Creating new market space: 6 blue ocean strategies

In their HBR paper “Creating new market space” and book “Blue Ocean Strategy”, W. Chan Kim and Renee Mauborgne have presented 6 strategies, so-called blue ocean strategies, for firms to create new market space. Hereafter is the summary of these strategies.

1. Look Across Alternative Industries (LINK): 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. Alternatives are broader than substitutes. Alternatives include products or services that have different functions and forms but the same purpose. Rarely do sellers think consciously about how their customers make trade-offs across alternative industries. A shift in price, a change in model, even a new ad campaign can elicit a tremendous response from rivals within an industry, but the same actions in an alternative industry usually go unnoticed. Some companies, including: NetJets, Home Depot, Intuit, have successfully applied this strategy to create new market space. Therefore, to create new market space, you should ask yourself several questions (link)

2. Look across strategic groups within industries(LINK): Strategic groups can generally be ranked in a rough hierarchical order built on two dimensions: price and performance. Each jump in price tends to bring a corresponding jump in some dimensions of performance. Most companies focus on improving their competitive position within a strategic group. The key to create a market space across existing strategic groups is to break out of this narrow tunnel vision by understanding which factors determine customers’ decisions to trade up or down from one group to another. Many companies have created new market space by looking across strategic groups such as Curves, Ralph Lauren, Toyota’s Lexus, Sony Walkman, or Champion Enterprises.. Some questions you should ask yourself in order to create new market space can be found here

3. Look across the chain of buyers (LINK): There is a chain of “buyers” who are directly or indirectly involved in the buying decision. Challenging an industry’s conventional wisdom about which buyer group to target can lead to the discovery of new market space. By looking across buyer groups, companies can gain new insights into how to redesign their value curves to focus on a previously overlooked set of buyers. Novo Nordisk, Bloomberg are among companies which have successfully utilized this strategy. To create new market space by looking across the chain of buyers, you should ask some questions, which can be found here.

4. Look across complementary product and service offerings (LINK): Untapped value is often hidden in complementary products and services. 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. There are many examples of companies that have followed this path to create new market space such as NABI, a Hungarian bus producer, Philips Electronics, Barnes & Nobles, Borders and others. In order to create new market space by looking across complementary product and service offerings, you should ask yourself the some questions (follow the link).

5. Look Across Functional or Emotional Appeal to Buyers (LINK): Companies’ behavior affects buyers’ expectations in a reinforcing cycle. Over time, functionally oriented industries become more functionally oriented; emotionally oriented industries become more emotionally oriented. But when companies are willing to challenge the functional/emotional orientation of their industry, they often find new market space. Many companies have successfully transformed their products from functional ones to emotional (or vice versa) such as: QB House (link), CEMEX (link), Starbucks (link), Swatch (link), the Body Shop (link) and more. To apply this strategy, some questions should be answered. Here are they.

6. Look across time (LINK): All industries are subject to external trends that affect their businesses over time. Think of the rapid rise of the Internet or the global movement toward protecting the environment. Looking at these trends with the right perspective can show you how to create new market opportunities. But key insights into creating new market space 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. A host of companies are creating new market space by applying this method of looking across time such as Apple, Enron, Cisco, CNN and HBO. 3 essential questions, which can be found here, should be answered.