INTRODUCTION

How to create uncontested market

space and the make competition
irrelevant
To avoid costly competition ,firms can
innovate or expand in the hope of
finding a blue ocean. A blue ocean
exists where no firms currently
operate, leaving the company to
expand without competition.

VALUE INNOVATION
Value innovation is created in the region
where a companys actions favorably affect
both its cost structure and its value
proposition to buyers. Cost savings are
made by eliminating and reducing the
factors an industry competes on. Buyer
value is lifted by raising and creating
elements the industry has never offered.

Value Innovation

Costs

Value
Innovation

Buyer Value

Red Ocean Versus Blue Ocean Startegy

Red Ocean Strategy

Blue Ocean Strategy

Compete in existing market

space.

Create uncontested market

space.

Beat the competition.

Make the competition

irrelevant.

Exploit existing demand.

Create and capture new

demand.

Make the value-cost trade-off. Break the value-cost tradeoff.

Align the whole system of a
firms activities with its
strategic choice of
differentiation or low cost.

Align the whole system of a

firms activities in pursuit of
differentiation and low cost.

The Six Principles of Blue Ocean Strategy

Formulation Principles
Reconstruct market boundaries
Focus on the big picture, not the
numbers
Reach beyond existing demand
Get the strategic sequence right
Evaluation principles
Overcome key organizational
hurdles
Build execution into strategy

Risk factor each principle

attenuates
Search risk
Planning risk
Scale risk
Business model risk

Risk factor each principle

attenuates
Organizational risk
Management risk

Strategy Canvas
The strategy canvas is both a diagnostic and an action framework for building a compelling blue
ocean strategy. It captures the current state of play in the known market space. This allows you to
understand where the competition is currently investing, the factors the industry currently competes
on in products, service, and delivery, and what customers receive from the existing competitive
offerings on the market. The horizontal axis captures the range of factors the industry competes on
an invests in. The vertical axis captures the offering level that buyers receive across all these key
competing factors. The value curve then provides a graphic depiction of a companys relative
performance across its industrys factors of competition.

Strategy Canvas

High

Low
Price

Wine range
Above-the-line
Vineyard prestige
Use of
enological marketing Aging and legacy Wine
quality
complexity
terminology

Four Actions Framework +

Eliminate/Reduce/Raise/Create Grid
The four actions framework offers an
technique that breaks the trade-off between
differentiation and low cost and to create a
new value curve. It answers the four key
questions of what industry takes for granted
and needs to be eliminated; what factors need
to be reduced below industry standards; what
factors need to be raised above industry
standards; and what should be created that
the industry has never offered.

Reduce

Which factors should be

reduced well below
industry standards?

Eliminate

Which of the factors

that the industry takes
for granted should be
eliminated?

A
New
Value
Curve

Raise

Which factors should

be raised well above
the industrys standard?

Create

Which factors should be

created that the industry
has never offered?

Four Steps of Visualizing Strategy

The four steps of visualizing strategy builds on the six paths of creating blue
oceans and involves a lot of visual stimulation in order to unlock peoples
creativity. The four steps include visual awakening, visual exploration, visual
strategy fair, and visual communication.
1.

Visual
Awakening

Compare your
business with your
competitors by
drawing your as is
strategy canvas.
See where your
strategy needs to
change

2.

Visual
Exploration

3.

Visual Strategy
Fair

Go into the field to

explore the six paths to
creating blue oceans.

Draw your to be strategy

canvas based on insights
from field observations.

Observe the distinctive

advantages of
alternative products and
services.

Get feedback on
alternative strategy
canvases from customers,
competitors customers,
and noncustomers.

See which factors you

should eliminate,
create, or change.

Use feedback to build the

best to be future strategy.

4.

Visual
Communicatio
n

Distribute your beforeand-after strategic profiles

on one page for easy
comparison.
Support only those
projects and operational
moves that allow your
company to close the
gaps to actualize the new
strategy.

Pioneer, Settler, Migrator Map

A corporate management team pursuing profitable growth can plot the
companys current and planned portfolios on a pioneer-migrator-settler
(PMS) map. This strategy can help a company determine which businesses
experience the highest and lowest growth and cash flow. These are
classified accordingly with the highest growth potential being pioneers, then
to migrators, then to the lowest rung, settlers.

Pioneers

Migrators

Settlers

Today

Tomorrow

Three Tiers of Noncustomers

There are three tiers of noncustomers that can be transformed into
customers. They differ in their relative distance from your market. The
first tier of customers minimally buy an industrys 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 markets
offerings as an option.

First
Tier
Your
Market

Second
Tier

Third
Tier

Sequence of Blue Ocean Strategy

Buyer utility
Is there exceptional buyer utility in your
business idea?

An important part of blue ocean strategy is to

get the strategic sequence right. This
sequence fleshes out and validates blue
ocean ideas to ensure their commercial
viability. This can then reduce business
model risk. In this model, potential blue
ocean ideas must pass through a sequence
of buyer utility, price, cost, and adoption. At
each step there are only two options: a yes
answer, in which case the idea may pass to
the next step, or no. If an idea receives a
no at any point, the company can either park
the idea or rethink it until you get a yes.

No-- Rethink

Yes

Price
Is your price easily accessible to the
mass of buyers?
No-- Rethink
Yes

Cost
Can you attain your cost target to profit
at your strategic price?

No-- Rethink

Yes

Adoption
What are the adoption hurdles in
actualizing your business idea? Are you
addressing them up front?
Yes

A Commercially
Viable Blue Ocean
Idea

No-- Rethink

Buyer Utility Map

The buyer utility map helps managers look at this issue from the right
perspective. It outlines all the levers companies can pull to deliver exceptional
utility to buyers as well as the various experiences buyers can have with a
product or service.
The Six Stages of the Buyer Experience Cycle

The Six Utility Levers

Customer
Productivity
Simplicity

Convenience

Risk
Fun and
Image
Environmental
friendliness

1.

2.

3.

4.

5.

6.

Purchase

Delivery

Use

Supplements

Maintenance

Disposal

Buyer Experience Cycle

A buyers experience can usually be broken into a cycle of six stages,
running more or less sequentially from purchase to disposal. Each
stage encompasses a wide variety of specific experiences. At each
stage, managers can ask a set of questions to gauge the quality of
buyers experience.
Purchase

Delivery

How long does it

take to find the
product you
need?

How long does

it take to get
the product
delivered?

Is the place of
purchase
attractive and
accessible?

How difficult is
it to unpack
and install the
new product?

How secure is
the transaction
environment?

Do buyers
have to
arrange
delivery
themselves? If
yes, how costly
and difficult is
this?

How rapidly can

you make a
purchase?

Use
Does the product
require training or
expert assistance?
Is the product easy to
store when not in
use?
How effective are the
products features
and functions?
Does the product or
service deliver far
more power or
options than required
by the average user?
Is in overcharged with
bells and whistles?

Supplements
Do you need other
products and
services to make
this product work?
If so, how costly are
they?
How much time do
they take?
How easy are they
to obtain?

Maintenance

Disposal

Does the product

require external
maintenance?

Does use of the

product create
waste items?

How easy is it to
maintain and
upgrade the
product?

How easy is it to
dispose of the
product?

How costly is
maintenance?

Are there legal

or
environmental
issues in
disposing of the
product safely?
How costly is
disposal?

Uncovering Blocks to Buyer Utility

Uncovering blocks to buyer utility can identify the most compelling
hot spots to unlock exceptional utility. By locating your proposed
offering on the thirty-six space of the buyer utility map, you can
clearly see how, and whether the new idea not only creates a
different utility proposition from existing offerings but also removes
the biggest blocks to utility that stand in the way of converting
noncustomers into customers.
Purchase

Delivery

Use

Supplements

Maintenance

Disposal

Customer Productivity:

In which stage are the biggest blocks to customer productivity?

Simplicity:

In which stages are the biggest blocks to simplicity?

Convenience:

In which stage are the biggest blocks to convenience?

Risk:

In which stage are the biggest blocks to reducing risks?

Fun and Image:

In which stage are the biggest blocks to fun and image?

Environmental
Friendliness:

In which stage are the biggest blocks to environmental friendliness?

Price Corridor of the Mass

This tool helps managers find the right price for an irresistible offer, which, by
the way, isnt necessarily the lower price. The tool involves two distinct buy
interrelated steps. The first step involves identifying the price corridor of the
mass which deals with customer price sensitivity and pricing strategies of
products offered outside the group of traditional competitors. The second step
deals with specifying a level within the price corridor which factors in legal
protection and exclusive assets.
Step 1: Identify the price corridor
of the mass.

Step 2: Specify a price level within the

price corridor.

Three alternative product/service types:

Same
form

Different form,
same function

Different form and

function, same
objective

n
rici
el p
v
e
l
erUpp

Price Corridor
of the Mass

Mid-level pricing
Lower-le
v

el pricin
g

High degree of legal and resource

protection
Difficult to imitate
Some degree of legal and resource
protection
Low degree of legal and resource
protection
Easy to imitate

Profit Model of Blue Ocean Strategy

The profit model of blue ocean strategy shows how value
innovation typically maximizes profit by using the three levers of
strategic price, target cost, and pricing innovation.
The Strategic Price

The Target Profit

The Target Cost

Streamlining and Cost

Innovations

Partnering

Pricing Innovation

Blue Ocean Idea Index

The blue ocean idea index is a simple but robust test
demonstrating how the sequence of utility, price, cost, and
adoption form an integral whole to ensure commercial success
through blue ocean strategy.

Philips Motorola
Iridium
CD-i
Utility

Price

Cost

Adoption

DoCoMo
I-mode
Japan

Is there exceptional utility? Are there

compelling reasons to buy your offering?

Is your price easily accessible to the

mass of buyers?

Does your cost structure meet the target

cost?

Have you addressed adoption hurdles up

front?

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