Blue Ocean Strategy Chapter 6 Get the Strategic

Blue Ocean Strategy Chapter 6: Get the Strategic Sequence Right TEAM 3 SARAH ELLENS COLEMAN CROOK ASHTON DAVIS JESSICA CRUMPTON KEVIN LEVESQUE

The Right Strategic Sequence �Buyer Utility �Price �Cost �Adoption

Steps �Utility- is there a reason to buy it? If no, Park idea or rethink �Price- price should not determine purchase Should still attract buyers �These two address revenue side of a business model and ensure a leap in buyer value �Buyer Value=Utility-Price

Steps cont. �Cost- can you produce the product at target cost and still have a healthy profit margin? Strategic Price= Price easily accessible to the mass of target buyers Cost should not drive prices, change idea or innovate �Adoption hurdles- done in the beginning to ensure success Key because of significant departure from red oceans

Testing for Exceptional Utility �Phillips CD-I –”imagination Machine” video machine, music system, game player and teaching tool �Do not assume leading technology equals sales (Virgin space flight) �Value innovation does not mean technological innovation

Buyer Utility Map �Outlines levers companies can pull to deliver exceptional utility to buyers as well as experiences can have with the product or service �Identify range of spaces product of service may fill

Buyer Utility Map 6 Stages of Buyer Experience Cycle 6 Levers 1. Purchase 2. Delivery 3. Use 4. Supplements 5. Maintenance 6. Disposal Customer Productivity Simplicity Convenience Risk Fun and Image Environmental Friendliness

Six Stages of the Buyer Experience Cycle �From purchase to disposal �Each stage managers can ask a set of questions to gauge quality of experience 1. Purchase- how long to find? Placement? Secure transaction environment? Timely? 2. Delivery- Time? Unpack/Install difficulty? Arrange delivery/difficulty? 3. Use- Training? Storage? Effective? Bells and whistles? 4. Supplements- Need other parts/costs? Time? Pain? 5. Maintenance- Required? Upgrade easy? Cost? 6. Disposal- Create waste? Disposal easiness? Legal issues? Cost?

The Six Utility Levers: the ways companies can unlock exceptional utility for buyers.

The Utility Levers �Customer productivity �Simplicity �Convenience �Risk �Fun and image �Environmental friendliness

Stages of Buyers experience cycle The Buyer Utility Map The buyers experience broken down into six stages. 1. Purchasing 2. Delivery 3. Use 4. Supplements 5. Maintenance 6. Disposal

Southwest Airlines � Purchase online, over-the-phone, at the airport How close is the airport? � Delivery – among the largest airline companies Southwest had the 2 nd best on time record � Use – Product requires pilots and service crew

Southwest Airlines continued… �Supplements – gas, airport, and human resources �Maintenance – product needs continual check-ups �Disposal – Planes need space and time

The Price Corridor of the Mass

Identify the Price Corridor of the Mass �Different form, Same function: Many companies that create blue oceans attract customers from other industries who use a product or services that performs the same function as the new one but takes a very different physical form. �Different form and function, Same objective: Listing the croups of alternative products and services allows mangers to see the full range of buyers they can poach from other industries as well as from nonindustrial.

This 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 currently in use. Southwest Airlines has a prices corridor of the mass covered the group of people paying, on average, $400 to by an economy-class short-haul ticket to about $60 for the cost of going the same distance by car.

Specify a Level Within the Price Corridor 1) Degree to which the product or services is protected legally through patents or copy rights 2) Degree to which the company owns some exclusive asset or core capability, such as an expensive production plant, that can block imitation.

From Strategic Pricing to Target Costing To maximize the profit potential of a blue ocean idea, a company should start with the strategic price and then deduct its desired profit from the price to arrive at the target cost.

From strategic pricing to target costing �Addresses the profit side of the business model �Strip out costs �Model T – Assembly line �Three principal levers to hit the cost target

First Principal Lever �Streamlining operations �Introducing cost innovations from manufacturing to distribution �Swatch

Second Principal Lever �Partnering with other companies �Trying to carry out all activities themselves �Fast and effective securing of capabilities �Sometimes these first two levers are not enough to hit target cost

Third Principal Lever �Changing the pricing model of the industry �Videotapes– from selling to renting �Even after target cost is met, pricing innovation may still be pursued

Stakeholders No matter the business model success isn’t guaranteed in a blue ocean idea. Fear and resistance may arise from: Employees Business Partners The General Public

Employees Explain the changes to the employees, address potential threats and how those will be resolved. Example: Merrill Lynch announcing online brokerage service.

Business Partners Those that have a vested interest want to know how the implementation of a new business idea will effect current revenues from existing offerings. Example: Southwest offering international flights

The General Public Hesitation among the general public can be triggered by a product that is very new and innovative; therefore threatening social or political norms. Example: Monsanto producing genetically modified foods.

Blue Ocean Idea Index Philips CD-I Utility Price Cost Adoption Is there exceptional utility? Are there compelling reasons to buy your offering? Motorola Iridium Do. Co. Mo i-mode Japan - - + Is your price easily accessible to the mass of buyers? - - + Does your cost structure meet the target cost? - - + Have you addressed adoption hurdles up front? - +/- +