REACHING BEYOND REACHING BEYOND EXISTING DEMANDEXISTING DEMAND

Team 5Team 5

Jason BullardJason BullardGrant GerhardtGrant GerhardtPatrick KirklandPatrick Kirkland

Laura MooreLaura MooreJeffri VaughnJeffri VaughnChet VisserChet Visser

• No company wants to venture beyond No company wants to venture beyond a red ocean only to find itself in a a red ocean only to find itself in a puddlepuddle

• How do you maximize the size of the How do you maximize the size of the Blue Ocean you want to createBlue Ocean you want to create

– By Reaching beyond your existing By Reaching beyond your existing demanddemand

• To achieve the greatest demand a To achieve the greatest demand a company must:company must:

– Focus on existing customersFocus on existing customers

– Drive for a finer segmentation to Drive for a finer segmentation to accommodate buyer differencesaccommodate buyer differences

• Typically to grow their market share Typically to grow their market share companies try to retain and expand companies try to retain and expand existing customersexisting customers

– This practice often leads to two things:This practice often leads to two things:

•Finer SegmentationFiner Segmentation

•Greater Tailoring of offerings to meet Greater Tailoring of offerings to meet customer preferencescustomer preferences

• As the competition increases so does As the competition increases so does the amount of customizations offered the amount of customizations offered by the companyby the company

– This practice often leads companies into This practice often leads companies into creating too-small target marketscreating too-small target markets

Maximizing the Blue OceanMaximizing the Blue Ocean• To maximize the size of their Blue Ocean To maximize the size of their Blue Ocean

companies need to reverse course and companies need to reverse course and consider:consider:

– Looking to Non-CustomersLooking to Non-Customers

– Building powerful commonalities on what Building powerful commonalities on what customers buycustomers buy

• Doing this will allow companies to reach Doing this will allow companies to reach beyond existing demand to unlock a new beyond existing demand to unlock a new mass of customersmass of customers

• Example 1: Callaway GolfExample 1: Callaway Golf

– Understood that golf was very hard and Understood that golf was very hard and frustrating for novicesfrustrating for novices

– They used this knowledge to create new They used this knowledge to create new clubs that were easier to hit and made clubs that were easier to hit and made golf enjoyable for beginnersgolf enjoyable for beginners

– By doing this they generated a massive By doing this they generated a massive set of new customersset of new customers

• Example 2: Commuter AirlinesExample 2: Commuter Airlines

– Saw an opportunity in connecting many Saw an opportunity in connecting many underserved smaller communities to underserved smaller communities to large citieslarge cities

– Used this information to create an Used this information to create an entirely new business in the airline entirely new business in the airline industryindustry

• Short, usually less than and hour long flights that Short, usually less than and hour long flights that connect smaller airports to large airports to make connect smaller airports to large airports to make traveling much easier and more efficient for people traveling much easier and more efficient for people that lived away from large airports (Ex. Lubbock, that lived away from large airports (Ex. Lubbock, Amarillo, and Abilene)Amarillo, and Abilene)

Three Tiers of Non-Three Tiers of Non-customerscustomers

• These non-customers can be transformed These non-customers can be transformed into customers and offer a great into customers and offer a great opportunity to expand your businessopportunity to expand your business

• Tier 1Tier 1– Closest to your marketClosest to your market– Buyers who minimally purchase an industries Buyers who minimally purchase an industries

offerings out of necessityofferings out of necessity– Do not perceive themselves as customersDo not perceive themselves as customers– Are willing to jump ship or multiply their Are willing to jump ship or multiply their

purchase frequency depending on your purchase frequency depending on your product’s valueproduct’s value

• Tier 2Tier 2– Mid Range from your marketMid Range from your market

– Refuse to use an industries offeringsRefuse to use an industries offerings

– They see the need for an industries They see the need for an industries products but do not wish to use themproducts but do not wish to use them

• Tier 3Tier 3– Farthest from your marketFarthest from your market

– Never thought of your industry’s Never thought of your industry’s offerings as and optionofferings as and option

TakeawaysTakeaways• Reach Beyond existing demand to Reach Beyond existing demand to

increase your sizeincrease your size

• To many customizations can lead to To many customizations can lead to too small of marketstoo small of markets

• The three TiersThe three Tiers

First-Tier NoncustomersFirst-Tier Noncustomers• Soon-to-be noncustomersSoon-to-be noncustomers

• Minimally use the current market Minimally use the current market offerings to get by as they search for offerings to get by as they search for something bettersomething better

• When they find better alternatives, When they find better alternatives, they will eagerly jump shipthey will eagerly jump ship

• Sit on the edge of the marketSit on the edge of the market

First-Tier NoncustomersFirst-Tier Noncustomers

• As the number of first-tier As the number of first-tier noncustomers increases, the market noncustomers increases, the market becomes stagnant and develops a becomes stagnant and develops a growth problemgrowth problem

• Within these customers is an ocean Within these customers is an ocean of untapped demand waiting to be of untapped demand waiting to be releasedreleased

• British fast-food chainBritish fast-food chain• French for “Ready to Eat”French for “Ready to Eat”• Specializes in sandwiches, baguettes, and Specializes in sandwiches, baguettes, and

wrapswraps• Opened in 1986 in London, arrived in America Opened in 1986 in London, arrived in America

in 2000 in New York Cityin 2000 in New York City• About 150 Pret shops, most in the UKAbout 150 Pret shops, most in the UK• Expanded its blue ocean by tapping into the Expanded its blue ocean by tapping into the

demand of first-tier noncustomersdemand of first-tier noncustomers• Don’t franchiseDon’t franchise

PretPret

• Before Pret, professionals in European city Before Pret, professionals in European city centers frequently went to restaurants for centers frequently went to restaurants for lunchlunch

• Sit-down restaurants offered a nice meal Sit-down restaurants offered a nice meal and settingand setting

• Number of first-tier noncustomers was Number of first-tier noncustomers was risingrising

• Need for healthy eating and cheaper Need for healthy eating and cheaper options instead of eating out in restaurantsoptions instead of eating out in restaurants

• Some were grabbing something on the run, Some were grabbing something on the run, brown bagging, or skipping lunchbrown bagging, or skipping lunch

PretPret

• First-tier noncustomers were in First-tier noncustomers were in search of better solutionssearch of better solutions

• Three key things:Three key things:– Wanted lunch fastWanted lunch fast

– Wanted fresh and healthyWanted fresh and healthy

– Wanted reasonable priceWanted reasonable price

PretPret• Pret formula is simplePret formula is simple

– Offers restaurant-quality sandwiches Offers restaurant-quality sandwiches made fresh every day from only the made fresh every day from only the finest ingredients finest ingredients

– Makes the food available at a speed that Makes the food available at a speed that is faster than that of restaurants and is faster than that of restaurants and even fast foodeven fast food

– Delivers this in a sleek setting at Delivers this in a sleek setting at reasonable pricesreasonable prices

PretPret• Along the walls are clean refrigerated Along the walls are clean refrigerated

shelves stocked with more than shelves stocked with more than thirty types of sandwiches made thirty types of sandwiches made fresh that dayfresh that day

• Average price $4-6Average price $4-6

PretPret

• Can also choose from salads, yogurt, Can also choose from salads, yogurt, parfaits, blended juices, and sushiparfaits, blended juices, and sushi

• Each store has its own kitchen, and Each store has its own kitchen, and non-fresh items are made by high-non-fresh items are made by high-quality producersquality producers

PretPret

• Make stuff fresh so they can sell Make stuff fresh so they can sell freshfresh– Old fashioned but works wellOld fashioned but works well

• Donates sandwiches to charity rather Donates sandwiches to charity rather than keep them over to sell the next than keep them over to sell the next dayday– Food doesn’t have “shelf life” datesFood doesn’t have “shelf life” dates

PretPret• In NYC storeIn NYC store

– Baguettes from ParisBaguettes from Paris

– Croissants from BelgiumCroissants from Belgium

– Danish pastries from DenmarkDanish pastries from Denmark

Fast Food vs. PretFast Food vs. Pret

• Pret speeds up the customer ordering Pret speeds up the customer ordering experienceexperience

• Fast foodFast food– Order, Pay, Wait, Receive, Sit downOrder, Pay, Wait, Receive, Sit down

• PretPret– Browse, pick up, pay, leaveBrowse, pick up, pay, leave

• On average, customers spend just 90 On average, customers spend just 90 seconds from the time they get in line seconds from the time they get in line to the time they leave the shopto the time they leave the shop– Does not make to order or serve customersDoes not make to order or serve customers

Restaurants vs. PretRestaurants vs. Pret

• Restaurants have been seeing Restaurants have been seeing stagnant demandstagnant demand

• Pret has been converting the mass of Pret has been converting the mass of first-tier noncustomers into core first-tier noncustomers into core thriving customers who eat at Pret thriving customers who eat at Pret more than they used to eat at more than they used to eat at restaurantsrestaurants

Lesson of PretLesson of Pret

• Noncustomers tend to offer far more Noncustomers tend to offer far more insight into how to unlock and grow a insight into how to unlock and grow a blue ocean than do relatively content blue ocean than do relatively content existing customersexisting customers

• Today, Pret sells more than 25 Million Today, Pret sells more than 25 Million sandwiches a yearsandwiches a year

• 2002 Sales of $160 Million2002 Sales of $160 Million

• McDonalds bought 33 percent share McDonalds bought 33 percent share of the companyof the company

First-Tier NoncustomersFirst-Tier Noncustomers

• What are the key reasons first-tier What are the key reasons first-tier noncustomers want to jump ship and leave noncustomers want to jump ship and leave your industry?your industry?– Look for commonalities across their responses Look for commonalities across their responses

• Like Restaurant eaters’ three similaritiesLike Restaurant eaters’ three similarities– Fast LunchFast Lunch– Fresh and healthyFresh and healthy– Reasonable pricesReasonable prices

– Focus on commonalities and not differencesFocus on commonalities and not differences

• Desegment buyers and unleash an ocean Desegment buyers and unleash an ocean of latent untapped demandof latent untapped demand

Second-TierSecond-Tier Refusing Noncustomers Refusing Noncustomers

• Refusing customers are people who Refusing customers are people who either do not use or cannot afford to either do not use or cannot afford to use the current market offerings use the current market offerings because they find the offerings because they find the offerings unacceptable or beyond their meansunacceptable or beyond their means

JCDecauxJCDecaux

• Outdoor advertising was originally Outdoor advertising was originally limited to billboards and transportslimited to billboards and transports– People only saw the ads for a short timePeople only saw the ads for a short time

– Cannot include comprehensive Cannot include comprehensive messages needed to promote new messages needed to promote new names and productsnames and products

– Relatively expensiveRelatively expensive

JCDecauxJCDecaux

• JCDecaux realized that the lack of JCDecaux realized that the lack of stationary downtown locations was the stationary downtown locations was the key reason outdoor advertising key reason outdoor advertising remained unpopular and smallremained unpopular and small

• JCDecaux researched the issue and JCDecaux researched the issue and found that municipalities could offer found that municipalities could offer stationary downtown locations such as stationary downtown locations such as bus stopsbus stops– People often wait at bus stops for a few People often wait at bus stops for a few

minutes and therefore had more time to be minutes and therefore had more time to be influenced by the adsinfluenced by the ads

JCDecauxJCDecaux

• JCDecaux provided street furniture JCDecaux provided street furniture and its related maintenance and and its related maintenance and upkeep to municipalities for upkeep to municipalities for freefree– This gave them exclusive rights to This gave them exclusive rights to

display advertisements on the furnituredisplay advertisements on the furniture

JCDecauxJCDecaux

• JCDecaux’s solution let everybody winJCDecaux’s solution let everybody win– Municipalities gain free furniture and its Municipalities gain free furniture and its

related upkeeprelated upkeep

– JCDecaux gains rights to advertise on JCDecaux gains rights to advertise on the furniturethe furniture

– Previously refusing noncustomers pay Previously refusing noncustomers pay JCDecaux for advertising on the furnitureJCDecaux for advertising on the furniture•Ads have longer exposure timeAds have longer exposure time

•Ads can have more detailed messagesAds can have more detailed messages

•Ads can be put up in 2-3 days rather than Ads can be put up in 2-3 days rather than about 15 days for billboardsabout 15 days for billboards

Third Tier of NoncustomersThird Tier of Noncustomers

• Tier 3 is the “unexplored Tier 3 is the “unexplored noncustomers who are in markets noncustomers who are in markets distant from yours”distant from yours”

• This is as far away as you can get This is as far away as you can get from your market, including your from your market, including your usual, original, or existing customer usual, original, or existing customer basebase

U.S. Defense Aerospace U.S. Defense Aerospace IndustryIndustry

• This is the example in the bookThis is the example in the book

• The Marines, Navy, and Air Force needed different The Marines, Navy, and Air Force needed different fighter jets for different reasons. And the U.S. has fighter jets for different reasons. And the U.S. has been criticized for not being able to control been criticized for not being able to control aircraft costsaircraft costs

• Much research was done to find out what each Much research was done to find out what each branch needed most in its aircraft, and combined branch needed most in its aircraft, and combined each one’s attributeseach one’s attributes

• To fix this problem Lockheed Martin was given To fix this problem Lockheed Martin was given the job over Boeing and a single fighter jet that the job over Boeing and a single fighter jet that used to cost $190 million would now cost only used to cost $190 million would now cost only $33 million$33 million

Who is sick of me talking Who is sick of me talking about The Home Depot?about The Home Depot?

• Well too bad!!Well too bad!!

Home Depot’s 3Home Depot’s 3rdrd Tier Tier

• Women!Women!

– "Her Depot," the store will abandon Home "Her Depot," the store will abandon Home Depot's warehouse aesthetic in favor of Depot's warehouse aesthetic in favor of shorter, "cleaner" aisles that emphasize home shorter, "cleaner" aisles that emphasize home organization and interior designorganization and interior design

•(Consumerist.com)(Consumerist.com)

– Home Depot opened up Home Depot Design Home Depot opened up Home Depot Design Centers for couples, but are definitely geared Centers for couples, but are definitely geared towards womentowards women

Home Depot’s 3Home Depot’s 3rdrd Tier Tier

• Hispanics!Hispanics!

– Home Depot Launched its Spanish website on Home Depot Launched its Spanish website on November 17, 2008November 17, 2008

– A study of English and Spanish-language A study of English and Spanish-language consumers conducted last year by Forrester consumers conducted last year by Forrester Research Inc. found that one-fourth of Hispanics Research Inc. found that one-fourth of Hispanics must be served in Spanish if retailers want their must be served in Spanish if retailers want their business. More than half of Hispanics who shop business. More than half of Hispanics who shop online—7.1 million people, by Forrester’s countonline—7.1 million people, by Forrester’s count—prefer Spanish —prefer Spanish (Commercialalert.org)(Commercialalert.org)

So…So…

• Always find out who you’re not Always find out who you’re not catering to…catering to…

And find a way to cater to And find a way to cater to them!!!!them!!!!

Go For The Biggest Go For The Biggest CatchmentCatchment

There is no hard-and-fast rule There is no hard-and-fast rule to suggest which tier of to suggest which tier of noncustomers you should focus noncustomers you should focus on and whenon and when

The Biggest CatchmentThe Biggest Catchment

• Because the scale of blue ocean Because the scale of blue ocean opportunities that a specific tier of opportunities that a specific tier of noncustomers can unlock varies noncustomers can unlock varies across time and industries, you across time and industries, you should focus on the tier that should focus on the tier that represents the represents the biggest catchmentbiggest catchment at at the timethe time

The Biggest CatchmentThe Biggest Catchment

• You should also explore whether You should also explore whether there are overlapping commonalities there are overlapping commonalities across all three tiers of across all three tiers of noncustomersnoncustomers

• In that way, you can expand the In that way, you can expand the scope of latent demand you can scope of latent demand you can unleash…unleash…

The Largest CatchmentThe Largest Catchment

• When there are overlapping When there are overlapping commonalities, you should focus not commonalities, you should focus not on a specific tier, but instead look on a specific tier, but instead look across the tiersacross the tiers

• The rule here is to go for the The rule here is to go for the largest largest catchmentcatchment

Creating Your Blue OceanCreating Your Blue Ocean

• The natural strategic orientation of The natural strategic orientation of many companies is toward retaining many companies is toward retaining existing customers and seeking existing customers and seeking further segmentation opportunitiesfurther segmentation opportunities

• This is especially true in the face of This is especially true in the face of competitive pressures…competitive pressures…

Creating Your Blue OceanCreating Your Blue Ocean

• This might be a good way to gain a This might be a good way to gain a focused competitive advantage and focused competitive advantage and increase share of the existing market increase share of the existing market space, but it is not likely to produce a space, but it is not likely to produce a blue ocean that blue ocean that expands and creates expands and creates new demandnew demand

Creating Your Blue OceanCreating Your Blue Ocean

• It’s not wrong to focus on existing It’s not wrong to focus on existing customers or segmentationcustomers or segmentation

• Try to challenge the existing, taken-Try to challenge the existing, taken-for-granted strategic orientationsfor-granted strategic orientations

Creating Your Blue OceanCreating Your Blue Ocean

• To maximize the scale of your blue To maximize the scale of your blue ocean, you should first reach beyond ocean, you should first reach beyond existing demand to noncustomersexisting demand to noncustomers

• If no such strategies can be found, If no such strategies can be found, you can then move on to further you can then move on to further exploit differences among existing exploit differences among existing customers…but you may end up customers…but you may end up landing in a smaller oceanlanding in a smaller ocean

The Blue OceanThe Blue Ocean

• It is not enough to maximize the size It is not enough to maximize the size of the blue ocean you are creatingof the blue ocean you are creating

• You must profit from it to create a You must profit from it to create a sustainable win-win outcomesustainable win-win outcome

Blue Oceans on the CourseBlue Oceans on the Course• The Callaway Big BerthaThe Callaway Big Bertha

• The Nike SumoThe Nike Sumo2 2 — first square-— first square-shaped drivershaped driver

• The Callaway HX golf balls—designed The Callaway HX golf balls—designed with hexagonal dimples to increase with hexagonal dimples to increase the total dimple surface areathe total dimple surface area

• How about ladies’ golf clubs for How about ladies’ golf clubs for reaching across tiers?reaching across tiers?

Golf NotesGolf Notes• 1618—feathery golf ball1618—feathery golf ball

• 1826—American hickory is shipped 1826—American hickory is shipped to Scotland to manufacture shaftsto Scotland to manufacture shafts

• 1848—the gutta-purcha (or guttie) 1848—the gutta-purcha (or guttie) ball replaces featheryball replaces feathery

• 1902—first grooved set of clubs1902—first grooved set of clubs

• 1929—steel shafts are legalized1929—steel shafts are legalized

References References

• Welcome to Pret A Manger New York.Welcome to Pret A Manger New York. 15 Feb. 2009 15 Feb. 2009 <http://www.pret.com/us/>.<http://www.pret.com/us/>.

• Kim, W. Chan, and Ren Mauborgne. Kim, W. Chan, and Ren Mauborgne. Blue Ocean Strategy : How to Create Blue Ocean Strategy : How to Create Uncontested Market Space and Make Uncontested Market Space and Make the Competition Irrelevant.the Competition Irrelevant. New York: New York: Harvard Business School P, 2005.Harvard Business School P, 2005.