Chain of Buyers The chain of buyers is everyone who influences the purchase decision. Incumbents often create blue oceans within their core businesses. Chan Kim and Renée Mauborgne suggest Blue Ocean Strategy: developing uncontested market space that makes the competition irrelevant. Knocking out one of these pillars jeopardizes the long-term sustainability of the strategy. How secure is the transaction? Nintendo revealed their Blue Ocean Strategy during an E3 press conference during the hype build-up of the Wii.
Indeed, Apple, is at risk of following this path itself, with many decrying the lack of innovation since the passing of Steve Jobs. The noncustomer framework applies to any blue ocean strategy, really, because by definition the value curve differs from the existing industry, which means it pulls together new customers from within and outside the industry. Do buyers have to arrange delivery themselves? From Strategic Pricing to Target Costing Once you have your strategic price, decide what profit margin you want, and arrive at your target cost. Most blue oceans are created from within, not beyond, the red oceans of existing industries. Your product should create clear value in one or more of these spaces. Technology innovation is not necessary for blue ocean strategy.
Can you combine the best factors into a new offering, while eliminating everything else? Force yourself to question assumptions about what customers value, and try to separate customers into different segments. These were used as interludes for live theater. What frictions exist outside the immediate sphere of your product? By training specialised staff, the company operated with less staff than would usually be needed. Therefore, pricing to capture more users will help maximize profits. A former street performer, Guy Laliberté decided to escape the red ocean of circuses to create a blue ocean of theatrical entertainment: Cirque du Soleil.
As with alternative industries above, consider why customers trade up and down between strategic groups, and concentrate on delivering those factors while eliminating needless ones. And with a single color and single model, repair was more straightforward. This was low-cost but relatively slow. In classical business strategy, companies can compete either by creating higher-value products at higher cost, or undercut competitors at lower cost. Starbucks separated itself from the competition by combining differentiation, low cost and a customer-oriented approach from the beginning of its operation.
Buying cement for a wedding represented building rooms where more happiness could be created. But the importance of the people proposition is less obvious, particularly for top-down managers, as employees and partners can sabotage the project without buy-in. These kinds of products drive the organization culture and the future profits. To focus on the red ocean is therefore to accept the key constraining factors of war—limited terrain and the need to beat an enemy to succeed—and to deny the distinctive strength of the business world: the capacity to create new market space that is uncontested. Do get more details in our. They compete on price and function, or on feelings. He reallocated officers to these areas, where they had a disproportionately large impact on crime metrics.
Do you feel like your strategy differs little from the competition surrounding you? Here, cost and value are seen as trade-offs and a firm chooses a distinctive cost or differentiation position. But they faced blocks in two spaces above. Purchase Delivery Use Supplements Maintenance Disposal Customer productivity The Six Utility Levers Simplicity Convenience Risk Fun and image Environmental friendliness Chapter 6. Do you need other products to make the product work? Key questions: What happens before, during, and after your product is used? Its 100% donation promise recruits missionaries who feel comfortable supporting the cause. The aim of value innovation, as articulated in the article, is not to compete, but to make the competition irrelevant by changing the playing field of strategy. Instead they aim to make the competition irrelevant. All companies rise and fall.
Marketplaces like eBay and Uber are examples. Cemex injected emotion in its product with a campaign portrarying building home additions as an emotional step forward. To succeed, blue ocean strategy requires 1 doing things in a new way that 2 delivers a leap in value to customers. Instead of fighting head-on with your competitors, how do you create uncontested market space and make the competition totally irrelevant? Starbuck also championed professionalism and excellent customer service, for example, offering personalised coffee cups. The framework consists of 4 simple and direct questions that challenge current business models. This is a quite simple process that allows us to figure out how we should modify the elements of the curve. If functional, can you inject emotion into your product to grow demand and highlight additional value from your product? The third component is where the actual journey towards a shifting strategy begins.
Often, the underlying technology already exists—and blue ocean creators link it to what buyers value. Axis The way it works is by placing a horizontal axis indicating the main competing factors. Why do they use them? Reconstructing market boundaries in a systematic way The six paths framework can be used to start rethinking what a market looks like and where things may be blocking it. Can you add a complement to solve those pain points? Boston: Harvard Business School Press. Simultaneously increase value and decrease cost. Buyer Utility Does your business idea really add superior customer value? Microsoft has been considered to be largely milking its Office and Windows software, having failed to dominate major new spaces like search engines Google , social networking Facebook, Linkedin, Twitter , devices Apple. Over time, markets become crowded, products become commodities competing on price, and profits dissipate.
He proposed that a combination of differentiation and low cost might be necessary for firms to achieve a sustainable competitive advantage. Key questions: What trends are irreversible and will impact your industry? The also comes with many useful resources including a detailed breakdown of the concepts, tools, frameworks and additional tips. They aim to break, not make, the value-cost trade-off. For instance, cinemas and restaurants have superficially different forms, but they serve the same purpose of having a night out. What are the key reasons for this block? By facilitating this trade, he gained credibility with both departments. Industry Factors Each industry factor indicates a characteristic of the product or service that consumers enjoy, or at least expect to receive during their experience. The good old days were just fine — why do we need to change? The Human Element The human element is a fundamental part of any innovation and transformation process.
Each of the criteria below must be addressed in sequence before a commercially-viable blue-ocean strategy can be borne. Put on the Eliminate-Reduce-Raise-Create Grid: Eliminate Wine terminology Marketing Aging qualities Raise Price vs. In contrast, Callaway asked why otherwise athletic and wealthy people did not pick up golf. So you trade off cost vs value, and you compete for a share of a fixed pie. Ford did this with the Model T. If we would like to have a blue ocean shift in the luxury automotive industry, we could think of how to redesign what does luxury vehicle means in order to provide more of the luxury characteristics and remove those elements that are considered obsolete in order to provide a lower point of entry. Value innovation is the simultaneous pursuit of differentiation and low cost, creating value for both the buyer, the company, and its employees, thereby opening up new and uncontested market space.