The focus of this second part is on the design of a business model to allowing blue ocean strategy implementation and decrease business model risk. This is also the fourth principle, Get the strategic sequence right.

The sequence starts with buyer utility, followed by price, cost and adoption.

Does it have exceptional buyer utility, your business idea? If yes, continue. If not, rethink.

Is your price affordable to the mass of buyers? If yes, continue. If not, rethink.

Can you limit your cost to profit at your strategic price? If yes, continue. If not, rethink.

What are the adoption barriers in actualizing your business idea? Are you addressing them up front? If yes, continue. If not, rethink.

After accomplish all this sequence you will have a commercially viable blue ocean idea.

The Buyers Utility

The Buyer Utility Map helps to identify the levers to deliver exceptional utility to buyers.

Each stage of buyers’ experience cycle has specific experiences and for each stage a set of questions should be answered to gauge the quality of buyers’ experiences.

In each stage the analysis of levers helps to develop the perspective and find the right questions.For example: stage of purchase with the customer productivity lever, could have the question: Is it easy and fast to find the product?

To get the exceptional utility in each stage, each lever must be analysed and identified the blocks, and removed, to achieve the expected results. It is common that the greatest blocks represent pressing opportunities to unlock exceptional value.

Using the same example described above. The greatest block (in the purchase process, or in the delivery, or use, …or disposal) could be the way to achieve, if removed, the exceptional experience aimed, at the lever of customer productivity.

The Price

To have strong revenue flowing, the strategic price must be set. This procedure will ensure that consumers will want to buy and will have the compelling ability to achieve it. It is fundamental, from the start, to know the price that will bring mass of target consumers.

The strategic price defined must not only attract customers but also retain them. The reputation must be earned since day one and rapidly spread by networked society. That is important to avoid imitations and turn the blue ocean in red ocean.

When exceptional utility is combined with strategic pricing, imitation is discouraged.

The price corridor of the mass is a tool to facilitate the discovery of the right price to attract mass of buyers.

It has two steps. Step one identifies the price corridor of the mass and the second step specifies the price level within the corridor.

Usually companies look first at products that are most similar in term of form and also look inside their industries.

The great challenge to define the strategic price is to understand the price sensibility of those people (buyers) when comparing completely different products/services offered outside the group of traditional competitors.

So it is important to compare others products outside industry boundaries that offer different forms and also different forms and functions but attend the same initial proposition (need).

The second step helps companies to define the highest price that they can afford to set within corridor without inviting competition from imitation. The assessment depends on the degree of legal protection of products/services and the degree of assets and core capabilities that the company owns.

The Cost

Now moving from strategic pricing to target costing. It addresses the profit side of the business model.

Following the blue ocean strategy, first was defined the strategic price and then deducted the desired profit margin to arrive at the target cost.

It is strategic to reach to a cost structure that allows profitability and it is hard to competitors to imitate.

To be successful with target costing, the strategy profile must be divergent but with focus.

The Profit Model of Blue Ocean Strategy

Adoption

A so large change threatens the status quo, and for that reason it may provoke insecurity and resistance among company’s stakeholders.

Concerns of employees, business partners and general public must be addressed to avoid resistance and fears, when changing the current status quo. Awareness should be developed to communicate the advantages that everyone will have with the success of the actions.

The Blue Ocean Idea Index

Despite following the sequence: utility, price, cost and adoption, the vision of the whole must not be lost.

The blue ocean idea index helps to keep that systemic vision.

Basically, that vision is formed by the answer of the following questions:

Is there exceptional utility? Are there compelling reasons to by the offering?

Is the price easily accessible to the mass of buyers?

Does the cost structure meet the target cost?

Was addressed adoption blocks up front?

Answering with plus or minus signal to each question an overview of accomplishment to the blue ocean idea will be achieved.

Next article it will be discussed the fifth principle and the blue ocean strategy implementation.

Reference: , W.Chan. Mauborgne, Renée. Blue Ocean Strategy.