create new market space

Creating New Market Space

967307 Winnie

967308 Sabrina

967311 Joyce

Why?

• Competing head-to-head can be cutthroat,

especially when markets are flat or growing

slowly

• Innovation is the only way they can break

free from the competitive pack

• Creating new market space requires a

different pattern of strategic thinking

How?

• How companies can systematically pursue value

innovation by looking across the conventionally

defined boundaries of competition

– Across substitute industries

– Across strategic groups

– Across buyer groups

– Across complementary product and service offerings

– Across the functional-emotional orientation of an

industry

– Across time

Looking Across Substitute Industries

• A company competes not only with the companies in its

own industry but also with companies in those other

industries that produce substitute products or services

• The space between substitute industries provides

opportunities for value innovation

• Keep the analysis at the industry level, not the company

level



• Example 1: Home Depot

– The do-it-yourself market in North America

– $24 billion business

– Creating over 130,000 new jobs in more than 660

stores

– Over 1,100 stores in 2000



– Why would customers choose to hire

contractors or buy tools and materials and do

the work themselves?

Hire contractors Do-it-yourself

Advantage Specialized know-how Save money

Disadvantage Expensive Lack know-how



– Knowledgeable service

• Recruit sales assistants with

significant trade experience

• Bolster the competence and

confidence of customers

– Eliminate costs

• Employing a self-service

warehouse format

• Generating economies of scale


• Example 2: Intuit

– Quiken software allows individuals to organize,

understand, and manage their personal finances

– The pencil is a really tough and resilient

substitute

05

101520253035404550

price ease of use optional features

speed accuracy

The Value Curve in Personal Financial Before Quicken

personal financial software the pencil



• Example 2: Intuit

Raise

What factors should be reduced well below the industry standard?

What factors should be raised well beyond the industry standard?

What factors should be eliminated that

the industry has taken for granted?

What factors should be created that the industry has never

offer?

New Value Curve

Reduce

CreateEliminate

Looking Across

Strategic

Groups Within

Industries

• Strategic Groups

– A group of companies within an industry that

pursue a similar strategy

Industry

Looking Across Strategic Groups

Within Industries

SG2

C7C6

C8 C9

SG1

C1

C3 C4

C2

C5


Within Industries

• Example 1: Polo Ralph Lauren

– Worldwide sales exceeding $5 billion

– The first American design house to successfully

take its brand worldwide

– New market: high fashion with no fashion


Within Industries

• Example 1: Polo Ralph Lauren– Two strategic groups in high-end clothing market

Haute couture Classical line

Advantage Emotional value Lasting quality

Disadvantage Rapidly outdated Lack of fashion


Within Industries

• Example 1: Polo Ralph Lauren– Its designer name

– The elegance of its stores

– The luxury of its materials

– Its updated classical look

– Price is more adequate


Within Industries

• Example 2: Toyota’s Lexus

– The quality of the high-end

Mercedes, BMW, and Jaguar

– At a price closer to the lower-

end Cadillac and Lincoln


Within Industries

• Example 3: Sony Walkman

– Boom boxes

• The acoustics and the cool image

– Transistor radio

• The low price and the convenient size

and weight

– Attract new customers like joggers

and commuters


Within Industries

• Example 4: Champion Enterprises

– Two strategic groups in the housing industry

Makers of prefabricated housing On-site developers

Advantage •Cheap

•Quick

•Offer variety

•High quality

Disadvantage Low quality •More expensive

•Take longer


Within Industries

• Example 4: Champion Enterprises

– Quick to build

– Benefit from EOS and lower costs

– Allow buyers to choose such high-end options

as fireplaces, skylights, and vaulted ceilings

– Attract more lower-to-middle-income

consumers and some affluent people

Locking across the Chain of

buyers

Locking across the China of buyers

The roles in the chain of

customers frequently hold

different definition of value

purchase

influenceuser


An industry typically converges on a single buyer group

•Pharmaceutical industry

•Clothing industry

•Office equipment industry

Challenging an

industry’s conventional

wisdom about which

Buyer Group to target

• On-line financial information industry

focused on purchasers- the IT

managers

• Bloomberg focused on users- the

traders and analysts

Example1 : Bloomberg


• Bloomberg designed a system specifically to offer traders

better value, one with easy-to-use terminals and

keyboards labeled with familiar financial term

• Added a built-in analytic capability that works with the

press of a button



Buy focusing on users, Bloomberg was also able to

see the paradox of traders’ and analysts’ personal

lives• Purchasing service

• Travel arrangements

• Wine information



05

101520253035404550

price coverage of price

quotes

coverage of news

terminal ease of use

on-line analytics

historical price data

lifestyle information

Bloomberg on-line financial information industry



Example2- Philips Lighting Company

Re- created its industrial lighting business by shifting

downstream from purchases to influencers

Traditionally Philips

Corporate purchasing

managers- who care

about how much and

how long

Influencers-CFOs

and public relations

people- high

disposal costs at

the end of a lamp’s life


• Philips introduced the Alto, an environmentally friendly bulb

• Promotes to CFOs and to public relations people, using those

influencers to drive sales

Example2- Philips Lighting Company

Looking Across Complementary

Product and Service Offerings

BEFORE



• Untapped value is often hidden in complementary

products and service

• The key 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

Example 1- Movie theater





• 1980s, the U.S. retail-book industry appeared to be in

decline

• The large chains of mall bookstores were engaged in

intense competition

Example 2 -Borders Books & Music and Barnes & Noble



Borders and B&N created a new format-

book superstore

When either company enters a market, the overall

consumption of books often increases by more than 50%


Purchasing a book also includes related

(complementary)activities: searching and hunting, evaluating

potential purchases, and actually sampling books

The staffs were generally trained as cashiers and stock clerks

Hired staff with extensive knowledge of book to help customers make selection

In the smell stores, selection was limited,frustrating the search for an exciting title

Superstore stock more than 150,000 titles, whereas the average bookstore contains around 20,000

Discourage browsing, forcing customers to assume a large part of the risk to buy the book

Superstore are furnish with armchairs, reading tables, and sofas to encourage people not just to dip into a book but to read them through

Home become less likely to be a peaceful oasis where a person can enjoy a wonderful book

Coffee bars, classical-music, and etc




• Book superstores

redefined the scope of

the service they offer

• Transformed the product

from the book itself into

the pleasure of reading

and intellectual

exploration




0

5

10

15

20

25

30

35

40

45

50

Borders and Barnes & Noble mall bookstores independent bookstores

Example 2 -Borders Books & Music and

Barnes & Noble

Looking Across Functional or

Emotional Appeal to Buyer

Changing the functional-emotional

orientation of their industry can

find new market space

• Functional : compete on price and function

• Emotional : compete on feeling

Looking Across Functional or

Emotional Appeal to Buyer

Functional →Emotional

Coffee by can →

Coffee by bar

Turn Paper-thin profit

margins and low

growth to $3-per- cup

price seemed

reasonable

Example1 : Starbucks

Functional →Emotional

Turn watches budget

into fashion

accessories

Make repeat

purchases

→ For fit their different

moods and looks

Example2: Swatch

Emotional→ Functional

Emphasis on

natural

ingredients

and healthy living

Spend less on

packaging and

advertising

Example1: The Body Shop


Relationship business

like banking ,insurance

or investing

Emphasis on

eliminating paperwork

and paying claims rapidly

cost saving for lower

insurance premiums

Example2 : Direct Line Insurance

Looking Across Time

Looking Across Time

Looking at future trends with

the right perspective can

unlock innovation that creates

new market space

Trends: new technology, the raise of a new

lifestyle, or a change in regulatory or special

environments

Looking Across Time

Found a trend of the

deregulation of the gas

industry

Purchased regional

gas-pipeline companies

across the nation and tied

them together

Bought on cheap price

and sold on expensive

price

Example1 : Enron

Looking Across Time

Found the growing

demand for high-speed

data exchange

Cisco’s routers, switches,

and other net working

devices were designed to

create fast data exchange

Example2 :Cisco System

Conclusion

The Conventional Boundaries of Competition

Head-to-Head competition Creating New market space

Industry Focuses on rivals within its industry

Looks across substitute industries

Strategic group Focuses on competitive position within strategic group

Looks across strategic groups within its industry

Buyer group Focus on better serving the buyer group

Redefines the buyer group of the industry

Scope of product and service offerings

Focuses on maximizing the value of product and service offering within the bounds of its industry

Looks across to complementary product and service offerings that go beyond the bounds of its industry

Functional-emotionalorientation of industry

Focuses on improving price-performance in line with the functional-emotional orientation of its industry

Rethinks the functional-emotional orientation of its industry

Time Focus on adaption to external trends as they occur

Participates in shaping external trends over time

Discussion

Question 1.

For those companies that would like to focus on functional-

emotional orientation to create new markets, like Starbucks

or Swatch, what should they do in order to create new value

from this approach? Any suggestions on their action plan?

Educate the customer

• Advertisement

• Change the atmosphere in the store

• Change the package style of the product

• Train the clerk to service customer emphasize on function orientation

Question 2.

While demand is decreasing in the undergraduate

education market in Taiwan, one of the suggestions is to

promote students from Mainland China to study in Taiwan.

Does this suggestion a good one according to the

analytical framework provided in the case? Discuss.

• To promote students from Mainland China is not a good

suggestion→this is the old hand-to-hand competition

• New suggestion:

– Substitute → Virtual campus

– Buyer group→ on-the-job graduate student

– Strategy group→ hire famous professor

THANK YOU FOR YOUR

ATTENTION!

create new market space

Business

industries strategic

substitute industries

value industry

buyer groups

industry standard

substitute products

thethe industry

industry level