“How to create uncontested market space
"and make the competition irrelevant
“The only way to beat the competition is to stop trying to beat the competition!”
Value through Innovation
Equal emphasis on value and innovation
Successful value innovation:
• Drives down costs while driving up buyers value
• Uses a whole-system approach
• Follows reconstructionist view
Value through Innovation
In 2012, Boehringer Ingelheim achieved net sales of about 14.7 billion euro. R&D expenditure in the business area Prescription Medicines corresponds to 22.5% of its net
sales.
Three Tiers of NoncustomersThe first tier of customers minimally buy an industry’s offering out of necessity.
the second tier of noncustomers refuse to use your industries offerings.
The third tier are noncustomers who have never thought of your market’s offerings as an option.
Your Market
First Tier
Second Tier
Third Tier
Buyer Experience Cycle
Purchase Delivery Use
Supplements Maintenance Disposal
How long does it take to find the product you need?
How long does it take to get the product delivered?
How effective are the product’s features and functions?
Do you need other products and services to make this product work?
Does the product require external maintenance?
Does use of the product create waste items?
New Market Space
There is a fairly good understanding of how to compete in Red Oceans.
Blue Oceans are known to exist, however, there is little practical
guidance on how to create them.
focuses on the analytical frameworks necessary to create Blue Oceans and the managerial strategy
needed to sustain them.
Red oceans
• Industry boundaries defined and accepted
• Competitive rules of game known
• Companies try to outperform rivals; cutthroat competition
• As market space gets crowded, prospects for profit and growth reduced
• Products become commodities
• Red ocean strategy is a market-competing strategy
Blue oceans
• Undefined market space, demandcreation, opportunity for highly profitable growth.
• Most are created from withinred oceans by expanding existing industry boundaries.
• Rules of game waiting to be set.
• Competition irrelevant.
• Blue ocean strategy is a market-creating strategy.
Blue Ocean Strategy: Reconstruct Market Boundaries
Buyer GroupFocuses on better
serving the buyer group
Scope of
Product and
Service
Offerings
Focuses on maximizing
the value of product and
service offering
Time/Trends
Focuses on adapting to
external trends as they
occur
Redefines the buyer
group
Looks across to
complementary product
and service offerings
Participation in shaping
external trends over
time
Boundaries of
Competition
Head-to-Head
Competition
Creating
New Market Space
Main Reasons for Creating Blue Oceans
Supply often exceeds demand (business
downturns)
Increasing globalization
Accelerated commoditization of products & services
Increasing price wars
Shrinking profit margins
Brands (consumer & industrial) are becoming more
similar
Formulating Blue Ocean Strategy-The Six Principles
1. Reconstruct Market Boundaries.
2. Focus on the Big Picture, Not the Numbers.
3. Reach Beyond Existing Demand.
4. Get the Strategic Sequence Right.
5. Overcome Key Organizational Hurdles.
6. Build Execution into Strategy.
What factors
should be
eliminated
that the
industry has
taken for
granted?
Eliminate
What factors should be
reduced well below the
industry standard?
Reduce
What factors
should be
created that
the industry
has never
offered?
Create
What factors should be
raised well beyond the
industry standard?
Raise
Four Actions to create a Blue Ocean
Minimizing Risks and Maximizing Opportunities in Formulating Blue Ocean
Strategy
Formulation Risks
Search Risk
Planning Risk
Scale Risk
Business Model Risk
Organizational Risk
Management Risk
Formulation Principles
Reconstruct market boundaries
Reach beyond existing demand
Get the strategic sequence right
Focus on the big picture, not the numbers
Build execution into strategy
© Kim & Mauborgne 2006
• NN changed the buyer group for diabetes
• Doctors and pure product.
• Patients and easy administration.
• NovoPen—a pen with measured doses of insulin
• Innovo—using technology to better manage delivery times.
• From insulin provider to diabetes care company
• The trend in music was web-based delivery
• Napster, Kazaa, Limewire as pirates
• Apple teams with Sony, Universal, MBG, EMI, and Warner Brothers
• Legal downloads-$0.99
• Better sound quality
• Ease of browsing, downloading
• Blue Ocean means spotting a trend and getting there first