theme 5 Flashcards
Process innovation business model ?
means that you can have an innovation in a product or technology but you can also have process innovation in your way of doing things (see Ikea, Swatch and Nespresso cases)
red ocean strategy ?
it is a positioning strategy where you positioned in an existing industry with existing demand . where there are a lot of competitors .
it is also called a PULL strategy
Blue ocean strategy ?
blue ocean strategy is creating new demands
the difference is in positioning which means the three generic strategies discussed earlier we adapt to the changes and the demands and position in the industry structure. Now in the blue ocean or reconstructionist approach strategy it is shaping the industry .
The reconstructionist strategy is the push strategy which means we are pushing or reshaping the industry. In the blue ocean strategy there is no completion and that is why it is called blue not like in red ocean strategy where there is blood (meaning competition)
the difference between red and blue ocean strategies ?
1 - red : compete in existing market space / blue : create and shape market
2 - red : beat competition / blue : make competition irrelevant
3 : red : differentiation or low cost / blue differentiation and low cost
4 : red : competitive advantage / blue : value innovation
5 : red : segment existing customer / blue : capture noncustomers
6: red: exploited existing demand / blue : create and capture new demand
non customers are divided in 3 tiers , what are they ?
First tier : people that are soon to be your customers ( they know you )
second tier : people that refused to be your customer ( they know you and choose against your market
Third tier : Unexplored customers , they dont even know that you exist.
it is easy to convince the first and third tier to become your customers , while it is not easy to convince the second tier
Blue ocean strategy framework?
it consist of 4 main elements
Reduce / Eliminate ( these are used for cutting cost )
Create / Raise ( these are used to sustain differentiation)
What is the right strategy red or blue?
- Blue ocean is hard to achieve, it requires both luck and a risk taking attitude.
- if the industry is attractive and your organization has the resources and capabilities to achieve a good positioning, then you better stay in a red ocean and no need to go blue ocean
- When industry in not attractive but you you can outperform competition you can also stay in red
- Going to blue strategy is a good option when the industry are attractive but you can’t outperform your competitors and you have no choice but to leave and find something novel or new that didn’t exist
- If the structure is not attractive and you want to create something novel
in other cases :
o If you are not a risk taker you stick to red ocean strategy
o If you are a risk taker and you are willing to pursue new opportunities and have something novel the off course you go with the blue ocean strategy
Zip car strategy?
Zip didn’t want to compete with other companies like Hertz .
When zip car decided to enter the industry they came up with a new strategy and they focused on lower price home renters.
what they did is they looked for a segment that includes everybody but specifically people who don’t own cars and they decide to charge not daily prices but hourly prices
• Zip car value proposition is for non owners at home and charge per hour
o ZIP car value proposition is that you can find a zip car anywhere you want and they don’t have a specific location, they are usually small cool cars, and their marketing is about partnering with school and universities
Hertze value proposition and value chain activity ?
• Hertz value proposition is allow travelers to rent a car once they arrive to the airport and they charge high prices
o Their value chain activities is usually you see them at airports hotels and train stations, they also have a range of latest models and they do a lot of customer advertising
Ikea Case
Ikea stands for low cost nicely (Scandinavian) designed furniture for everyone
For everyone means everybody can afford to buy from Ikea, which means that ikea is following a cost leadership strategy
The value chain activities of Ikea
• Limited customer services lower the costs of sales people
• Self-selection by customers means if a customer buys a product he has to take it out of the shelves by himself and take it home also by himself which means also no transportation
• Modular furniture design means products are done in a way that is flat so it is easy to transport
• Low manufacturing cost is because they work with companies that they have good relationships with and which allows them to reduce manufacturing costs
• What is special about ikea network structure is it is using an industrial network with long term partnership wish enables them to achieve low cost products
• The way they do that is that they have three kind of suppliers that manufacture the products of which they have a different relationship with
• The closest ones are the vendor managed inventory (VMI) and these people that have electronic data interchange with Ikea so whenever Ikea sells a product this VMI partner will automatically replenish and send one of this same product back to the inventory to Ikea with almost no human interference
The VMIs that ikea work with on the long term also work with another company that is specialized in painting and because of that long term trusted relationship between ikea and the VMIs,
Ikea asked that painting company to look for a better coating which they usually charge money for doing but they didn’t from ikea
And they did it for free because they know that if they find the coating, Ikea will ask them use it and paint their tables and not go to another painting factory and ask for the same coating
This painting company wants to be partner with Ikea for profit reasons because they know that ikea produces a lot and that means more work for the painting company and they found the coating for Ikea for free because of that long term trusty relationship
So companies can copy Ikeas product but it is hard to copy their relationship strategy and because of volume Ikea is able to keep the cost low
Swatch group case study
The company was a watch maker company with some designs. This company is applying a three tiered strategy.
The swiss makers are known for high end expensive watches using a special technology that is very old, in the 90s a lot of US and Japanese cheaper watches entered the market using cords technology, these cord companies like citizens and others were taking away some customers from the swiss.
This is where the three tier strategy came when they divided the market into three tiers which are the high end, the middle class and the lower class but they didn’t have anything for the lower class.
What they did is the came up with Swatch which was seen not as a cheap watch but as fashion product
The business model innovation part here is that they came up with a non expensive watch that is also a fashion product, and what they also did for the second tier middle class watches like Omega is that where seen as quality products but not the expensive swiss ones
So if we look at what they did we see that they adapted to this new technology and used it to build new watches to enlarge their sales and market share and they modified it for being seen on another way as cheap watch
After that they expanded and bought a lot of other companies. Now they cover different segments of customers in the market form rich to middle class to customers that don’t want to pay a lot for a watch
What is different about swatch other than the high end watches is that their strategy is about volume and not differentiation especially the booming in asia and it became the biggest turnover in revenues to SMH
Nespresso case study
Nespresso used the three tire model for business model innovation. Coffee is nothing new and everybody has it, what is new about this company is how they segmented the market for selling coffee
• Nestle the owner of Nescafe was focusing on the machine and on how to sell it to professionals which means they were looking into restaurants and big coffee shops which are their targeted market (B to B).
o Unfortunately it didn’t work and they didn’t sell a lot
• What happened with the new CEO from Mallborrow that he changed the strategy and decide to target end consumers instead of businesses, so what he did is lowering the price of the machine and focused on marketing the whole experience that nespresso stands for
• By focusing on the experience of high quality unique special flavors that you can find in shops. So they were looking for higher end consumers to sell that machine
• So by that Nestle covered all the segments because they had before for low and medium ends and now for the high end
Nespresso like Starbucks and other brands is playing on the emotions and segmenting the market by saying that they have something very special to offer for customers and creating the feeling that they are buying not just coffee but something very special
Nespresso heavily used marketing and they were consistent for many years in telling what Nespresso stands for which is unique, special, cool, sexy, tasty coffee
it is a differentiation strategy but it is a business model strategy because coffee is not new but the new thing is how they promoted it
Net Jet
When you travel in a jet, it is so comfortable and there is ease to fly. What you do is you go to the vip lounge and the customs will come to you and stamp your passport, and you fly whenever you want with amazing service etc…without having to wait long queues and going early to the airport.
The only requirement is to inform the air travel control 20 hour before you want to fly
What Net Jets did is that it started to buy a few jets and they rent it now for people who want to experience flying in a private jet without having to buy a private jet
The deal is that a customer pay 350 000 $ per year which allows you to travel almost 60 hours per year
For big companies where they pay for their customers or partners to travel which can cost a lot per trip and if a company pays a bit more it can offer this service to a customer in a way that they can afford without paying too much for a jet plane
The advantage with Net jets is that also you don’t have to worry about maintenance and crew expenses and you have the liberty you travel wherever and whenever you want without stopping and you eat and drink what you want, this is net jet value proposition
this is a blue ocean strategy because it created something that was not available in the industry and it did that by combining two industries
Body shop case?
In terms of pricing body shop is very cheap
In terms of packaging they don’t have a fancy expensive packaging like other products in the industry
It is not high-tech cosmetic product
It is not glamourous
The main difference with body shop is that not like the industry of organics It is made of natural ingredients and it presents healthy living
So the owner of the company used blue ocean strategy by creating a product that was not available
Cirque de Soleil case?
they used the Blue ocean strategy frame work
Eliminate:
• Star performers cost a lot up to 1 million per year so they eliminate them
• Animal shows also cost a lot too
• Aisle concession sales
• Multiple show arenas
reduce
• Fun and humor
• Thrill and danger
Raise:
• Unique venue
Create (which is the value)
• Themes, everything they do is based on theme and they create shows related to that theme like a story
• Refined environment means that you can go with your girlfriend or parents not only for children
• Multiple productions
• Combination between music and dance
So they eliminated cost and you focus on creating on themes and expressing creativity in story telling costs not like other cirques who focus on thrill and danger and humor
Cirque do soleil is
a combination between circus industry and opera and theater industry which means that they created a new market, In addition they reduced cost and differentiated which means they applied the blue ocean strategy
