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 intensive

2. 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