MKTG303 Blue Ocean Strategy Note Preview

MKTG303

Strategy Notes Blue Ocean Strategy Simulation Game

1

Table of Contents – All of this is included in the actual notes Red Round and Blue Round 1 .................................................................................................................. 2

Strategy ............................................................................................................................................... 2

Year 41 ............................................................................................................................................ 3

Year 42 ............................................................................................................................................ 3

Year 43 ............................................................................................................................................ 4

Year 44 – Blue Round 1 ................................................................................................................... 4

Assumptions ........................................................................................................................................ 5

Red Rounds ..................................................................................................................................... 5

Blue Round 1 ................................................................................................................................... 6

Performance ........................................................................................................................................ 7

Blue Round 2 ............................................................................................ Error! Bookmark not defined.

Strategy ................................................................................................ Error! Bookmark not defined.

Assumptions ......................................................................................... Error! Bookmark not defined.

Performance ......................................................................................... Error! Bookmark not defined.

Blue Rounds 3 .......................................................................................................................................... 7

Strategy ................................................................................................ Error! Bookmark not defined.

Assumptions ......................................................................................... Error! Bookmark not defined.

Performance ........................................................................................................................................ 7

2

Red Round and Blue Round 1

Strategy Our team met in the library again to complete the BOSS game, this time I booked the pod, using my newly acquired skill. Before starting the game we gathered our thoughts, I recounted some of the advice that our seminar leader had given us, and we recapped the red ocean strategy document, and discussed where we went wrong in the practice round. Our team decided on a different strategy than the practice round, deciding to target the only growing segment: the 36+ year olds, as seen in the market forecast graph in Figure 2 below:

Figure 1: Market forecast graph -‐ red rounds and blue round 1

Prior to starting the red rounds and blue round 1 had made some tables to summarise the data so it would be easier for us to make decisions. I personally find it easier to read all the information, then to analyse the information and make graphs or tables that are easy to understand. I’ve found that this helps me make decisions quicker. See Figures 3 & 4 below:

Channels and Customer Segmentation

% Purchases by Customer Groups

Channels 6-‐21 22-‐35 36+ Low price-‐orientated 85% 30% 5% Specialised Electronics stores 10% 10% 85% Video Game Chains 5% 60% 10%

Figure 2: Customer preferences of distribution channels -‐ red rounds and blue round 1

Product Characteristics and Customer Segments

Customer Segments

Product Features Jun-‐21 22-‐35 36+ Price highly sensitive sensitive not price sensitive Console power (sophistication of gaming experience) X X

Graphics sophistication X Controller Sophistication X X Multimedia add-‐ons X Quality of online support X

3

Online gaming X X Figure 3: customer preferences of product characteristics and customer segments -‐ red rounds and blue round 1

The x’s in the tables above indicate what characteristics the customer segments value. These were really helpful for the team, in particular for when we were making decisions on what characteristics and channels to increase and decrease. So, after analysing the key data we decided to get stuck into the game, starting with product characteristic alteration first, creating an eliminate, reduce, raise, and create (ERRC) grid to reflect our targeting strategy. We decided to use this so we could practice using blue ocean tools so that we’d be ready for the blue rounds, only using the reduce and raise boxes for the red rounds, but still drawing up the full grid. What we came up with for each of rounds the can be seen below.

Year 41 Eliminate Not applicable as this is not a blue round.

Reduce • No. of consoles produced – due to

decreased market demand as a whole Raise

• Sophistication of gaming experience – increase to 7 to beat the shiny station

• Graphics sophistication – increase to 190 as this characteristic is poorly rating at present and the purple player is 224

• Quality of online support – increase to 70 to match the purple player

• Price – increase to $475 as our product is now much more enhanced

Create Not applicable as this is not a blue round.


Reduce • Online gaming • No. of consoles produced – due to

decreased demand Raise

• Sophistication of gaming experience – increase to 9, to match the shiny station

• Graphics sophistication – increase to 200, this is a gradual increase to the maximum level planned for year 43

• Quality of online support – increase to 80 to beat the purple player and be the best in the market for online support.

• Price – increase to $500 to reflect the increased characteristics. Our product provides the best value for money on most product characteristics valued by 36+ year olds.


4


Reduce • No. of consoles produced – due to

decreased demand Raise

• Sophistication of gaming experience – raise to 10 so we now have the most sophisticated gaming experience in the market

• Graphics sophistication – raise to the maximum so we match shiny station

• Quality of online support – raise to the maximum to provide value to the 36+ segment

• Price – increase to $520 to reflect our outstanding characteristics, but still be the cheapest of the top consoles


Our strategy was to increase the attributes that the 36+ year olds valued, and copy the purple player. We didn’t reduce many of our product characteristics in the round, because we didn’t want the characteristics to be dramatically below other consoles, even though we were predominantly targeting the 36+ aged segment, we realised that they were not the only age group that would be purchasing our product in reality. In addition, we kept in mind that red round consumers want more for less, so providing extra characteristics is necessary to compete. We gradually increased the characteristics valued by our target segment over years 41 to 43, finishing the red rounds with a product that was cheaper than the two top end products that targeted 36+ year olds; the Purple Player and the Shiny Station.

As a group we decided to manage our expenditure, spreading it evenly over the years, always using a large portion of our budget. In the years where we invested heavily in R&D for the console, we didn’t initiate any corporate projects, then, in the years where we initiated corporate projects we didn’t raise the product characteristics so dramatically. This can be seen as we gave the console’s characteristics an overhaul in year 41, positioning it towards the 36+ years old segment, then in year 42 we made minimal changes to the product characteristics and initiated a corporate project aimed at reducing COGS.

Year 44 – Blue Round 1 To start the blue round we read through all the different case studies as a team and evaluated which option would provide the highest profit levels. We chose path 3, as it seemed to be the obvious choice, promising the highest growth levels of 30%. We completed the as-‐is strategy canvas, and were satisfied that we sufficiently understood the ocean, achieving excellent in our depiction of the industry as seen in Figure 5 below.

5

Figure 4: As-‐is strategy canvas formation result

After the as-‐is strategy canvas was constructed we were able to get to work filling out the EERC grid in the BOSS game to meet the requirements of path 3, creating our to-‐be strategy canvas as seen in Figure 6.

Figure 5: Blue round 1 to-‐be strategy canvas

Assumptions

Red Rounds We assumed that the 36+ aged segment would be the best segment to target as it was the only growing segment, and that the market projections provided were accurate and reliable. We also assumed that the demand level would continue to drop as we are competing in the red ocean. We had some difficulty figuring out the right amount to produce. We tried to

6

estimate the amount to produce based on the decline between the prior years, as seen in Table 1 below:

Table 1: Calculating amount to produce

Year 40 Year 39

Number of consoles sold (thousand units) 2,279 2,628 Difference between the years (thousand units) -‐ 349 Difference between the years (percentage) -‐13%

Number of units to produce in Year 41 (thousand units) 1,976

Year 41 Year 40 Number of consoles sold (thousand units) 1,513 2,279 Difference between the years (thousand units) -‐ 766

Difference between the years (percentage) -‐34% Number of units to produce in Year 42 (thousand units) 1,004

Year 42 Year 41 Number of consoles sold (thousand units) 1,359 1,513 Difference between the years (thousand units) -‐ 154

Difference between the years (percentage) -‐10% Number of units to produce in Year 43 (thousand units) 1,221

We finally got the amount to produce right in year 42, having a minimal variance of 154,000 units.

Another assumption we made was that we would need to spend a lot on marketing as we had just given the console an overhaul, focusing on the 36+ segment. We assumed that by increasing marketing expenditure brand awareness would increase, and then that sales would follow.

We also assumed that it would be best to implement the manufacturing cost reduction corporate project after we had improved the product. Our thoughts were that if we increased the cost to make the product through increasing product features, then we would be able to decrease this by moving manufacturing overseas.

Blue Round 1 Our first assumption in Blue Round 1 was that the paths given in the game were the only possible paths, and had to be chosen individually. We did not consider the possibility of combining two paths until Blue Round 2, which set us behind a year on our new strategy. Our second assumption was that we shouldn’t eliminate factors, in case our customers value them a little bit. This was another error on our part, we realised in Blue Round 2 that we need to eliminate factors in order to reduce our cost of production. If the game says that the segment does not value the factor, then we do not need produce a console that has that feature; it’s a waste of our budget.

7

Performance Overall our team performed much better in the red round than we did in the practise round. We were disappointed with our Share Price Index (SPI) because it dropped since we started the Red Round, and ended up around 800. In order to improve in the future our team would make sure that all our product characteristics in the red round are valued by the 36+ segment. We would also make sure that our choice in distribution channels reflects this segmentation strategy, and then decrease our overall production volume each year, aiming for no production to sales variance. To improve our performance in the blue round we would make sure that we read all the information and synthesize it, spending a long time discussing options before making decisions. Finally, our performance could be improved by looking across non-‐customer groups for commonalities.

Blue Rounds 3 – assumptions and strategy provided in actual notes, this is the final result.

Performance On checking our errors and warnings before submitting our new strategy decisions we found that this was our first year that the sign was actually green, meaning good, so we felt confident that we were making good decisions. On viewing our results we were proud to see that our SPI had increased again, and our market share was substantial, as seen in Figure 15 below.

Figure 6: Blue round 3 year 47 results

Our new blue ocean strategy for delivery and service was a success, the whole team was really happy with our results. We finished on a SPI of 1,908, and having created a successful blue ocean offering.

8

In order to improve in the future, we would improve the quality of online support in the first to-‐be strategy canvas, in order to not disappoint customers. In addition, we would implement corporate projects only in the first year of Blue Round 3, so that all corporate project results are received before the last year.

Documents

MKTG303 Blue Ocean Strategy Note Preview