In the broadest sense, a company competes not only with the other firms in its own industry but also with companies in those other industries that produce alternative products or services.
What are the alternative industries to your industry? Why do customers trade across them? By focusing on the key factors that lead buyers to trade across alternative industries and eliminating or reducing everything else, you can create a blue ocean of new market space.
The key to creating a blue ocean across existing strategic groups is to break out of this narrow tunnel vision by understanding which factors determine customers' decision to trade up or down from one group to another.
What are the strategic groups in your industry? Why do customers trade up for the higher group and why do they trade down for the lower one?
In most industries, competitors converge around a common definition of who the target buyer is. In reality there is a chain of "buyers" who are directly or indirectly involved in the buying decision.
By questioning conventional definitions of who can and should be target buyer, companies can often see fundamentally new ways to unlock value.
The key is to define the total solution buyers seek when they choose a product or service. A simple way to do so is to think about what happens before, during and after your product is used.
What is the context in which your product or service is used? What happens before, during and after? Can you identify the pain points? How can you eliminate these pain points through a complementary product or service offering?
Over time, functionally oriented industries become more functionally oriented, emotionally oriented industries become more emotionally oriented. No wonder market research rarely reveals new insights into what attracts customers. Industries have trained customers on what to expect.
Does your industry compete on functionally or emotionally appeal? If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete on functionality, what elements can be added to make it emotional?
All industries are subject to external trends that affect their business over time.
But key insights into blue ocean strategy rarely come from projecting the trend itself. Instead they arise from business insights into how the trend will change value to customers and impact the company's business model. By looking across time - from the value a market delivers today to the value it might deliver tomorrow.
What trends have a high probability of impacting your industry, are irreversible and are evolving in a clear trajectory? How will these trends impact your industry? Given this, how can you open up precedented customer utility?
The process of discovering and creating blue oceans are engaged in a structured process of reordering market realities in a fundamentally new way. Through reconstructing existing market elements across industry and market boundaries.
Focus on the big picture, not the numbers.
Reach beyond existing demand by thinking noncustomers before customers. Commonalities before differences and desegmentation before pursuing finer segmentation.
Actual delivery of performance is a function of not only creative conception but also good execution.
You should focus on the tier that represents the biggest catchment that your organization has the capability to act on. But you should also explore whether there are overlapping commonalities across all three tiers of noncustomers.
The point here is not to argue that it's wrong to focus on existing customers but rather to challenge these existing taken-fro-granted strategic orientations.
Three alternative product/service types: Same form | Different form - same function | Different form and function - same objective
A good way to look outside industry boundaries is to list products and services that fall into two categories: Those that take different forms but perform the same functions and those that take different forms and functions but share the same overarching objective.
It helps to determine how high a price an industry can afford to set within the corridor without inviting competition from imitation products or services.
From strategic pricing to target costing
A price-minus costing and not cost-plus pricing is essencial if you are to arrive at a cost structure that is both profitable and hard for potential followers to match.
Part of the challenge of meeting the target cost is addressed in building a strategic profile that has not only divergence but also focus, which makes a company strip out costs.
The first involves streamlining operations and introducing cost innovations from manufacturing to distribution.
Partnering provides a way for companies to secure needed capabilities fast and effectively while dropping their cost structure.
