Creating Blue Oceans

Getting the Blue Ocean strategic sequence right — Step Two

Continuing in our series which takes a closer look at each step in the Blue Ocean Strategy strategic sequence, our focus advances to the second step — specifying a level within the price corridor.  Once featured, each step is made accessible through the Blue Ocean Strategy Basics archive of this site.  For the second step, we turn to pages 130 — 131  of the book Blue Ocean Strategy (co-authored by Professor W. Chan Kim and Professor Renée Mauborgne):

The second part of the [price corridor] tool helps managers determine how high a price they can afford to set within the corridor without inviting competition from imitation products or services. That assessment depends on two principal factors. First is the degree to which the product or service is protected legally through patents or copyrights. Second is the degree to which the company owns some exclusive asset or core capability, such as an expensive production plant, that can block imitation. Dyson, a British electrical white goods company, for example, has been able to charge a high unit price for its bagless vacuum cleaner since the product’s launch in 1995, thanks to both strong patents and hard-to-imitate service capabilities.

Many other companies have used upper-boundary strategic pricing to attract the mass of target buyers. Examples include DuPont with its Lycra brand in specialty chemicals, Philips’ ALTO in the professional lighting industry, SAP in the business application software industry, and Bloomberg in the financial software industry.

Related links:

Buy the Blue Ocean Strategy book.

[Image via Harpagornis.]

Blue Ocean of missed opportunities

Last week we received an article from one of our readers, recommending it as a follow-up to our previous entry on the bicycle industry.  In that article, we touched on Mark Sanders, designer of the Strida, who is creating a new Blue Ocean marketspace and defying conventional wisdom by focusing on occasional bicyclists instead of diehard bicycle enthusiasts.

Most recently, during his keynote presentation at the Taipei International Cycle Show, Sanders spoke on the “Blue Ocean of missed opportunities.”  From Bike Biz:

Bike trade is missing the big picture....

Strida designer Mark Sanders - who received an iF gold design award recently for his latest bike project - gave a presentation to industry figures at the Taipei bicycle trade show. He used the Blue Ocean Strategy to point out that the bike trade is marketing to just a small part of the potential market for its product.

Sanders is director of MAS Design Products.

Blue Ocean Strategy is the title of a business book by W. Chan Kim. It's subtitled 'How to Create Uncontested Market Space and Make Competition Irrelevant'.

The blue ocean in Sanders's presentation is the market potential; the bike trade operates in the smaller, 'red ocean' of male, sport enthusiasts.

Sander says, "I put on the presentation because I believe the industry focuses too much on sporty males - which may put off the vast majority of potential cyclists.

It's also about how alternative and universal bike design may be a help in attracting more people to bikes as transport.

"I expected flack from industry leaders, but quite the contrary, they seemed to agree 100 percent. But it seems to be a chicken and egg scenario: manufacturers supply what distributors ask for. The demand comes from grass-roots bike shops, which tend to be run by sporty males. Not focussing on the bigger market matters in the current economic climate."

Notes and slides from Sanders’ presentation are available here.

Defying Conventional Wisdom: Fair weather man

Blue Ocean Strategy is all about defying conventional wisdom — questioning taken-for-granted assumptions, and overstepping industry boundaries. It's a frame of mind of continuously questioning and searching for a different angle and fresh perspective. You can draw inspiration from everyday life, and train your mind by having a discerning view of the world around you. To help stimulate this sort of thinking, here is a quick, comic observation that challenges conventional wisdom.

Fair weather man

All meteorologists should be required to display their weather prediction statistics on the TV screen during a weather report. The stats would consist of the following:

• Total Number of Weather Predictions Made to Date - indicating career experience

• Overall Percentage of Correct Predictions - displaying lifetime performance

• Current Streak - showing the meteorologist’s present form of predictions

• Average Margin of Error During Career - exposing the severity of inaccurate predictions

[Video via YouTube .]

Getting the Blue Ocean strategic sequence right — Step One

Based on the positive response to our Blue Ocean Basics series, we will continue to highlight key Blue Ocean Strategy fundamentals.  The next natural topic in our series is about getting the strategic sequence right.  Today we focus on the first of six steps — identifying the price corridor of the mass.  This step, and each step to follow, will be made accessible through the Blue Ocean Strategy Basics archive.  We now turn to pages 128 - 130 of the book Blue Ocean Strategy (co-authored by Professor W. Chan Kim and Professor Renée Mauborgne):

In setting a price, all companies look first at the products and services that most closely resemble their idea in terms of form. Typically they look at other products and services within their industries. That’s still a necessary exercise, of course, but it is not sufficient to attract new customers. So the main challenge in determining a strategic price is to understand the price sensitivities of those people who will be comparing the new product or service with a host of very different-looking products and services offered outside the group of traditional competitors.

A good way to look outside industry boundaries is to list products and services that fall into two categories: those that take different forms but perform the same function, and those that take different forms and functions but share the same over-arching objective….

This approach provides a straightforward way to identify where the mass of target buyers is and what prices these buyers are prepared to pay for the products and services they currently use. The price bandwidth that captures the largest groups of target buyers is the price corridor of the mass.

Related links:

Buy the Blue Ocean Strategy book.

[Image via Sunset Chaser.]

Global Crisis – The Comic Angle: Adorable Dow Jones and Taco Bell

No matter where one turns these days, it seems nearly impossible to escape the news of the latest company or industry to unravel.  So to challenge the status quo of doom and gloom,  and to inject a layer of much needed levity, our new series presents satirical articles of different industries in crisis.  This week, we turn to two short, humorous bulletins.

From the satirical magazine Recoil :

Adorable Dow Jones surges four points
New York, N.Y. – The lovable Dow Jones Industrial Average (DJIA) climbed a tremendously cute four points today, following yesterday’s less endearing 161-point fall. While morning trading pointed to another day of poor performance, the DJIA rallied to lift everyone’s spirits, ending with the charmingly impressive four-point gain. “Every time I get a little down, the Dow just seems to inch adorably upward, slightly squelching my fears of total economic collapse,” said trader Phillip Broxton. “It’s like one excitingly divine rollercoaster ride.” Other traders report feeling similar, many saying that Tuesday’s pleasurable increase made them remove the ammunition from the firearms in their top drawers.

And from The Onion:

Rise In Rent Forces Local Taco Bell To Take On Roommate
ROCKFORD, IL—With rents soaring and operating costs at an all-time high, management at the Auburn St. Taco Bell decided earlier this month to lessen their financial burden by taking on a roommate, 24-year-old Mark Studer.

[Image via 240779.]

Blue Ocean Strategy: Go for the Biggest Catchment

Continuing in our series on reaching beyond existing demand and the three tiers of noncustomers, our concentration shifts to the final aspect:  How to choose the tier of noncustomers that you should most focus on.  Full access to this series, as well as to other core concepts from the book Blue Ocean Strategy, is accessible in the Blue Ocean Strategy Basics section of this site.  We now turn to pages 114 — 115 of the book Blue Ocean Strategy (co-authored by Professors W. Chan Kim and Renée Mauborgne):

There is no hard-and-fast rule to suggest which tier of noncustomers you should focus on and when. Because the scale of blue ocean opportunities that a specific tier of noncustomers can unlock varies across time and industries, you should focus on the tier that represents the biggest catchment at the time. But you should also explore whether there are overlapping commonalities across all three tiers of noncustomers. In that way, you can expand the scope of latent demand you can unleash. When that is the case, you should not focus on a specific tier but instead should look across tiers. The rule here is to go for the largest catchment.

The natural strategic orientation of many companies is toward retaining existing customers and seeking further segmentation opportunities. This is especially true in the face of competitive pressure. Although this might be a good way to gain a focused competitive advantage and increase share of the existing market space, it is not likely to produce a blue ocean that expands the market and creates new demand. The point here is not to argue that it’s wrong to focus on existing customers or segmentation but rather to challenge these existing, taken-for-granted strategic orientations. What we suggest is that to maximize the scale of your blue ocean you should first reach beyond existing demand to noncustomers and desegmentation opportunities as you formulate future strategies.

If no such opportunities can be found, you can then move on to further exploit differences among existing customers. But in making such a strategic move, you should be aware that you might end up landing in a smaller space. You should also be aware that when your competitors succeed in attracting the mass of noncustomers with a value innovation move, many of your existing customers may be attracted away because they too may be willing to put their differences aside to gain the offered leap in value.

It is not enough to maximize the size of the blue ocean you are creating. You must profit from it to create a sustainable win-win outcome.

Related links:

Buy the Blue Ocean Strategy book.

[Image via nattu.]

What the World Economy needs today: Blue Ocean Strategy

Is it possible to innovate and make the competition irrelevant with BOS?  This is the question posed recently to BusinessWeek’s Innovation Editor, Bruce Nussbaum.  His answer unequivocally echoes and reinforces what we have said all along, that Blue Ocean Strategy, with its simultaneous pursuit of differentation and low cost, IS THE WAY OUT of the global economic downturn, and that it is, in fact, the foundation for the future.

According to Nussbaum:

The entire global economy today requires Blue Ocean Strategy. It requires going into a whole new space — a whole new space in your mind, in your corporate strategy, in your corporate tactics — to do well, to prosper.

The old rules are changing.  They’re dissolving, they’re not working. We are really falling into a disatrous global recession... This requires a new mindset. It requires taking the old stuff ... that got us through the 90's and generated a lot of wealth a lot of prosperity, and we’re going to have to dump that.  As we deal with and come out of this recession, we are going to need in both civic culture and business culture a new framework. We are going to have to design new rules, new structures, new relationships, new values to deal with a differnt world.  We have to assume the world is going to be very very different....

[Video source BusinessWeek .]

Petal Power in the Clouds

Here on CreatingBlueOceans.com we have followed closely the progress of Nintendo — perhaps one of the most illustrative Blue Ocean Strategy success examples.  And so when we were tipped to a story about another game maker breaking out of the confines of red oceans and into the blue, we were compelled to take a closer look.  It seem that rather than competing in the overcrowded marketspace of action and adrenaline packed games which are primarily geared towards youngsters, Jenova Chen, who heads thatgamecompany, has created what might just be the industry’s antithesis — Zen-like, nature-based games which generate an emotional connection with the player.

From Exclaim! :

"I wanted to create something that was the opposite of what the media had seen videogames as, the opposite of violent, the opposite of goal-driven and points-collecting. We tried to be rebels and the success of Cloud was totally unexpected. Once we put it online, our servers crashed four times. Some people even said they cried because of the game. And a lot of people that had never even played games came to the site and downloaded Cloud. That was an epiphany. "

Ultimately, Chen's goal is not that different from Nintendo's successful "blue ocean" strategy of appealing to non-traditional gamers, except he's after a more mature audience.

"I'm just sick of laser robots and chicks. I'm tired of space marines. I want something more sophisticated. I'm making games for adults," Chen says. "A lot of us have grown old. A lot of us stop playing because we think it's not worth our time. If you have a job or you have kids, would you spend 40 hours grinding just to see an ending? The content in games today is just not useful to your life. What do you learn — how to double-jump? But if videogames can offer new type of emotions, new type of feelings, than more people can enjoy videogames.”

Related gaming industry articles from CreatingBlueOceans.com:

Nintendo’s Blue Ocean unaffected by global crisis

Nintendo’s Blue Ocean pay day — defying the global crisis

Nintendo plays with Blue Ocean Strategy and wins

Nintendo’s Blue Ocean washes over Sony

[Image via Exclaim! ]

Defying Conventional Wisdom: Meat with exercise?

Blue Ocean Strategy is all about challenging conventional wisdom – questioning taken-for-granted assumptions, and overstepping industry boundaries. It’s a frame of mind of continuously questioning and searching for a different angle and fresh perspective. You can draw inspiration from everyday life, and train your mind by having a discerning view of the world around you. Consider the following bit of comic insight as example of challenging conventional wisdom.

The increasing demand for free-range animal meat is admirable. It shows that people are concerned and compassionate about the amount of exercise animals get prior to being eaten. But is it enough to simply know that a cow or chicken is free-range or not? This label only indicates whether an animal had access to exercise, but doesn’t show to what extent it took advantage of it. So shouldn’t the general temperament of the animal (i.e. lazy, lackluster, frisky, or hyper) also be indicated on each package of free-range meat, so as to allow consumers to get the full picture?

Blue Ocean Strategy: Third-Tier Noncustomers

Continuing in our series on how to reach beyond existing demand, our focus advances to the final group of ‘noncustomers’ — called Third-Tier Noncustomers.  Once featured, each entry from this series is made accessible through the Blue Ocean Strategy Basics archive of our site.  For an overview of Third-Tier Noncustomers, we turn to pages 109 — 110 of the book Blue Ocean Strategy (co-authored by Professors W. Chan Kim and Renée Mauborgne):

The third tier of noncustomers is the farthest away from an industry’s existing customers. Typically, these unexplored noncustomers have not been targeted or thought of as potential customers by any player in the industry. That’s because their needs and the business opportunities associated with them have somehow always been assumed to belong to other markets.

It would drive many companies crazy to know how many third-tier noncustomers they are forfeiting. Just think of the long-held assumption that tooth whitening was a service provided exclusively by dentists and not by oral care consumer-product companies. Consequently, oral care companies, until recently, never looked at the needs of these noncustomers. When they did, they found an ocean of latent demand waiting to be tapped; they also found that they had the capability to deliver safe, high quality, low-cost tooth whitening solutions, and the market exploded.

This potential applies to most industries.

Related links:

Buy the Blue Ocean Strategy book.

[Image via Turbosquid.]