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Blue Ocean Strategy
How to Create
Uncontested Market Space
and Make the Competition Irrelevant
[ W. Chan Kim & Renée Maubo...
”Competition in steady markets can be cutthroat
People involved in this competition generally
dislike it and want to break...
”Creating New Market Space”
jesholt.dk
Creating New Market Space
• Create products or services for which there
are no direct competitors
• Break free from ”how w...
Look across conventional boundaries..
Substitute industries
Strategic groups within an industry
Buyer groups
Complimentary...
TOOLS & TECHNIQUES
jesholt.dk
A NEW
VALUE
CURVE
ELIMINATE
RAISE
REDUCE
CREATE
The Four Actions Framework
jesholt.dk
ELIMINATE
• What factors should be
eliminated that the
industry has taken for
granted?
RAISE
• What factors should be
rais...
Value innovation
Basic premise
behind Blue
Ocean Strategy
Pushing for a
quantum leap
in buyer value
while pushing
for a sh...
Red Ocean versus Blue Ocean Strategy
Red Ocean Strategy
Compete in existing market space
Beat the competition
Exploit exis...
The 6 Principles of Blue Ocean Strategy
Formulation principles Risk factor each principle attenuates
Reconstruct market bo...
Case: the US wine industry
jesholt.dk
Strategy canvas of US wine industryRelativelevel
Key Elements of Product, Service, and Delivery
Premium Wines
Budget Wines...
How do you get this guy to drink wine?
jesholt.dk
ERRC grid by [yellow tail]
Eliminate
• Enological terminology
and distinctions
• Aging qualities
• Above-the-line-marketin...
Strategy canvas by [yellow tail]Relativelevel
Key Elements of Product, Service, and Delivery
Premium Wines
Budget Wines
[y...
jesholt.dk
“People can’t be bothered by all the hype and
nonsense of wine. They just want to drink it.“
John Casella, Managing Direct...
LOOK ACROSS SUBSTITUTE INDUSTRIES
jesholt.dk
Substitute industries
Customer thinking Industry thinking
Identify how customers make
trade-offs between industries
jeshol...
Your choices before..
Contactors
• Expensive
• Invade your home
• Somewhat careless
• Take day off from work
• They have k...
Identify value, reduce everything else
• Bolster confidence in average home owner
• Train competent people to coach custom...
Your choices before..
Financial software The pen
• Very simple
• Low price
• Inaccuate
• Highly accurate
• Complex
• Expen...
Identify value, reduce everything else
Intuit Quicken
• Released in 1984
• 42 competing products
• Cheap ($29 vs. $299)
• ...
Industry value curve
Price Ease of use Optional
features
Speed Accuracy
Relativelevel
Key Elements of Product, Service, an...
Quicken value curve
Price Ease of use Optional
features
Speed Accuracy
Relativelevel
Key Elements of Product, Service, and...
LOOK ACROSS STRATEGIC GROUPS
WITHIN INDUSTRIES
jesholt.dk
Strategic groups
• A group of companies
within an industry that
pursue same strategy
• In most industries,
the fundamental...
Strategic groups
Price
Performance
• Fierce competition within
strategic groups
• Key: understand what makes
customers tra...
jesholt.dk
Case: Curves
• Texas-based womens
fitness club franchise
• Entered a perceived
mature market but
unlocked a huge,
untapped...
ERRC grid by Curves
Eliminate
• Locker rooms, juice bars,
saunas, pools, etc
• Male athletes, mirrors,
everything unfriend...
Curves value curveRelativelevel
Key Elements of Product, Service, and Delivery
Curves
Home Exercise
Healt Clubs
High
Low
j...
Curves numbers
• Investment down from $500K - 1M to $50K
• Monthly user fee down from $100 to $30
• Franchises profitable ...
LOOK ACROSS THE CHAIN OF
BUYERS
jesholt.dk
Buyer groups
Industries typically converge on a single
buyer group, for example:
Pharmaceutical
Influencers, i.e.
Doctors
...
The usual suspect..
Buyer groups
Executive value:
Preference for
own customers
Buyer value:
Competitive
pricing and
speedy...
jesholt.dk
The insulin industry
Focus on influencers
• Historic focus on the
doctors as customers
• Focus on purer insulin until
”hum...
ERRC grid by Novo Nordisk
Eliminate
• Vials and syringes
• Social stigmatism
Raise
• User friendliness
• Convenience
Reduc...
Novo Nordisk value curveRelativelevel
Key Elements of Product, Service, and Delivery
Industry
Novo Nordisk
High
Low
jeshol...
Case: Novo Nordisk
From insulin producer to diabetes care company
jesholt.dk
LOOK ACROSS COMPLEMENTARY
PRODUCT AND SERVICE OFFERINGS
jesholt.dk
Complimentary offerings
What happens
before?
What happens
during?
What happens
after?
• Untapped value is often hidden in ...
What happens...
Before
• Babysitting
• Car parking
• Dining
• Like/check in
During
• Wardrobe
• Program
• Drinks
• Bar/pau...
What happens...
Before
• Ground
transportation
• Tax free
shopping
During
• In-flight services
• Entertainment
• Air shop
...
Before Barnes & Noble (and Borders),
people came, bought a book and left..
Before
• Recommendations
• Searching
During
• E...
ERRC grid by Barnes & Noble
Eliminate
• The risk of buying ”the
wrong” book
• Vain book search
Raise
• Selection
• Support...
Barnes & Noble value curveRelativelevel
Key Elements of Product, Service, and Delivery
Mall bookstores
Independent booksto...
Barnes & Noble
Redefine the scope of service
Turning the book as a product
into the pleasure of reading
and intellectual e...
LOOK ACROSS FUNCTIONAL OR
EMOTIONAL APPEAL TO BUYERS
jesholt.dk
Appeal to buyers
Functional, competition on
price/fuction and utility
Emotional, competition on
feelings
jesholt.dk
Challenge historical thinking
Industries competition converge to
functional or emotional appeal
”Industry thinking” leads
...
From Functional
• Keep track of time
• Add functionality
• Improve accuracy
• Digitalize
• Citizen & Seiko
To Emotional
• ...
QB House
From Emotional
• Ritual
• Numerous hot towels
• Massage
• Coffee or tea
• Skin treatments
• Blow drying
• Shaving...
ERRC grid by QB House
Eliminate
• Rituals
• Reservation desk
• Cash and change
Raise
• Hygiene
• Value for money
Reduce
• ...
QB House value curveRelativelevel
Key Elements of Product, Service, and Delivery
Barber Shop
QB House
High
Low
jesholt.dk
What about growth potential?
jesholt.dk
jesholt.dk
LOOK ACROSS TIME
jesholt.dk
Look across time
Most companies
• adapt trends incrementally
• focus on the trend itself (tech, legislation, etc.)
• proje...
Trends must..
• Be decisive to your business
• Be Irreversible
• Have a clear trajectory
jesholt.dk
Future trend value curveRelativelevel
Key Elements of Product, Service, and Delivery
Now
Trend
High
Low
jesholt.dk
Trends must..
• Be decisive to your business
• Be Irreversible
• Have a clear trajectory
jesholt.dk
jesholt.dk
Blue Ocean Strategy
• W. Chan Kim & Renée Mauborgne
– Almost a decade of research
• Blue Ocean Strategy
HBS Press, ISBN
• ...
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Blue Ocean Strategy

The concepts behind Blue Ocean Strategy are tangible and well documented. They are relatively easy to understand and apply to innovation processes and business development.

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Blue Ocean Strategy

  1. 1. Blue Ocean Strategy How to Create Uncontested Market Space and Make the Competition Irrelevant [ W. Chan Kim & Renée Mauborgne ]
  2. 2. ”Competition in steady markets can be cutthroat People involved in this competition generally dislike it and want to break free from the pack but they simply don’t know where to begin” Kim and Mauborgne, Harvard Business Review, # 99105 jesholt.dk
  3. 3. ”Creating New Market Space” jesholt.dk
  4. 4. Creating New Market Space • Create products or services for which there are no direct competitors • Break free from ”how we compete in our industry or in our strategic group” thinking • Look at familiar data from a new perspective jesholt.dk
  5. 5. Look across conventional boundaries.. Substitute industries Strategic groups within an industry Buyer groups Complimentary product and service offerings Functional/emotional orientation of industry Even time jesholt.dk
  6. 6. TOOLS & TECHNIQUES jesholt.dk
  7. 7. A NEW VALUE CURVE ELIMINATE RAISE REDUCE CREATE The Four Actions Framework jesholt.dk
  8. 8. ELIMINATE • What factors should be eliminated that the industry has taken for granted? RAISE • What factors should be raised well beyond the industry standard? REDUCE • What factors should be reduced well below the industry standard? CREATE • What factorys should be created that the industry has never offered? Or The ERCC grid jesholt.dk
  9. 9. Value innovation Basic premise behind Blue Ocean Strategy Pushing for a quantum leap in buyer value while pushing for a sharp drop in the industry cost structure  Buyer Value Costs  Value Innovation jesholt.dk
  10. 10. Red Ocean versus Blue Ocean Strategy Red Ocean Strategy Compete in existing market space Beat the competition Exploit existing demand Make the value-cost trade-off Align the whole system of a firm’s activities with its strategic choice of differentiation OR low cost Blue Ocean Strategy Create uncontested market space Make the competition irrelevant Create and capture new demand Break the value-code trade-off Align the whole system of a firm’s activities in pursuit of differentiation AND low cost jesholt.dk
  11. 11. The 6 Principles of Blue Ocean Strategy Formulation principles Risk factor each principle attenuates Reconstruct market boundaries  Search risk Focus on the big picture, not the numbers  Planning risk Reach beyond existing demand  Scale risk Get the strategic sequence right  Business model risk Execution principles Risk factor each principle attenuates Overcome key organizational hurdles  Organizational risk Build execution into strategy  Management risk jesholt.dk
  12. 12. Case: the US wine industry jesholt.dk
  13. 13. Strategy canvas of US wine industryRelativelevel Key Elements of Product, Service, and Delivery Premium Wines Budget Wines High Low jesholt.dk
  14. 14. How do you get this guy to drink wine? jesholt.dk
  15. 15. ERRC grid by [yellow tail] Eliminate • Enological terminology and distinctions • Aging qualities • Above-the-line-marketing Raise • Price versus budget wines • Retail store involvement Reduce • Wine complexity • Wine range • Vineyeard prestige Create • Easy drinking • Ease of selection • Fun and adventure jesholt.dk
  16. 16. Strategy canvas by [yellow tail]Relativelevel Key Elements of Product, Service, and Delivery Premium Wines Budget Wines [yellow tail] High Low jesholt.dk
  17. 17. jesholt.dk
  18. 18. “People can’t be bothered by all the hype and nonsense of wine. They just want to drink it.“ John Casella, Managing Director jesholt.dk
  19. 19. LOOK ACROSS SUBSTITUTE INDUSTRIES jesholt.dk
  20. 20. Substitute industries Customer thinking Industry thinking Identify how customers make trade-offs between industries jesholt.dk
  21. 21. Your choices before.. Contactors • Expensive • Invade your home • Somewhat careless • Take day off from work • They have know-how! Hardware store • Local, often small • Lack of hands-on support • Costly overhead • No materials, appliances, ... • Nice display shelves jesholt.dk
  22. 22. Identify value, reduce everything else • Bolster confidence in average home owner • Train competent people to coach customers • Eliminate costly location and features • Sponsor in-store training facilities • Provide an all-you-need experience • Revolutionize do-it-yourself market jesholt.dk
  23. 23. Your choices before.. Financial software The pen • Very simple • Low price • Inaccuate • Highly accurate • Complex • Expensive jesholt.dk
  24. 24. Identify value, reduce everything else Intuit Quicken • Released in 1984 • 42 competing products • Cheap ($29 vs. $299) • Easy (no accounting jargon) jesholt.dk
  25. 25. Industry value curve Price Ease of use Optional features Speed Accuracy Relativelevel Key Elements of Product, Service, and Delivery The pencil Personal financial software High Low jesholt.dk
  26. 26. Quicken value curve Price Ease of use Optional features Speed Accuracy Relativelevel Key Elements of Product, Service, and Delivery The pencil Personal financial software Quicken High Low jesholt.dk
  27. 27. LOOK ACROSS STRATEGIC GROUPS WITHIN INDUSTRIES jesholt.dk
  28. 28. Strategic groups • A group of companies within an industry that pursue same strategy • In most industries, the fundamental strategic differences are captured by a small number of strategic groups jesholt.dk
  29. 29. Strategic groups Price Performance • Fierce competition within strategic groups • Key: understand what makes customers trade up or down jesholt.dk
  30. 30. jesholt.dk
  31. 31. Case: Curves • Texas-based womens fitness club franchise • Entered a perceived mature market but unlocked a huge, untapped strategic group • The best from high-end health clubs and low-end home exercise and reduced everything else jesholt.dk
  32. 32. ERRC grid by Curves Eliminate • Locker rooms, juice bars, saunas, pools, etc • Male athletes, mirrors, everything unfriendly • Technical/adjustable machines Raise • Social, non-threatening and engaging atmosphere • Quick-Fit program • Self-adjustable machines Reduce • High initial costs • Member fee cost • Time spend on workout Create • Fun womenly atmosphere jesholt.dk
  33. 33. Curves value curveRelativelevel Key Elements of Product, Service, and Delivery Curves Home Exercise Healt Clubs High Low jesholt.dk
  34. 34. Curves numbers • Investment down from $500K - 1M to $50K • Monthly user fee down from $100 to $30 • Franchises profitable w. 3 months/100 users • 7.000 franchises in 90 countries since 1995 • $20K for a franchise • Established franchises sell for $100 - 150K jesholt.dk
  35. 35. LOOK ACROSS THE CHAIN OF BUYERS jesholt.dk
  36. 36. Buyer groups Industries typically converge on a single buyer group, for example: Pharmaceutical Influencers, i.e. Doctors Office equipment Corporate purchasers Clothing End users jesholt.dk
  37. 37. The usual suspect.. Buyer groups Executive value: Preference for own customers Buyer value: Competitive pricing and speedy delivery User value: Ease-of-use Technical value: Compatibility and handling Finance value: Credit rating, financing and payment terms jesholt.dk
  38. 38. jesholt.dk
  39. 39. The insulin industry Focus on influencers • Historic focus on the doctors as customers • Focus on purer insulin until ”human monocomponent” was reached by early 1980’s • Competitive convergence among the major players was rapidly occurring Vials and syringes jesholt.dk
  40. 40. ERRC grid by Novo Nordisk Eliminate • Vials and syringes • Social stigmatism Raise • User friendliness • Convenience Reduce • Hazzle in medicine administration • Risk of incorrect medical treatment Create • Automatic dosis control jesholt.dk
  41. 41. Novo Nordisk value curveRelativelevel Key Elements of Product, Service, and Delivery Industry Novo Nordisk High Low jesholt.dk
  42. 42. Case: Novo Nordisk From insulin producer to diabetes care company jesholt.dk
  43. 43. LOOK ACROSS COMPLEMENTARY PRODUCT AND SERVICE OFFERINGS jesholt.dk
  44. 44. Complimentary offerings What happens before? What happens during? What happens after? • Untapped value is often hidden in complementary products and services • The key is to define the total solution buyers seek when they choose a product or service jesholt.dk
  45. 45. What happens... Before • Babysitting • Car parking • Dining • Like/check in During • Wardrobe • Program • Drinks • Bar/pause After • Merchandise • Books/mags • Late night transport jesholt.dk
  46. 46. What happens... Before • Ground transportation • Tax free shopping During • In-flight services • Entertainment • Air shop After • Ground transportation • Accommodation • Airmile benefits jesholt.dk
  47. 47. Before Barnes & Noble (and Borders), people came, bought a book and left.. Before • Recommendations • Searching During • Evaluating alternatives • Sampling After • Consumption • Learning • Sharing jesholt.dk
  48. 48. ERRC grid by Barnes & Noble Eliminate • The risk of buying ”the wrong” book • Vain book search Raise • Selection • Support and sparring • Joy of reading Reduce • Inefficiencies • Inconveniences and frustrations of selection • Stock clerks/cashiers Create • Ambience (even compete with reading at home) • Sampling opportunity jesholt.dk
  49. 49. Barnes & Noble value curveRelativelevel Key Elements of Product, Service, and Delivery Mall bookstores Independent bookstores Barnes & Noble High Low jesholt.dk
  50. 50. Barnes & Noble Redefine the scope of service Turning the book as a product into the pleasure of reading and intellectual exploration jesholt.dk
  51. 51. LOOK ACROSS FUNCTIONAL OR EMOTIONAL APPEAL TO BUYERS jesholt.dk
  52. 52. Appeal to buyers Functional, competition on price/fuction and utility Emotional, competition on feelings jesholt.dk
  53. 53. Challenge historical thinking Industries competition converge to functional or emotional appeal ”Industry thinking” leads to customer thinking Reinforcement – customers just want more of the same for less Challenge historical thinking and find new market space jesholt.dk
  54. 54. From Functional • Keep track of time • Add functionality • Improve accuracy • Digitalize • Citizen & Seiko To Emotional • Fashion statement • Design • Image • Emotion • Repeat purchase jesholt.dk
  55. 55. QB House From Emotional • Ritual • Numerous hot towels • Massage • Coffee or tea • Skin treatments • Blow drying • Shaving • Long queues • 3.000 to 5.000 Yen To Functional • Basic cuts • Eliminate wash and dry • Air wash • Traffic light system • Eliminate waiting time • Eliminate reservation desk • Improved hygiene • ”one use” policy (combs,..) • Price 1.000 Yen jesholt.dk
  56. 56. ERRC grid by QB House Eliminate • Rituals • Reservation desk • Cash and change Raise • Hygiene • Value for money Reduce • Waiting time • Styles/treatment • Price Create • Sanitation system • Air wash system jesholt.dk
  57. 57. QB House value curveRelativelevel Key Elements of Product, Service, and Delivery Barber Shop QB House High Low jesholt.dk
  58. 58. What about growth potential? jesholt.dk
  59. 59. jesholt.dk
  60. 60. LOOK ACROSS TIME jesholt.dk
  61. 61. Look across time Most companies • adapt trends incrementally • focus on the trend itself (tech, legislation, etc.) • project the trend itself (direction, adoption, ..) Instead, companies should • project how it will change value to customers! jesholt.dk
  62. 62. Trends must.. • Be decisive to your business • Be Irreversible • Have a clear trajectory jesholt.dk
  63. 63. Future trend value curveRelativelevel Key Elements of Product, Service, and Delivery Now Trend High Low jesholt.dk
  64. 64. Trends must.. • Be decisive to your business • Be Irreversible • Have a clear trajectory jesholt.dk
  65. 65. jesholt.dk
  66. 66. Blue Ocean Strategy • W. Chan Kim & Renée Mauborgne – Almost a decade of research • Blue Ocean Strategy HBS Press, ISBN • Blue Ocean Strategy HBR • Blue Ocean Strategy Harvard Business Review • www.BlueOceanStrategy.com jesholt.dk
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The concepts behind Blue Ocean Strategy are tangible and well documented. They are relatively easy to understand and apply to innovation processes and business development.

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