Reconstruct Market Boundaries The 1st principle of Blue Ocean Strategy:

Reconstruct market boundaries to break from the competition and create blue oceans.

Is there systematic patterns for reconstructing market boundaries to create blue oceans?

If so, are these patterns found across all types of industries?

6 Paths FrameworkLook across:

Alternative IndustriesStrategic GroupsChain of BuyersComplementary Product OfferingsFunctional/Emotional AppealTime

6 Fundamental Assumptions1. Define their industry similarly and focus on being the

best within it2. Look at their industries through the lens of generally

accepted strategic groups, and strive to stand out within that group

3. Focus on the same buyer group, be it the purchaser, the user, or the influencer

4. Define the scope of the P&S offered by their industry similarly

5. Accept their industry’s functional or emotional orientation

6. Focus on the same point in time – and often on current competitive threats – in formulating strategy

Path 1: Look Across Alternative IndustriesSubstitutes are P&S that have different forms

but offer the same functionality/core utilityTo sort out personal finances you can use financial

software, hire a CPA, or use pencil and paper

Alternatives include P&S that have different functions and forms but the same purposeCinemas vs. restaurants Same objective: Enjoy a night out

NetJetsCreated the blue ocean of fractional jet

ownership Corporate travelers are the mass of

customers in the aviation industryWhy do corporations choose commercial

airlines?Why do corporations choose corporate jets?

Benefits• Own 1/16th of an aircraft• 50 hours of flight time per year• Can fly 4 hours after a request• $375,000 per year plus pilot and maintenance • 30 airports vs. 5,500• Flight times dramatically shorter

Washington D.C to Sacramento 10.5 hours vs. 5.2 hours

• You can eat your favorite meals on the plane

ResultsSuccess has been attributed to its flexibility,

shortened travel time, hassle-free travel experience, increased reliability, and strategic pricing

There revenues grew 30-35% from 1993-2000

Path 2: Strategic Groups in IndustryBlue oceans can be created by looking across

alternative industries and strategic groupsStrategic Groups- Group of companies within

an industry that pursue a similar strategyRanked in two dimensions

PricePerformance

Example: Mercedes, BMW, and Jaguar

Path 2: Strategic Groups in IndustryExample: CurvesOver saturated market Created veritable blue ocean of women

struggling with fitnessAdvantage on two strategic groups

Traditional health clubsHome exercise programs

Path 2: Strategic Groups in IndustryExample: Ralph Lauren

High fashion with no fashionUpdated classical look and price capture best

of classical lines such as Brooks Brothers and Burberry

Combine attractive factors of both groups and eliminate everything else

Captured shares from both segments but drew in many new customers

Path 3: Chain of BuyersDirectly and indirectly involved in buying

decisionsPurchasers, Users, and InfluencersMay overlap, but differ in many ways

Path 3: Chain of BuyersExamples:

Pharmaceutical industry focuses on influencers: Doctors

Office Equipment industry focuses on purchasers: corporate purchasing departments

Clothing industry focuses on Users

Path 3: Chain of BuyersInsulin created blue oceanHelped change pharmaceutical industry from

influencers to usersNovoPen

Patients can easily carry a weekly supply of insulin Inject with ease

InnovoBuilt in memory system to display dose, last dose, and

elapsed time

Path 3: Chain of BuyersShifting can create new values to the

industry

See new ways to unlock value

Path 4: Look Across Complementary Product and Service OfferingsIn most industries, rivals converge within the

bounds of their industry’s product and service offerings (vacuum)

Costs of complementary goods and services of another product or service are considered when purchasing

For example, the theater example Operators should consider babysitting and parking costs

for customers

Complementary Products“Untapped” value often hidden within

complementary products and servicesSuch as JC Penney, customers that buy shoes also need

to buy socksApplication and Operating software that are used along

with computer hardware

Key is to define the total solution buyers seek when choosing a product or serviceWhat happens before, during, and after product is used

Path 4: AppliedNABI Philips Electronics

NABI, a Hungarian bus company, applied path 4 to the U.S. transit bus industry

Rivals competed to offer lowest prices

Designs outdated, delivery times late, quality low, maintenance costs were high

NABI acted on the complementary services Fiberglass, Eco friendly, Low

manufacture costs

British tea kettle industry, very important to British culture

Flat sales, shrinking profit

Lime scale found in water

Water supply is complementary serviceFilter

• NABI’s curve, unlike any other before in the industry

• By recognizing complementary services, cut costs from corrosion, prevention maintenance, and fuel consumption

Path 4: Concepts to Creating a Blue OceanRedefine Scope of Services

B&N from books to intellectual exploration and coffee bars

Satisfy customer’s complete demands Virgin Entertainment combine CD’s, video games, stereos,

audio equipment

Eliminate superfluous costsNABI & Dyson eliminates need for bags

Accommodate convenience of customer Zeneca’s Salick cancer centers combine all specialized

treatments

Path 5:Look Across Functional or Emotional Appeal to BuyersFunctional and emotional appeals are

embedded within industriesFunctional- compete on price and functionEmotional- compete on feelings of

products/servicesOpportunity for Blue Ocean

Functional and Emotional AppealSwitching from Functional to Emotional

Example: Viagra and Swatch

Switching from Emotional to FunctionalExample: Quick BeautyHouse

JCPenney’s Emotional AppealSwitch from Emotional to Functional

Started fashionableMoved towards efficiency

Supply chain management Low prices

Path 6: Look Across TimeExternal trends affect companiesMost act passively and adapt incrementallyTrends that have affected companies

Example: internet and protecting the environment.

Look Across TimeOpportunity for Blue Oceans

Future Telling? Managers project change

Systematic Approach Decisive to business Irreversible Clear Trajectory

Example: AppleNapster & Kazaa vs iTunes

JCPenney • Traditional Department

Store• Overtime Adapted

Technology– Self checkout kiosk

• Did not necessarily work– Customer demographics• Elderly

Conceiving New Market SpaceBlue Oceans

Not about predicting trendsCome about through structural process

Reconstructing existing market Free from head-to-head competiton