- Focus: an emphasis on only key factors of competition
- Divergence: A break from an industry’s prevailing strategies
- Compelling tagline: e.g Southwest’s, “The speed of a plane at the price of a car - whenever you need it.”
ERRC grid questions:
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?
Reading value curves, Curves that converge suggest…
a red ocean product
Reading value curves, High investment across all factors signifies….
overdelivering without payback: investing in options or features that add little value for consumers
Reading value curves, Zigzags indicate…
a corporation with an incoherent strategy. A divergent curve indicates a blue ocean product
Price corridor of the mass:
A process for finding an optimal price point involving the following two steps:
- Identify any existing alternatives to your product, either with differing forms and the same function, or differing form and function, but the same objective.
- Examine the price and user base of each alternative.
Network externalities:
A phenomenon in which people place little value on a product used by few others. This makes setting a strategic price crucial.
Rival goods:
Resources only your firm can use at any given time.
Nonrival goods:
Resources anyone can use.
Low excludability:
Causes a product to be vulnerable if it doesn’t have a limitation on its use by rival firms.
Specifying price level within the price corridor:
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
Three levers of cost reduction:
Streamlining, Partnering, and Price Innovation
Streamlining:
Simplifying and optimising operations
Partnering:
Forming strategic alliances to share cost burden with other firms
Pricing innovation:
Changing the way a product or service is monetised, e.g Blockbuster’s choice to rent videotapes to consumers rather than sell them.
Price-minus costing:
Strategic price - desired profit margin = target cost
Cost-plus pricing:
Cost + desired profit margin = price
Strategic sequence:
A four-step process for formulating and evaluating blue ocean ideas.
- Buyer Utility
- Strategic Pricing
- Target Costing
- Adoption
Buyer Utility:
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
Six utility levers:
Customer productivity Simplicity Convenience Environmental friendliness Risk Fun and image
Six stages of the buyer experience cycle:
- Purchase
- Delivery
- Use
- Supplements
- Maintenance
- Disposal
Strategic pricing:
Setting a price that will attract the greatest number of customers in the shortest amount of time.
Target costing:
Using insights gained from determining optimal price points to set your target cost of production.
Adoption:
Ensure smooth adoption by engaging and educating the three primary stakeholders: employees, business partners, and the general public.
Blue Ocean Index:
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?
