Indeed, no reference to the vineyard was made on the bottle. The wine promised to jump from the glass like an Aussie kangaroo. The result is that [yellow tail] appealed to a broad cross section of alcohol beverage consumers.
From the moment the wine hit the retail shelves in July , sales took off. It is a supple- mentary analytic to the four actions framework called the eliminate-reduce-raise- create grid see Figure 5.
The grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve. Three Characteristics of a Good Strategy As a result of its strategic moves, [yellow tail] created a unique and exceptional value curve to unlock a blue ocean. These three characteristics serve as an initial litmus test of the commercial viabil- ity of blue ocean ideas.
These three criteria guide companies in carrying out the process of reconstruction to arrive at a breakthrough in value both for buyers and for themselves. To achieve this, companies must understand how to read value curves. Embedded in the value curves of an industry is a wealth of strategic knowledge on the cur- rent status and future of a business. A Blue Ocean Strategy The first question the value curves answer is whether a business deserves to be a winner.
These three criteria serve as an initial litmus test of the commercial viability of blue ocean ideas. If not, the strategy canvas signals that the company may be oversupplying its customers, offering too much of those elements that add incremental value to buyers. The company must decide which factors to eliminate, reduce, raise, and create to construct a divergent value curve.
Its strategy is likely based on independent substrategies. These may individually make sense and keep the business running and everyone busy, but collectively they do little to distinguish the company from the best competitor or to provide a clear strategic vision.
This is often a reflection of an organization with divisional or functional silos. Strategic inconsistencies can also be found between the level of offering and price.
No wonder it was losing market share fast. For example, does it use the word megahertz instead of speed, or thermal water temperature instead of hot water?
Are the competing factors stated in terms buyers can understand and value, or are they in operational jargon? Analyz- ing the language of the strategy canvas helps a company understand how far it is from creating industry demand. Conclusion The frameworks and tools introduced here are essential analytics that can be applied to allow companies to break from the competition and open up blue oceans of uncontested market space.
The market universe has never been con- stant; rather, blue oceans have continuously been created over time. To focus on the red ocean is therefore to accept the key constraining factors of competition— limited market space and the need to beat the enemy in order to succeed—and to deny the distinctive strength of the business world: the capacity to create new market space that is uncontested. Notes 1. For a classic on military strategy and its fundamental focus on competition over a limited territory, see C.
Howard and P. The structuralist school of IO economics finds its origin in Joe S. Using a cross-industry empirical framework, Bain focuses mainly on the impact of structure on performance. For more discussions on this, see J. Bain, ed. For more, see F. Michael Porter has made the greatest and most profound contribution to the field of strategy in classic works such as Competitive Strategy and Competitive Advantage.
See M. For discussions on how market boundaries are defined and how competitive rules of the game are set, see H. Porac and J. Ever since the groundbreaking work of Michael Porter, competition has occupied the center of strategic thinking.
See also P. Day and D. Reibstein, with R. Gunther, eds. For more on globalization and its economic implications, see K. Although in different contexts, venturing into the new has been observed to be a risky enterprise.
Steven P. See S. For example, Inga S. Baird and Howard Thomas argue that any strategic decisions involve risk taking. See I. Baird and H. Bettis and H. Thomas, eds. See C. Kim and R. For discussions on what strategy is and is not, see Porter , op. He argues that strategy should embrace the entire system of activities a firm performs. Its call to action has been taken up by businesses, by governments, and by individuals all over the world.
The frameworks, tools and process of Blue Ocean Strategy have provided a roadmap on how to systematically escape a red ocean of bloody. The authors are professors and analysts first and writers second.
Their prose is basic and straightforward with little rhythmic variation or literary flair, but dedicated readers of business texts will find their style remarkably articulate and easy to follow. They use language to get ideas across, not to entertain or even engage.
Yet they convey considerable intelligence and downright joy when parsing business strategies. As the size of their audience shows, the professors offer a rare mix of insightful business analysis and astute, practical strategy. Most business authors are lucky if they can offer one or the other. Very few combine both with such precision and utility. The potential positive effects of following this advice make the effort of reading every single word worthwhile.
The Buyer Utility Map is a perfect companion tool for analyzing the buyer experience and identifying hidden opportunities to create blue oceans. Use it in conjunction with the strategy canvas app to craft winning blue ocean strategies.
Outline your OS: iOS ,. NTT DoCoMo broke out of this red ocean of bloody com- petition by creating a blue ocean of wireless transmission not only of voice but also of text, data, and pictures. Although the Internet of- fered endless information and services, the killer apps were e-mail, simple information such as news, weather forecasts, and a tele- phone directory , and entertainment including games, events, and music entertainment.
On the other hand, the distinctive strengths of mobile phones were their mobility, voice transmission, and ease of use. NTT DoCoMo broke the trade-off between these two alterna- tives, not by creating new technology but by focusing on the deci- sive advantages that the Internet has over the cell phone and vice versa. The company eliminated or reduced everything else.
Its user- friendly interface has one simple button, the i-mode button i stand- ing for interactive, Internet, information, and the English pronoun I , which users press to give them immediate access to the few killer apps of the Internet.
Instead of barraging you with infinite infor- mation as on the Internet, however, the i-mode button acts as a hotel concierge service, connecting only to preselected and preap- proved sites for the most popular Internet applications. That makes navigation fast and easy. At the same time, even though the i-mode phone is priced 25 percent higher than a regular cell phone, the price of the i-mode phone is dramatically less than that of a PC, and its mobility is high.
Moreover, beyond adding voice, the i-mode uses a simple billing service whereby all the services used on the Web via the i-mode are billed to the user on the same monthly bill. This dramatically re- duces the number of bills users receive and eliminates the need to give credit card details, as on the Internet. And because the i-mode service is automatically turned on whenever the phone is on, users are always connected and have no need to go through the hassle of logging on.
By the end of the number of i-mode subscribers had reached The i-mode service did not simply win customers from competitors.
It dramatically grew the market, drawing in youth and senior citi- zens and converting voice-only customers to voice and data trans- mission customers. Our assessment shows that they have been focused on deliver- ing the most sophisticated technology, WAP wireless application protocol , instead of delivering exceptional value. This has led them to build overcomplicated offerings that miss the key common- alities valued by the mass of people.
Many other well-known success stories have looked across alter- natives to create new markets. The Home Depot offers the expertise of professional home contractors at markedly lower prices than hard- ware stores. By delivering the decisive advantages of both alterna- tive industries—and eliminating or reducing everything else—The Home Depot has transformed enormous latent demand for home improvement into real demand, making ordinary homeowners into do-it-yourselfers.
Southwest Airlines concentrated on driving as the alternative to flying, providing the speed of air travel at the price of car travel and creating the blue ocean of short-haul air travel. Simi- larly, Intuit looked to the pencil as the chief alternative to personal financial software to develop the fun and intuitive Quicken software. What are the alternative industries to your industry? Why do customers trade across them? By focusing on the key factors that lead buyers to trade across alternative industries and eliminating or reducing everything else, you can create a blue ocean of new market space.
Path 2: Look Across Strategic Groups Within Industries Just as blue oceans can often be created by looking across alterna- tive industries, so can they be unlocked by looking across strategic groups.
The term refers to a group of companies within an industry that pursue a similar strategy. In most industries, the fundamental strategic differences among industry players are captured by a small number of strategic groups. Each jump in price tends to bring a corresponding jump in some dimensions of performance.
Most companies focus on improving their competi- tive position within a strategic group. Mercedes, BMW, and Jaguar, for example, focus on outcompeting one another in the luxury car segment as economy car makers focus on excelling over one an- other in their strategic group. Neither strategic group, however, pays much heed to what the other is doing because from a supply point of view they do not seem to be competing. A new Curves opens, on average, every four hours somewhere in the world.
In reality, however, Curves exploded demand in the U. Curves built on the decisive advantages of two strategic groups in the U.
At the one extreme, the U. Their trendy facilities are designed to attract the high-end health club set. Having fought their way across town to health clubs, customers typically spend at least an hour there, and more often two. Traditional health club customers represent only 12 percent of the entire population, concentrated overwhelmingly in the larger urban areas.
At the other extreme is the strategic group of home exercise pro- grams, such as exercise videos, books, and magazines. These are a small fraction of the cost, are used at home, and generally require little or no exercise equipment. Instruction is minimal, being con- fined to the star of the exercise video or book and magazine expla- nations and illustrations. The question is, What makes women trade either up or down be- tween traditional health clubs and home exercise programs?
The average female nonathlete does not even want to run into men when she is working out, perhaps revealing lumps in her leotards. She is not inspired to line up behind ma- chines in which she needs to change weights and adjust their in- cline angles.
As for time, it has become an increasingly scarce commodity for the average woman. Few can afford to spend one to two hours at a health club several times a week. For the mass of women, the city center locations also present traffic challenges, something that increases stress and discourages going to the gym.
It turns out that most women trade up to health clubs for one principal reason. Conversely, women who use home exercise programs do so primarily for the time saving, lower costs, and privacy. Curves built its blue ocean by drawing on the distinctive strengths of these two strategic groups, eliminating and reducing everything else see figure Curves has eliminated all the aspects of the tra- ditional health club that are of little interest to the broad mass of women.
Gone are the profusion of special machines, food, spa, pool, and even locker rooms, which have been replaced by a few curtained- off changing areas. The experience in a Curves club is entirely different from that in a typical health club.
The member enters the exercise room where the machines typically about ten are arranged, not in rows facing a television as in the health club, but in a circle to facilitate inter- change among members, making the experience fun.
The QuickFit circuit training system uses hydraulic exercise machines, which need no adjusting, are safe, simple to use, and nonthreatening. Specifically designed for women, these machines reduce impact stress and build strength and muscle.
While exercising, members can talk and support one another, and the social, nonjudgmental atmosphere is totally different from that of a typical health club. There are few if any mirrors on the wall, and there are no men star- ing at you. Members move around the circle of machines and aero- bic pads and in thirty minutes complete the whole workout.
Most franchises are profitable within a few months, as soon as they recruit on average one hun- dred members. The result is that Curves facilities are everywhere in most towns of any size. Curves is not competing directly with other health and exercise concepts; it created new blue ocean demand.
Expansion has already begun in Latin America and Spain. By the end of , Curves is expected to reach eight thousand five hundred fitness centers. At the same time, its up- dated classical look and price capture the best of the classical lines such as Brooks Brothers and Burberry. By combining the most at- tractive factors of both groups and eliminating or reducing every- thing else, Polo Ralph Lauren not only captured share from both segments but also drew many new customers into the market.
And think of the Sony Walkman. By looking across the high fidelity of boom boxes with the low price and mobility of transistor radios within the audio equipment industry, Sony created the personal portable-stereo market in the late s.
The Walkman took share from these two strategic groups. In addition, its leap in value drew new customers, including joggers and commuters, into this blue ocean.
Michigan-based Champion Enterprises identified a similar op- portunity by looking across two strategic groups in the housing in- dustry: makers of prefabricated housing and on-site developers. Prefabricated houses are cheap and quick to build, but they are also dismally standardized and have a low-quality image.
Houses built by developers on-site offer variety and an image of high qual- ity but are dramatically more expensive and take longer to build. Champion created a blue ocean by offering the decisive advan- tages of both strategic groups. Its prefabricated houses are quick to build and benefit from tremendous economies of scale and lower costs, but Champion also allows buyers to choose such high-end fin- ishing touches as fireplaces, skylights, and even vaulted ceilings to give the homes a personal feel.
In essence, Champion has changed the definition of prefabricated housing. What are the strategic groups in your industry?
Why do cus- tomers trade up for the higher group, and why do they trade down for the lower one? Path 3: Look Across the Chain of Buyers In most industries, competitors converge around a common defini- tion of who the target buyer is. The purchasers who pay for the product or service may differ from the actual users, and in some cases there are important influ- encers as well.
Although these three groups may overlap, they often differ. When they do, they frequently hold different definitions of value. A corporate purchasing agent, for example, may be more con- cerned with costs than the corporate user, who is likely to be far more concerned with ease of use.
But consumer purchasers, although strongly influenced by the channel, do not value these things. Individual companies in an industry often target different cus- tomer segments—for example, large versus small customers.
But an industry typically converges on a single buyer group. The pharma- ceutical industry, for example, focuses overridingly on influencers: doctors.
The office equipment industry focuses heavily on pur- chasers: corporate purchasing departments. And the clothing in- dustry sells predominantly to users. Sometimes there is a strong economic rationale for this focus. But often it is the result of indus- try practices that have never been questioned. Think of Novo Nordisk, the Danish insulin producer that cre- ated a blue ocean in the insulin industry.
Insulin is used by diabet- ics to regulate the level of sugar in their blood. Historically, the insulin industry, like most of the pharmaceutical industry, focused its attention on the key influencers: doctors. The importance of doctors in affecting the insulin purchasing decision of diabetics made doctors the target buyer group of the industry. The issue was that innovations in purification technology had improved dra- matically by the early s.
As long as the purity of insulin was the major parameter upon which companies competed, little progress could be made further in that direction. Competitive conver- gence among the major players was rapidly occurring.
In fo- cusing on patients, Novo Nordisk found that insulin, which was supplied to diabetes patients in vials, presented significant chal- lenges in administering. Vials left the patient with the complex and unpleasant task of handling syringes, needles, and insulin, and of administering doses according to his or her needs.
Needles and syringes also evoked unpleasant feelings of social stigmatism for patients. And patients did not want to fiddle with syringes and nee- dles outside their homes, a frequent occurrence because many pa- tients must inject insulin several times a day. This led Novo Nordisk to the blue ocean opportunity of NovoPen, launched in NovoPen, the first user-friendly insulin delivery solution, was designed to remove the hassle and embarrassment of administering insulin.
The pen had an integrated click mechanism, making it possible for even blind patients to control the dosing and administer insulin. Patients could take the pen with them and inject insulin with ease and convenience without the embarrassing complexity of syringes and needles. To dominate the blue ocean it had unlocked, Novo Nordisk fol- lowed up by introducing, in , NovoLet, a prefilled disposable in- sulin injection pen with a dosing system that provided users with even greater convenience and ease of use.
And in it brought out the Innovo, an integrated electronic memory and cartridge- based delivery system. Innovo was designed to manage the delivery of insulin through built-in memory and to display the dose, the last dose, and the elapsed time—information that is critical for reduc- ing risk and eliminating worries about missing a dose. NovoPen and the later delivery systems swept over the insulin market.
Sales of insulin in prefilled devices or pens now account for the dominant share in Europe and Japan, where patients are advised to take frequent injections of insulin every day. Similarly, consider Bloomberg. In a little more than a decade, Bloomberg became one of the largest and most profitable business- information providers in the world. The industry focused on pur- chasers—IT managers—who valued standardized systems, which made their lives easier.
This made no sense to Bloomberg. Profit opportunities come from disparities in information. When markets are active, traders and analysts must make rapid de- cisions. Every second counts. So Bloomberg designed a system specifically to offer traders bet- ter value, one with easy-to-use terminals and keyboards labeled with familiar financial terms. The systems also have two flat-panel monitors so that traders can see all the information they need at once without having to open and close numerous windows.
Because traders must analyze information before they act, Bloomberg added a built-in analytic capability that works with the press of a button. Before, traders and analysts had to download data and use a pencil and calculators to perform important financial calculations.
They have tremendous in- come but work such long hours that they have little time to spend it. Traders can use these services to buy items such as flowers, cloth- ing, and jewelry; make travel arrangements; get information about wines; or search through real estate listings.
By shifting its focus upstream from purchasers to users, Bloom- berg created a value curve that was radically different from any- thing the industry had seen before. The traders and analysts wielded their power within their firms to force IT managers to purchase Bloomberg terminals. Many industries afford similar opportunities to create blue oceans.
By questioning conventional definitions of who can and should be the target buyer, companies can often see fundamentally new ways to unlock value. Consider how Canon copiers created the small desktop copier industry by shifting the target customer of the copier industry from corporate purchasers to users. What is the chain of buyers in your industry? Which buyer group does your industry typically focus on?
If you shifted the buyer group of your industry, how could you unlock new value? In most cases, other products and services affect their value. Take movie theaters. The ease and cost of getting a babysitter and parking the car affect the perceived value of going to the movies. Yet these complementary services are be- yond the bounds of the movie theater industry as it has been tradi- tionally defined. Few cinema operators worry about how hard or costly it is for people to get babysitters.
But they should, because it affects demand for their business. Imagine a movie theater with a babysitting service. Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers seek when they choose a product or service. A simple way to do so is to think about what happens before, during, and after your product is used. Babysitting and parking the car are needed before people can go to the movies. Operating and application software are used along with computer hardware.
In the airline industry, ground trans- portation is used after the flight but is clearly part of what the cus- tomer needs to travel from one place to another. Under the accepted rules of competition in the industry, compa- nies competed to offer the lowest purchase price.
To NABI, however, none of this made sense. Why were bus companies focused only on the initial purchase price of the bus, when municipalities kept buses in circulation for twelve years on average? When it framed the market in this way, NABI saw insights that had escaped the entire industry. NABI discovered that the highest-cost element to municipalities was not the price of the bus per se, the factor the whole industry competed on, but rather the costs that came after the bus was pur- chased: the maintenance of running the bus over its twelve-year life cycle.
With new de- mands for clean air being placed on municipalities, the cost for public transport not being environmentally friendly was also begin- ning to be felt. Yet despite all these costs, which outstripped the initial bus price, the industry had virtually overlooked the comple- mentary activity of maintenance and life-cycle costs.
This made NABI realize that the transit bus industry did not have to be a commodity-price-driven industry but that bus compa- nies, focusing on selling buses at the lowest possible price, had made it that way. By looking at the total solution of complemen- tary activities, NABI created a bus unlike any the industry had seen before. Buses were normally made from steel, which was heavy, corrosive, and hard to repair after accidents because entire panels had to be replaced.
NABI adopted fiberglass in making its buses, a practice that killed five birds with one stone. Fiberglass bodies substantially cut the costs of preventive maintenance by being corrosion-free.
At the same time, its light weight 30—35 percent lighter than steel cut fuel consumption and emissions substantially, making the buses more environmen- tally friendly. Moreover, its light weight allowed NABI to use not only lower-powered engines but also fewer axles, resulting in lower manufacturing costs and more space inside the bus.
As you can see in figure , by building its buses in lightweight fiberglass, NABI eliminated or significantly reduced costs related to corrosion prevention, mainte- nance, and fuel consumption. As a result, even though NABI charged a higher initial purchase price than the average price of the industry, it offered its buses at a much lower life-cycle cost to municipalities. Moreover, the higher price NABI charged allowed it to create factors unprecedented in the industry, such as modern aesthetic design and customer friendliness, including lower floors for easy mounting and more seats for less standing.
These boosted demand for transit bus service, generating more revenues for mu- nicipalities. NABI changed the way municipalities saw their rev- enues and costs involved in transit bus service.
NABI created exceptional value for the buyers—in this case for both municipali- ties and end users—at a low life-cycle cost. Not surprisingly, both municipalities and riders loved the new buses. NABI has captured 20 percent of the U.
NABI, based in Hungary, created a blue ocean that made the competition irrelevant in the United States, creating a win-win for all: itself, municipalities, and citi- zens. Similarly, consider the British teakettle industry, which, despite its importance to British culture, had flat sales and shrinking profit margins until Philips Electronics came along with a teakettle that turned the red ocean blue.
By thinking in terms of complementary products and services, Philips saw that the biggest issue the British had in brewing tea was not in the kettle itself but in the comple- mentary product of water, which had to be boiled in the kettle. The issue was the lime scale found in tap water.
The lime scale accumu- lated in kettles as the water was boiled, and later found its way into the freshly brewed tea. The phlegmatic British typically took a tea- spoon and went fishing to capture the off-putting lime scale before drinking home-brewed tea. To the kettle industry, the water issue was not its problem.
It was the problem of another industry—the public water supply. The result: Philips created a kettle having a mouth filter that effectively captured the lime scale as the water was poured. Lime scale would never again be found swimming in British home- brewed tea. The industry was again kick-started on a strong growth trajectory as people began replacing their old kettles with the new filtered kettles.
There are many other examples of companies that have followed this path to create a blue ocean. They transformed the product they sell from the book itself into the pleasure of reading and intellectual exploration, adding lounges, knowledgeable staff, and coffee bars to create an environment that celebrates reading and learning. Dyson designs its vacuum cleaners to eliminate the cost and annoyance of having to buy and change vacuum cleaner bags. What is the context in which your product or service is used?
What happens before, during, and after? Can you identify the pain points? How can you eliminate these pain points through a comple- mentary product or service offering? Path 5: Look Across Functional or Emotional Appeal to Buyers Competition in an industry tends to converge not only on an ac- cepted notion of the scope of its products and services but also on one of two possible bases of appeal. Other industries compete largely on feel- ings; their appeal is emotional.
Yet the appeal of most products or services is rarely intrinsically one or the other. Rather it is usually a result of the way companies have competed in the past, which has unconsciously educated con- sumers on what to expect. Over time, functionally oriented industries become more functionally oriented; emotionally ori- ented industries become more emotionally oriented.
No wonder market research rarely reveals new insights into what attracts cus- tomers. Industries have trained customers in what to expect. When surveyed, they echo back: more of the same for less. When companies are willing to challenge the functional- emotional orientation of their industry, they often find new market space. We have observed two common patterns. Emotionally oriented industries offer many extras that add price without enhancing func- tionality.
Stripping away those extras may create a fundamentally simpler, lower-priced, lower-cost business model that customers would welcome. Conversely, functionally oriented industries can often infuse commodity products with new life by adding a dose of emotion and, in so doing, can stimulate new demand.
Two well-known examples are Swatch, which transformed the functionally driven budget watch industry into an emotionally driven fashion statement, or The Body Shop, which did the reverse, transforming the emotionally driven industry of cosmetics into a functional, no-nonsense cosmetics house. QB House created a blue ocean in the Japanese barbershop industry and is rapidly growing throughout Asia. Started in in Tokyo, QB House has blos- somed from one outlet in to more than two hundred shops in The number of visitors surged from 57, in to 3.
The company is expanding in Singapore and Malaysia and is targeting one thousand outlets in Asia by A long process of activities is under- taken to make the haircutting experience a ritual. Numerous hot towels are applied, shoulders are rubbed and massaged, customers are served tea and coffee, and the barber follows a ritual in cutting hair, including special hair and skin treatments such as blow dry- ing and shaving.
The result is that the actual time spent cutting hair is a fraction of the total time. Moreover, these actions create a long queue for other potential customers.
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