Crystal HillStephen Lechtenberg

Anand McGeeAllison PurtellJason Torres

Reconstruct Market Boundaries

Challenge: Successfully identify, out of the possibilities that exist, commercially compelling blue ocean opportunities

Six Paths Framework:

Clear patters for creating blue oceansThey have general applicability across

industry sectors, and they lead companies into the corridor of commercially viable blue ocean ideas

These paths challenge the fundamental assumptions underlying many companies strategies

Six Fundamental Assumptions: Keep companies trapped in Red Oceans Define their industry similarly and focus on being

the best within itLook at their industries through the lens of

generally accepted strategic groups, and strive to stand out in the strategic group they are in

Focus on the same buyer group, whether it’s the purchaser, user, or influencer

Define the scope of the products and services offered by their industry similarly

Accept their industry’s functional and emotional orientation

Focus on the same point in time-and often on current competitive threats-in formulating strategy

Path 1:Look Across Alternative Industries

Companies compete not only with the other companies in its own industry but also with companies in those other industries that produce alternative products or services.

Alternatives are broader than substitutes -Example: StarbucksSubstitutes: House Blend, French Blend, Latin

American Blends, Asian Pacific Blends, etc. Alternatives: Tazo Teas for Coffee

Path 1: Look Across Alternative Industries, cont.

In making every purchase decision, buyers implicitly weigh alternatives, often unconsciously

Sellers rarely think consciously about how their customers make trade-offs across alternative industries

Space between alternative industries provides opportunities for value innovation

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

Examples: Companies Looking Across Alternative IndustriesHome Depot:

Offer the expertise of professional home contractors at markedly lower prices than hardware stores

By delivering the decisive advantages of both alternative industries, and eliminating or reducing everything else, they have transformed the ordinary homeowners into do-it-yourselfers

Southwest Airlines:Concentrated on driving as the alternative to flying,

provided the speed of air travel at the price of car travel

Examples cont: StarbucksStarbucks looked across alternative

industries and entered the markets of:Ice-CreamCD’s, booksDrinkware-cups, mugs, tumblersInstant Coffee Brewing Equipment

Path 2: Look Across Strategic Groups Within Industries

Figure out which factors determine customers to trade up or down from one group to anotherExamples:

Ralph Lauren Lexus

Curves For WomenWomen trade up or down between:

At home exercise programs More convenient, but easy to get distracted

High end health clubs Lots of men, expensive, inconvenient

Developed new concept Women only, more locations, smaller

buildings, cheap to join and manage.

Path 3: Look Across the Chain of Buyers

Purchasers, users, and influencers Companies usually focus on a single buyer

groupCreate blue ocean by shifting buyer group

Novo NordiskFrom insulin producers to diabetic care

companyStarbucks

Selling coffee beans to grocery stores

PATH 4: Look Across Complementary Product & Service OfferingsMost products and services are affected by

other products or servicesMany companies fail to notice thisThe key is to define a solution buyers seek

when they choose a product or serviceA simple way to do this is to think about what

happens BeforeDuringAfter

NABIHungarian bus company that applied Path 4

to U.S. transit bus industryCompetition competed on offering the lowest

purchase price for busesBut,

Designs outdatedDelivery times were lateQuality was low

NABIDiscovered it was costs that came after initial

bus was purchasedMaintenance over it’s 12 year cycleRepairs after accidentsFuel usageWear and tearRustingRising demand for cleaner air

NABI Finds Total SolutionNormally made of steel

HeavyCorrosive Hard to replace parts after accidents

NABI adopted fiberglass when making it’s buses

Solution that killed 5 birds with one stone

Fiberglass BusesCut costs by being corrosion freeLight weight cut fuel consumption and

emissionsAfter accidents they didn’t have to replace a

whole panel rather they could cut the damaged area and replace it

Lighter weight also meant lower powered engines and fewer axles which cut costs

And gave more space inside the bus

Now we must ask ourselvesContext of how our product or service is usedWhat happens before, during and after the

product or service is usedHow to eliminate problem areas through a

complementary product or service offering

Path 5: Look Across Functional or Emotional Appeal to BuyersEmotionally Oriented

Add price without enhancing functionality .Functionally Oriented

Blend commodity products with life by adding emotion.

Examples:Swatch, The Body Shop, Quick Beauty House

Quick Beauty HouseCreated a Blue Ocean in the Japanese

barbershop industry.Shift from emotional to highly functional

Eliminated the time and cost of getting a haircut

Re-defined the Japanese barbershop industry.

CemexThe world’s third largest cement producer.Created a blue ocean by shifting from

functional to emotional.Mexico’s poor didn’t have enough money to

purchase building materials.

Patrimonio HoyCreated around the traditional Mexican

system of tandas. Example:

Ten individuals contribute 100 pesos per week for 10 weeks. Lots are drawn to see who wins the 1,000 pesos. Each individual wins one time only.

Patrimonio Hoy works in the same way.

Functional OrientationService IndustriesDirect Line Group has done away with

traditional brokers. Eliminating emotional orientation

Vanguard Group, Charles Schwab

Path 6: Look Across TimeWhat companies tend to do:

Focus on same point in timePassive actionsProjecting trend itself

External Threats

What companies need to do:Look into timeDon’t predict futureHow the trend will bring Value

Assessing Trends Three principles:

1) The trends must be decisive to your business2) They must be irreversible3) They must have a clear trajectory

-Impact on your business-Work back from conclusion-Ex: EU, iTunes, Cisco, CNN, Sex and the City

Conceiving New Market Space

Think across conventional BoundariesDon’t rely on trial/error, predicting, intuitionEngage in structured process

Questions?