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

Buyer Utility Map

6 Stages of Buyer Experience Cycle

6
Levers 4.
1. Purchase 2. Delivery 3. Use 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

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 2nd 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 Motorola DoCoMo i-mode
CD-I Iridium Japan

Utility Is there exceptional

utility? Are there
compelling reasons - - +
to buy your
offering?

Price Is your price easily

accessible to the - - +
mass of buyers?

Cost Does your cost

structure meet the - - +
target cost?
Adoption Have you addressed
adoption hurdles up - +/- +
front?