Post on 24-Feb-2016
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Blue OceanChapter 6
Get the Strategic Sequence RightBess Luker
Alicia EstradaRyan Dupriest
Taylor WattsMamie Dupre
Get the strategic sequence right Fleshing out Validating blue ocean ideas
The fourth Principle of Blue Ocean Strategy
The Right Strategic Sequence
Fail to deliver exceptional value Philips’ CD-I
◦ “Imagination Machine”◦ Video machine◦ Music System◦ Game Player◦ Teaching Tool◦ LACKED ATTRACTIVE SOFTWARE TITLES
Testing for Exceptional Utility
Bills and whistles of the new technology
Bleeding-edge technology is equivalent to bleeding-edge utility
The Trap
Create a strategic profile Assess where and how the new
product/service will change the lives of its buyers
Less a function of its technical possibilities and more a function of its utility to buyers
Getting around the Trap
The Buyer Utility Map
Buyer Experience Cycle
Utility Levers◦ Simplicity◦ Fun and Image◦ Environmental Friendliness
The six stages of the buyer experience cycle
Removed the greatest blocks to utility The thirty-six spaces
Testing for Exceptional Utility
Convenience in the use phase Risk in the maintenance phase
Testing for Exceptional Utility (continue)
Set the right strategic price◦ Buyers will want to buy your offering◦ A compelling ability to pay for it
Many companies take reverse course◦ Testing the waters◦ Over time they drop prices ro attract mainstream
buyers
From Exceptional Utility to Strategic Pricing
1. Volume generates higher returns than it used to
◦ Knowledge intensive2. Value of a product/service
◦ Ex. eBay◦ Network externalities
Two Reasons for this Change
Rival good Non-rival good Excludability Strategic Pricing
Free Riding
Setting price Products and Services in two categories
◦ Different form, same function◦ Different form and function, same objective
Step 1: Identify the Price Corridor of the Mass
How High the Price Two principal Factors:
◦ Degree to which the product is protected by patents
◦ Degree to which the company owns some exclusive asset or core capability
Upper Boundary Strategic Pricing Mid-to-lower-boundary strategic pricing Price Corridor of the mass
Step 2: Specify a level Within the Price Corridor
The Price Corridor of the Mass
Target costing is the next step in the strategic sequence, addresses the profit side of the business model
Start with strategic price then deduct its desired profit margin from the price to get to the target price
Price-minus cost and not cost-plus pricing◦ Essential if you arrive at a cost structure that is
both profitable and hard for potential follower to match
From Strategic Pricing to Target Costing
If companies give in to the tempting route of either bumping up the strategic price or cutting back of utility they are not on the path to lucrative blue waters
Pricing to Cost (continue)
To hit the cost target First: streamlining operations and
introducing cost innovations from manufacturing to distribution◦ High cost low value added activities in your value
chain be significantly eliminated reduce of outsource
Second: partnering◦ Secure needed capabilities fast and effectively
while dropping their cost structure
Three principal levers
Third: changing the pricing model of the industry◦ If the cost of the market is to high find another
way to make your product easier for customers to get your product
Three principal levers(continue)
Profit Model of Blue Ocean Strategy
Three main stakeholders: Employees Business Partners General Public Before moving forward and investing in the
new idea, the company must first overcome such fears by educating
From Utility, Price, and Cost to Adoption
Failure to address concerns of employees about a new business idea can be expensive
Before going public communicate so employees are aware
Work with employees to find ways to make everything less confusing
Employees
Partners who fear that their revenue streams or market position are threaten
Be open to discussion Let executives convince on positives
Business Partners
If the idea is very new and innovative it can effect the public not just the company
Educate public of benefits Encourage open discussion
General Public
Blue Ocean Idea Index