TEAM 3SARAH ELLENS

COLEMAN CROOKASHTON DAVIS

JESSICA CRUMPTONKEVIN LEVESQUE

Blue Ocean StrategyChapter 6: Get the Strategic

Sequence Right

The Right Strategic Sequence

Buyer UtilityPriceCostAdoption

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 Cycle6

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 disposalEach stage managers can ask a set of questions to

gauge quality of experience1. 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 productivitySimplicityConvenienceRiskFun and imageEnvironmental friendliness

Stages of Buyers experience cycle

The Buyer Utility MapThe buyers experience broken down into six stages.

1. Purchasing2. Delivery

3. Use4. Supplements5. 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 costsModel T – Assembly lineThree principal levers to hit the cost target

First Principal Lever

Streamlining operations Introducing cost innovations from

manufacturing to distributionSwatch

Second Principal Lever

Partnering with other companiesTrying to carry out all activities themselvesFast and effective securing of capabilitiesSometimes these first two levers are not

enough to hit target cost

Third Principal Lever

Changing the pricing model of the industryVideotapes– from selling to rentingEven 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 IndexPhilips CD-I

Motorola Iridium

DoCoMo i-mode Japan

Utility Is there exceptional utility? Are there compelling reasons to buy your offering?

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Price Is your price easily accessible to the mass of buyers?

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Cost Does your cost structure meet the target cost?

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Adoption Have you addressed adoption hurdles up front?

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