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

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

Looking Across Substitute Industries
• 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

Looking Across Substitute Industries
• Example 1: Home Depot
– 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

Looking Across Substitute Industries
• Example 1: Home Depot
– 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

Looking Across Substitute Industries
• Example 2: Intuit
– Quiken software allows individuals to organize,
understand, and manage their personal finances
– The pencil is a really tough and resilient
substitute

Looking Across Substitute Industries
The Value Curve in Personal Financial
Before Quicken
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price ease of use optional speed accuracy
features
personal financial software the pencil

Looking Across Substitute Industries

Looking Across Substitute Industries
• Example 2: Intuit
Reduce
What factors should be reduced well below the industry standard?
Eliminate Create
What factors should New What factors should
be eliminated that be created that the
the industry has Value industry has never
taken for granted? Curve offer?
What factors should be raised well beyond the industry standard?
Raise

Looking Across
Strategic
Groups Within
Industries

Looking Across Strategic Groups
Within Industries
• Strategic Groups
– A group of companies within an industry that
pursue a similar strategy
Industry
SG1 SG2
C1 C2 C6 C7
C3 C4 C5 C8 C9

Looking Across Strategic Groups
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

Looking Across Strategic Groups
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

Looking Across Strategic Groups
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

Looking Across Strategic Groups
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

Looking Across Strategic Groups
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

Looking Across Strategic Groups
Within Industries
• Example 4: Champion Enterprises
– Two strategic groups in the housing industry
Makers of prefabricated housing On-site developers
Advantage •Cheap •Offer variety
•Quick •High quality
Disadvantage Low quality •More expensive
•Take longer

Looking Across Strategic Groups
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
user influence

Locking across the China of buyers
An industry typically
converges on a Challenging an
single buyer group
industry’s conventional
•Pharmaceutical wisdom about which
industry Buyer Group to target
•Clothing industry
•Office equipment
industry

Example1 : Bloomberg
• On-line financial information industry
focused on purchasers- the IT
managers
• Bloomberg focused on users- the
traders and analysts

Locking across the China of buyers
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

Locking across the China of buyers
Example1 : Bloomberg
Buy focusing on users, Bloomberg was also able to
see the paradox of traders’ and analysts’ personal
lives
• Purchasing service
• Travel arrangements
• Wine information

Locking across the China of buyers
Example1 : Bloomberg
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price coverage of coverage of terminal on-line historical lifestyle
price news ease of use analytics price data information
quotes
Bloomberg on-line financial information industry

Locking across the China of buyers
Example2- Philips Lighting Company
Re- created its industrial lighting business by shifting
downstream from purchases to influencers
Traditionally Philips
Influencers-CFOs
Corporate purchasing and public relations
managers- who care people- high
about how much and disposal costs at
how long the end of a lamp’s
life

Locking across the China of buyers
Example2- Philips Lighting Company
• Philips introduced the Alto, an environmentally friendly bulb
• Promotes to CFOs and to public relations people, using those
influencers to drive sales

Looking Across Complementary
Product and Service Offerings

Looking Across Complementary
Product and Service Offerings
• 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
BEFORE

Looking Across Complementary
Product and Service Offerings
Example 1- Movie theater

Looking Across Complementary
Product and Service Offerings
Example 2 -Borders Books & Music and Barnes & Noble
• 1980s, the U.S. retail-book industry appeared to be in
decline
• The large chains of mall bookstores were engaged in
intense competition

Looking Across Complementary
Product and Service Offerings
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%

Example 2 -Borders Books & Music and Barnes & Noble
Purchasing a book also includes related
(complementary)activities: searching and hunting, evaluating
potential purchases, and actually sampling books
The staffs were generally trained as Hired staff with extensive knowledge of
cashiers and stock clerks book to help customers make selection
In the smell stores, selection was limited, Superstore stock more than 150,000 titles,
frustrating the search for an exciting title whereas the average bookstore contains
around 20,000
Discourage browsing, forcing customers Superstore are furnish with armchairs,
to assume a large part of the risk to buy reading tables, and sofas to encourage
the book people not just to dip into a book but to
read them through
Home become less likely to be a peaceful Coffee bars, classical-music, and etc
oasis where a person can enjoy a
wonderful book

Looking Across Complementary
Product and Service Offerings
Example 2 -Borders Books & Music and Barnes & Noble
• 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

Looking Across Complementary
Product and Service Offerings
50 Example 2 -Borders Books & Music and
45 Barnes & Noble
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Borders and Barnes & Noble mall bookstores independent bookstores

Looking Across Functional or
Emotional Appeal to Buyer

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

Functional →Emotional
Example1 : Starbucks
 Coffee by can →
Coffee by bar
 Turn Paper-thin profit
margins and low
growth to $3-per- cup
price seemed
reasonable

Functional →Emotional
Example2: Swatch
 Turn watches budget
into fashion
accessories
 Make repeat
purchases
→ For fit their different
moods and looks

Emotional→ Functional
Example1: The Body Shop
 Emphasis on
natural
ingredients
and healthy living
 Spend less on
packaging and
advertising

Emotional→ Functional

Emotional→ Functional
Example2 : Direct Line Insurance
 Relationship business
like banking ,insurance
or investing
 Emphasis on
eliminating paperwork
and paying claims rapidly
 cost saving for lower
insurance premiums

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
Example1 : Enron
 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

Looking Across Time
Example2 :Cisco System
 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

Conclusion

The Conventional Head-to-Head competition Creating New market space
Boundaries of
Competition
Industry Focuses on rivals within its Looks across substitute
industry industries
Strategic group Focuses on competitive position Looks across strategic
within strategic group groups within its industry
Buyer group Focus on better serving the Redefines the buyer group
buyer group of the industry
Scope of product and Focuses on maximizing the value Looks across to
service offerings of product and service offering complementary product and
within the bounds of its industry service offerings that go
beyond the bounds of its
industry
Functional-emotional Focuses on improving price- Rethinks the functional-
orientation of industry performance in line with the emotional orientation of its
functional-emotional orientation industry
of its industry
Time Focus on adaption to external Participates in shaping
trends as they occur 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!