Managing Business Model on

Blue Ocean Strategy

Yohanes Jimmy

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Blue Ocean Strategy

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Introduction
 The essence of blue ocean strategy (BOS)
◦ Avoid head-on competition and search for new market space
where the competition is irrelevant
◦ Value innovation  lifting value and saving cost simultaneously

Buyer’s Cost
• Value lifting:
− Raising and creating factors related to
the product
− i.e. the factors that are significantly
valuable for particular segments
Value
Innovation • Cost saving:
− Eliminating and reducing factors related
to the product
− i.e. the factors that are not significantly
Buyer’s Value needed by particular segments

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First edition was published in 2004. One of the most impactful strategy
books ever written. Selling over 3.6 million copies and published in 44
languages, the book has become a byword for any organization that is
looking to create new market spaces ripe for growth.

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Example-1: Low Budget Hotel
• A 2-star hotel in rural Paris faced the
conditions:
– Growth : stagnant
– Profitability : low
– Competition : saturated (too many players)
– Customers : mostly salesmen
• Go or Withdraw?
• What are customers’ behavior?
− Leave hotel at 6.00 am, come back around 10.00 pm
− No time to breakfast (food is available at seven)
− They need comfortable, hygiene bed and bathroom, and silence
rather than appealing lounge, high amenities, large bedroom

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Four Action Framework (ERRC)

ELIMINATE CREATE
• Eating facilities
• Architectural
aesthetic
• Lounge appeal

• Room size • Bed quality

• 24-hour • Hygiene
receptionist • Silence
• Room amenities • Price
REDUCE RAISE

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 Strategy Canvas
ELIMINATE REDUCE RAISE
Relative Level

2 Star

1 Star

FF

Eating Lounge 24-hour Bed Silence

facilities appeals receptionist quality
Architectural Room size Room Hygiene Price
Aesthetics amenities

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Example-2: Wine Industry

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Example of Enological Terminology

Terminology Description
Amarone A succulent higher-alcohol red wine hailing from the Veneto
region (northern Italy); made primarily from Corvina grapes
dried on racks before pressing
Cabernet A red grape common to Bordeaux with the characteristics:
Franc herbal, leafy flavor and soft, fleshy texture
Chardonnay Arguably the best and most widely planted white wine grape
Pinotage A hybrid between Pinot Noir and Cinsault that is grown
almost exclusively in South Africa
Shiraz A red grape planted extensively in the Rhone Valley of
France, Australia, and elsewhere; a spicy, full, tannic wine that
usually requires aging before it can be enjoyed
Vin Santo Sweet wine from Tuscany made from late-harvest Trebbiano
and Malvasia grapes

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US Wine Industry
• US wine industry:
– Flat demand
– Intense competition (top 8 companies produced 75% wine in
US, and about 1,600 companies produce remaining 25%)
– Price pressure
– Strong bargaining power of distribution channel

• 7 key factors in promotion to appeal customers

− Price, above-the-line marketing, aging quality of wine, wine
complexity taste, the prestige of wine’s vineyard, wine diverse
range, enological terminology
– These factors are used to compare two strategic groups
(premium and budget wines) on strategy canvas

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 US Wine Industry: As-Is

Premium Wines
Relative Level

Budget Wines

Price Above the Vineyard Wine

line prestige range
Use of enological marketing and legacy
Aging Wine
terminology and
quality complexity
distinctions in wine
communications

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Casella Family Brands
 Casella, a wine producer
company since 1820s,
recognized that:
◦ Increasing trend of non-
wine social drinker, i.e.
beer and ready-to-drink
cocktail
◦ Young American rejected
wine due to its
complicated taste difficult
to appreciate (compare to
beer and cocktail)
 They created the [yellow tail] wine in 2000 in Australia
 [yellow tail] became number one imported wine in
USA by 2003

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Capturing Noncustomer

“People can’t be bothered by all the hype and

nonsense of wine. They just want to drink it”
John Casella, Managing Director

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What [yellow tail] Does?
 Create new wine market from
non-wine social drinker
 Produce simple fruity and sweet
wine (not require many years)
 At first, only two variants
(Chardonnay and Shiraz) with
vibrant color of orange and
yellow on a black background
(easy to select)
 Avoid above-the-line marketing
 Create 3 new attributes when
drinking wine: easy drinking, easy
to select, fun and adventure

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 [yellow tail] Wine:Value Curve
RAISE ELIMINATE REDUCE CREATE

Premium Wines
Relative Level

Budget Wines
[yellow
tail]

Attract
noncustomers

Price Above the Vineyard Wine Ease of

line prestige range selection
Use of enological
marketing Aging and legacy Wine Easy Fun and
terminology and
quality complexity drinking adventure
distinctions in wine
communications

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A [yellow tail] Campaign

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Example-3: Circus Industry
 Ringling Brothers and
Barnum & Bailey Circus
– Merger of Ringling Brothers
Circus (est. 1884) and
Barnum & Bailey Circus (est.
1871) in 1919
– It was one of the greatest
and the best American circus
– With weakening attendance
and high operating costs, the
circus finally closed on May
21, 2017 (age 146 years)
– This is a common for many
circus company in the world

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 Cirque du Soleil
 Cirque du Soleil (CdS) was
another circus from Canada,
established since 1984
‒ Facing the similar pressure as
other circus, Cds succeeded to
reform itself since 1990s
‒ Cds transformed a circus show
into opera, drama, dance, and
musical entertainment, but still
keeping some circus elements
‒ Cds cuts any activities that need
high cost, such as animal show
‒ Cds’ show is a synthesis of circus
styles from around the world,
with its own central theme and
storyline.

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Cirque du Soleil: Value Curve
Eliminate Reduce Rise Create

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Summary
 BOS does not use competition as benchmark
◦ BOS follows a different strategic logic that we call value
innovation

 BOS often creates new market space (blur the boundaries of

old markets)
◦ What is Yellow Tail? Wine? Beer? Cocktail?
◦ What is Cirque du Soleil? Theater? Opera? Broadway show?
Ballet?
◦ Thus, BOS reconstructs market boundaries  create new
market in which the competition is irrelevant

 Other important contributions of BOS is to provide some

analytical tools:
◦ Four Action Framework (ERRC), Strategy Canvas, Six Path
Framework, Pioneer-Migration-Settler Map, Buyer Utility Map,
etc.

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Blue Ocean Shift

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How to Shift into Blue Ocean
Step Purpose Tools
1. Describe the • get the same picture about our Strategy Canvas
current state offering and rivals
• show similarities with rivals
2. Identify current constraints (potential opportunities)
a. Uncover pain a. search for customer problems a. Buyer utility
points that limit the appeal and size of map
industry
b. Discover b. understand why they tend to b. Noncustomer
noncustomer stay away from our industry tier
(pain point for noncustomers)
3. Reconstruct a. search for a new space where a. 6-path frame-
market no head-on competition work
boundary b. design a new value curve (to b. 4-action frame-
exploit opportunity) work (ERRC)
4. BO Moves Test, launch, implement

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1. Designing As-is Strategy Canvas
 Define the existing industry you are in
 Identify the key factors your industry competes
on
◦ 5-12 competing factors (attributes)

 Decide which key player(s) or group of key

player(s) to compare yourself with
 Rate your offering and the best-in-class player’s
or players’ along the key competing factors
 Draw your as-is strategy canvas

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As-is strategy canvas

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2a. Uncover Hidden Pain Point
(Buyer Utility Map)

Including other
activities products
pre- and or services
during needed to
purchase, make
e.g. search, yours work
compare,
haggle

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The Six Utility Lever
 Productivity: Anything to do with efficiency—less time,
effort, and/or money—in fulfilling buyers’ needs
 Simplicity: Anything that eliminates or minimizes
complexity or mental hassle
 Convenience: When and where I want something—like
24/7
 Risk Reduction: This may be financial, physical, emotional,
including reputation
 Fun and Image: This is the tangible and intangible aesthetic
look, feel, attitude, and style an offering conveys
 Environmental Friendliness: This utility lever is about
“green” matters. Is your offering environmentally friendly? Or
do buyers prefer your offering because of your organization’s
strong reputation for environmental friendliness?

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Example: Home French Fry Makers

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Example: Buyer Utility Map of Electric
Home French Fry Makers

X = pain point
that blocks
buyer utility

O = utility space
the industry
currently focus
on

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No Oil Home French Fry Maker

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2b. Discover Non-customers

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1st and 2nd Tier of Noncustomer
 First-tier noncustomers (soon-to-be):
◦ They consume the products in industry, but nothing satisfying
◦ They use existing products minimally, while searching or waiting
for something better. When an alternative appears, they will sit
on the edge of your market
◦ E.g. small merchants that actually reject the credit card payment
due to the charge they must pay

 Second-tier noncustomers (refusing):

◦ They reject products from our industry, and consume products
from another industry that is perceived better (fulfill their
needs)
◦ E.g. small merchant that have received credit card payment but
they are difficult to follow the required report and monitoring
from bank. They prefer to receive cash or checks payment

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3rd Tier of Noncustomer
 Third-tier noncustomers (unexplored):
◦ Commonly, they have never been thought of as
potential customers, nor targeted by any of the
industry’s players, because their needs and the
business opportunities associated with them have
always been assumed to belong to other industries
◦ E.g. transaction between individuals are left off the
table and unexplored, because they are assumed to
belong to another industry (i.e. cash and checks)

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3. Reconstruct Market Boundary

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Path-1: Across Alternative Industries

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Path-2: Across Strategic Group

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Path-3: Across Chain of Buyers
 Look for group of buyers
◦ Purchaser, users, influencers
◦ They often hold different definition of value
◦ Key concept: shifting between group of buyers often create new
market space

 Example: Insulin Industry

◦ Pharmaceutical industries compete on the purity of insulin as the
major aspect to appeal influencers (doctor)
◦ Novo Nordisk shifted from influencers to users (diabetes
patient) by introducing NovoPen (1985) and NovoLet (1989)

 Users Background
◦ Many of patients needed to inject insulin several times per day
◦ They have to carry syringes and vials everywhere and administer
the doses in an accurate way

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 Path-3: NovoPen
Relative Level

NovoPen

Syringe and vial

Price per Easy to Easy to Design

unit insulin carry understand Appeal
delivered Easy to use Preparation time Dosing
(before use) Precision

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Path-4: Across Product and Service
 Look for dissatisfaction or uncomfortable of existing
products or services.
◦ Key concept: improve the weakness of existing products,
or increase more value by offering complement products
(it is almost similar with breaking the compromise).

 Example: US transit bus in 1990

◦ Regulated low price
◦ Existing players: initial low investment, old design, late
delivery time, low quality, uncomfortable.
◦ NABI, an Hungary-based company, created a blue ocean in
US transportation indiustry
◦ Higher investment to reduce operational cost, while
improve bus amenities

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Path-4: NABI: Transit Bus Company

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Path-5: Rethink Functional vs. Emotional
 Companies compete in the market based on
functional or emotional-driven appeals
◦ Some company are willing to change the functional-
emotional orientation of their industry
◦ Key concept: transformation between functional and
emotional driven often creates new market space

 Example:
◦ Swatch (from Switzerland) transformed functionally-driven
budget watch industry into an emotionally-driven fashion.
◦ The Body Shop transformed emotionally-driven cosmetic
industry into functional-cosmetic house
◦ QB (Quick Beauty): from emotional to functional
barbershop

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Path-5: QB House

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Path-6: Shaping External Trends
 Respond the trend:
◦ It is very difficult to predict the trend
◦ But trend may disrupt existing business
◦ It also offer many opportunities to create new value
◦ Key concept: identifying insight from a trend offers new
ways to create value, that might reshape the industry

 Example:
◦ Perkin Elmer (from optic product to bioscience)
◦ Harman International (introduced car entertainment)
◦ Apple (from computer to digital music, e.g. iTunes and
iPod)
◦ Nike (introduced Nike+)

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Path-6: Apple
 Background:
◦ Apple observed the flood of illegal music sharing (late 1990s)
◦ People can download free (low quality) music from Napster,
Kazaa, LimeWire, instead of paying $19 for a CD.
◦ Apple also recognized that people like to collect individual
different songs rather than song collection in a CD.
◦ The trend revealed the fast growing for MP3 music (and its
player).

 What Apple did?

◦ Apple launched iTunes and iPod
◦ iTunes offers legal, easy-to-use, and flexible a la carte song
downloads (agreement with Sony, BMG, Warner, EMI, etc)
◦ More than 200,000 high quality songs are available, listen to 30s
samples, and download for 99 cents per song.

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Six-Path Framework

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Blue Ocean Business Model

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Blending BOS and BMC
 Blending BOS and the BMC lets you systematically
analyze a business model innovation in its entirety
◦ BOS = value innovation
(cost saving, value lifting)

◦ BMC = changes in a
block impacts on others

 Appling Four-Action Framework (ERRC) on BMC:

◦ Exploring value proposition impact
◦ Exploring customer impact
◦ Exploring cost impact

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Cirque du Soleil

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Nintendo Wii

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Appling ERRC on BMC
• What less-valued features or services
could be eliminated or reduced?
• What features or services could be
enhanced or newly created to produce
a valuable new customer experience?
• What are the cost implications of your
changes to the Value Proposition?
• How will changes to the Value
Proposition affect the customer side of
the model?
• Which new Customer Segments could
you focus on, and which segments could
you possibly reduce or eliminate?
• What jobs do new Customer Segments
really want to have done?
• How do these customers prefer to be
reached and what kind of relationship do
they expect?
• What are the cost implications of serving
new Customer Segments?
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Appling ERRC on BMC

• Which activities, resources, and

partnerships have the highest costs?
• What happens if you reduce or
eliminate some of these cost factors?
• How could you replace, using less
costly elements, the value lost by
reducing or eliminating expensive
resources, activities, or partnerships?
• What value would be created by
planned new investments?

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