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Blue Ocean StrategyHow to CreateUncontested Market Spaceand Make the Competition Irrelevant[ W. Chan Kim & Renée Mauborgne ]

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”Competition in steady markets can be cutthroatPeople involved in this competition generallydislike it and want to break free from the packbut they simply don’t know where to begin”Kim and Mauborgne, Harvard Business Review, # 99105jesholt.dk

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”Creating New Market Space”jesholt.dk

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Creating New Market Space• Create products or services for which thereare no direct competitors• Break free from ”how we compete in ourindustry or in our strategic group” thinking• Look at familiar data from a new perspectivejesholt.dk

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Look across conventional boundaries..Substitute industriesStrategic groups within an industryBuyer groupsComplimentary product and service offeringsFunctional/emotional orientation of industryEven timejesholt.dk

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TOOLS & TECHNIQUESjesholt.dk

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A NEWVALUECURVEELIMINATERAISEREDUCECREATEThe Four Actions Frameworkjesholt.dk

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ELIMINATE• What factors should beeliminated that theindustry has taken forgranted?RAISE• What factors should beraised well beyond theindustry standard?REDUCE• What factors should bereduced well below theindustry standard?CREATE• What factorys should becreated that the industryhas never offered?Or The ERCC gridjesholt.dk

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Value innovationBasic premisebehind BlueOcean StrategyPushing for aquantum leapin buyer valuewhile pushingfor a sharp dropin the industrycost structureBuyer ValueCostsValueInnovationjesholt.dk

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Red Ocean versus Blue Ocean StrategyRed Ocean StrategyCompete in existing market spaceBeat the competitionExploit existing demandMake the value-cost trade-offAlign the whole system of a firm’sactivities with its strategic choice ofdifferentiation OR low costBlue Ocean StrategyCreate uncontested market spaceMake the competition irrelevantCreate and capture new demandBreak the value-code trade-offAlign the whole system of a firm’sactivities in pursuit of differentiationAND low costjesholt.dk

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The 6 Principles of Blue Ocean StrategyFormulation principles Risk factor each principle attenuatesReconstruct market boundaries  Search riskFocus on the big picture, not the numbers  Planning riskReach beyond existing demand  Scale riskGet the strategic sequence right  Business model riskExecution principles Risk factor each principle attenuatesOvercome key organizational hurdles  Organizational riskBuild execution into strategy  Management riskjesholt.dk

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Case: the US wine industryjesholt.dk

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Strategy canvas of US wine industryRelativelevelKey Elements of Product, Service, and DeliveryPremium WinesBudget WinesHighLowjesholt.dk

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How do you get this guy to drink wine?jesholt.dk

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ERRC grid by [yellow tail]Eliminate• Enological terminologyand distinctions• Aging qualities• Above-the-line-marketingRaise• Price versus budget wines• Retail store involvementReduce• Wine complexity• Wine range• Vineyeard prestigeCreate• Easy drinking• Ease of selection• Fun and adventurejesholt.dk

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Strategy canvas by [yellow tail]RelativelevelKey Elements of Product, Service, and DeliveryPremium WinesBudget Wines[yellow tail]HighLowjesholt.dk

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“People can’t be bothered by all the hype andnonsense of wine. They just want to drink it.“John Casella, Managing Directorjesholt.dk

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LOOK ACROSS SUBSTITUTE INDUSTRIESjesholt.dk

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Substitute industriesCustomer thinking Industry thinkingIdentify how customers maketrade-offs between industriesjesholt.dk

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Your choices before..Contactors• Expensive• Invade your home• Somewhat careless• Take day off from work• They have know-how!Hardware store• Local, often small• Lack of hands-on support• Costly overhead• No materials, appliances, ...• Nice display shelvesjesholt.dk

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Identify value, reduce everything else• Bolster confidence in average home owner• Train competent people to coach customers• Eliminate costly location and features• Sponsor in-store training facilities• Provide an all-you-need experience• Revolutionize do-it-yourself marketjesholt.dk

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Your choices before..Financial software The pen• Very simple• Low price• Inaccuate• Highly accurate• Complex• Expensivejesholt.dk

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Identify value, reduce everything elseIntuit Quicken• Released in 1984• 42 competing products• Cheap ($29 vs. $299)• Easy (no accounting jargon)jesholt.dk

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Industry value curvePrice Ease of use OptionalfeaturesSpeed AccuracyRelativelevelKey Elements of Product, Service, and DeliveryThe pencilPersonal financialsoftwareHighLowjesholt.dk

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Quicken value curvePrice Ease of use OptionalfeaturesSpeed AccuracyRelativelevelKey Elements of Product, Service, and DeliveryThe pencilPersonal financialsoftwareQuickenHighLowjesholt.dk

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LOOK ACROSS STRATEGIC GROUPSWITHIN INDUSTRIESjesholt.dk

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Strategic groups• A group of companieswithin an industry thatpursue same strategy• In most industries,the fundamentalstrategic differencesare captured by asmall number ofstrategic groupsjesholt.dk

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Strategic groupsPricePerformance• Fierce competition withinstrategic groups• Key: understand what makescustomers trade up or downjesholt.dk

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Case: Curves• Texas-based womensfitness club franchise• Entered a perceivedmature market butunlocked a huge,untapped strategic group• The best from high-endhealth clubs and low-endhome exercise andreduced everything elsejesholt.dk

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ERRC grid by CurvesEliminate• Locker rooms, juice bars,saunas, pools, etc• Male athletes, mirrors,everything unfriendly• Technical/adjustable machinesRaise• Social, non-threatening andengaging atmosphere• Quick-Fit program• Self-adjustable machinesReduce• High initial costs• Member fee cost• Time spend on workoutCreate• Fun womenly atmospherejesholt.dk

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Curves value curveRelativelevelKey Elements of Product, Service, and DeliveryCurvesHome ExerciseHealt ClubsHighLowjesholt.dk

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Curves numbers• Investment down from $500K - 1M to $50K• Monthly user fee down from $100 to $30• Franchises profitable w. 3 months/100 users• 7.000 franchises in 90 countries since 1995• $20K for a franchise• Established franchises sell for $100 - 150Kjesholt.dk

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LOOK ACROSS THE CHAIN OFBUYERSjesholt.dk

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Buyer groupsIndustries typically converge on a singlebuyer group, for example:PharmaceuticalInfluencers, i.e.DoctorsOffice equipmentCorporatepurchasersClothingEnd usersjesholt.dk

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The usual suspect..Buyer groupsExecutive value:Preference forown customersBuyer value:Competitivepricing andspeedy deliveryUser value:Ease-of-useTechnical value:Compatibilityand handlingFinance value:Credit rating,financing andpayment termsjesholt.dk

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The insulin industryFocus on influencers• Historic focus on thedoctors as customers• Focus on purer insulin until”human monocomponent”was reached by early 1980’s• Competitive convergenceamong the major playerswas rapidly occurringVials and syringesjesholt.dk

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ERRC grid by Novo NordiskEliminate• Vials and syringes• Social stigmatismRaise• User friendliness• ConvenienceReduce• Hazzle in medicineadministration• Risk of incorrect medicaltreatmentCreate• Automatic dosis controljesholt.dk

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Novo Nordisk value curveRelativelevelKey Elements of Product, Service, and DeliveryIndustryNovo NordiskHighLowjesholt.dk

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Case: Novo NordiskFrom insulin producer to diabetes care companyjesholt.dk

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LOOK ACROSS COMPLEMENTARYPRODUCT AND SERVICE OFFERINGSjesholt.dk

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Complimentary offeringsWhat happensbefore?What happensduring?What happensafter?• Untapped value is often hidden in complementaryproducts and services• The key is to define the total solution buyers seekwhen they choose a product or servicejesholt.dk

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What happens...Before• Babysitting• Car parking• Dining• Like/check inDuring• Wardrobe• Program• Drinks• Bar/pauseAfter• Merchandise• Books/mags• Late nighttransportjesholt.dk

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What happens...Before• Groundtransportation• Tax freeshoppingDuring• In-flight services• Entertainment• Air shopAfter• Groundtransportation• Accommodation• Airmile benefitsjesholt.dk

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Before Barnes & Noble (and Borders),people came, bought a book and left..Before• Recommendations• SearchingDuring• Evaluatingalternatives• SamplingAfter• Consumption• Learning• Sharingjesholt.dk

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ERRC grid by Barnes & NobleEliminate• The risk of buying ”thewrong” book• Vain book searchRaise• Selection• Support and sparring• Joy of readingReduce• Inefficiencies• Inconveniences andfrustrations of selection• Stock clerks/cashiersCreate• Ambience (even competewith reading at home)• Sampling opportunityjesholt.dk

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Barnes & Noble value curveRelativelevelKey Elements of Product, Service, and DeliveryMall bookstoresIndependent bookstoresBarnes & NobleHighLowjesholt.dk

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Barnes & NobleRedefine the scope of serviceTurning the book as a productinto the pleasure of readingand intellectual explorationjesholt.dk

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LOOK ACROSS FUNCTIONAL OREMOTIONAL APPEAL TO BUYERSjesholt.dk

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Appeal to buyersFunctional, competition onprice/fuction and utilityEmotional, competition onfeelingsjesholt.dk

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Challenge historical thinkingIndustries competition converge tofunctional or emotional appeal”Industry thinking” leadsto customer thinkingReinforcement – customers justwant more of the same for lessChallenge historical thinkingand find new market spacejesholt.dk

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From Functional• Keep track of time• Add functionality• Improve accuracy• Digitalize• Citizen & SeikoTo Emotional• Fashion statement• Design• Image• Emotion• Repeat purchasejesholt.dk

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QB HouseFrom Emotional• Ritual• Numerous hot towels• Massage• Coffee or tea• Skin treatments• Blow drying• Shaving• Long queues• 3.000 to 5.000 YenTo Functional• Basic cuts• Eliminate wash and dry• Air wash• Traffic light system• Eliminate waiting time• Eliminate reservation desk• Improved hygiene• ”one use” policy (combs,..)• Price 1.000 Yenjesholt.dk

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ERRC grid by QB HouseEliminate• Rituals• Reservation desk• Cash and changeRaise• Hygiene• Value for moneyReduce• Waiting time• Styles/treatment• PriceCreate• Sanitation system• Air wash systemjesholt.dk

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QB House value curveRelativelevelKey Elements of Product, Service, and DeliveryBarber ShopQB HouseHighLowjesholt.dk

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What about growth potential?jesholt.dk

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LOOK ACROSS TIMEjesholt.dk

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Look across timeMost companies• adapt trends incrementally• focus on the trend itself (tech, legislation, etc.)• project the trend itself (direction, adoption, ..)Instead, companies should• project how it will change value to customers!jesholt.dk

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Trends must..• Be decisive to your business• Be Irreversible• Have a clear trajectoryjesholt.dk

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Future trend value curveRelativelevelKey Elements of Product, Service, and DeliveryNowTrendHighLowjesholt.dk

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Trends must..• Be decisive to your business• Be Irreversible• Have a clear trajectoryjesholt.dk

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Blue Ocean Strategy• W. Chan Kim & Renée Mauborgne– Almost a decade of research• Blue Ocean StrategyHBS Press, ISBN• Blue Ocean StrategyHBR• Blue Ocean StrategyHarvard Business Review• www.BlueOceanStrategy.comjesholt.dk