To break from competition, a organization has to reconstruct the market boundary which is the first and foremost principle in creating blue ocean strategy. There are six basic approaches to reconstruct market boundaries, also known as Six Paths Framework. These paths challenge the conventional approach of the organization in strategy formulation to work within its boundaries, but instead break out of the known boundaries. This helps them to move out of red oceans and create blue oceans.
The six paths framework in formulating blue ocean strategy are (1) Look across alternative industries, (2) Look across strategic groups within industry, (3)Look across buyer groups, (4) Look across complementary product and service offerings, (5)Look across the functional-emotional orientation of an industry and (5)Look across time to shape trends.
Organizations compete not only within the industries but also with organizations in other industries which produce alternative product and services to their industry.
One of the biggest limitations we put on our organization is to assume that our products/services compete in a defined and unchanging industry with a very narrow view of the environment.
The first path in formulating the blue ocean strategy is to find the alternative industries to your industry’
In order to understand this path let us first understand difference between substitute and alternative:
Let us consider an example from entertainment industry. The function of this industry is to provide entertainment and the purpose of this industry is relax, rewind, de-stress, experience and fun. The substitutes to this industry are CDs, TV, stage shows, etc. But the alternatives to this industry include visiting a mall, library, hobby centre, etc., all of which serves the same purpose.
Thus by focusing on the key factors that lead buyers to trade across alternative industries and by eliminating or reducing everything else, you can create a blue ocean of new market space.
Let us take the case of pro-biotic drink Yakult. It competes with health drinks, juice brands, at the same time it competes with pharma industry. However, both health drinks producers & pharma brands don’t consider Yakult as their competition. Thus Yakult has created a blue ocean for itself across industries.
Strategic groups within Industries are group of organizations within an industry that pursue a similar strategy. Strategic groups include a hierarchical order built on two dimensions, price and performance. Thus by looking across strategic groups, an organization has to find why do buyers trade up for the higher group, and why do they trade down for the lower one?
TATA chose not to compete with entry level strategic group of cars in India such as Maruti Omni, Maruti 800, Alto & Hyundai Santro. Instead it questioned the un-questioned notion that cars can’t be less than a lakh of Indian Rupees. It looked for factors which, Maruti 800 buyers would trade down or 2 wheeler buyers would trade up!
In most industries, competitors converge around a common definition of target buyer. However there are chain of buyers who are directly or indirectly involved in buying decisions, such as:
Thus blue ocean strategy is formulated by finding out who are the chain of buyers in your industry and which buyer group does your industry typically focus on? And if you shift the focus from one buyer group to another, how can you unlock new value?
Novodisk, a leading producer of insulin created blue ocean by focusing on diabetes patients instead of doctors & nurses who are traditionally targeted. Thus they created travel friendly, easy to use, hassle free, easy to set, fancy looking, pen like shots instead of syringes and insulin bottles.
An organization has to think about what happens before, during, and after your product/service is used by the consumers. In most industries, competitors converge within the boundary of their industry’s product and service offerings. By understanding the context in which your product or service is used and what happens before, during, and after, you can identify pain points (constraints) of the consumers, eliminate these pain points through a complementary product or service offering.
Philips saw that the biggest issue in brewing tea was not in the kettle itself but in the complementary product of water, which had to be boiled in the kettle. The issue was the lime scale found in tap water. Philips saw this as an opportunity and solved the major pain point of customer that related to water rather than their kettle by adding a mouth filter in the kettle that effectively captured the lime scale as the water was poured.
Emotional Appeal to buyers refers to the emotional utility a buyer receives in the consumption or use of a product or service. Competition tends to converge on one of two possible basis of appeal. ‘What are the extras we offer that add to the cost of our product without enhancing functionality? By eliminating or reducing these factors, can we create a simpler, functional, lower-priced, lower-cost offering that would dramatically raise buyers’ value’. These are to be questioned in blue ocean strategic formulation.
Functional Appeal to buyers refers to the functional utility buyers receive from a business or product/service based on basic calculations of utility and price. Competition in an industry tends to converge on one of two possible basis of appeal. What emotional elements can we raise or create to infuse our commodity products with new life by adding a dose of emotion?
By understanding your industry focus on functionality or emotional appeal, you can either compete on emotional appeal by stripping functional elements or compete on functionality by adding emotional elements.
Fast Food producer, Subway uses emotional appeal to trade up its range of products which usually have more functional appeal rather than emotional. Fast food industry is driven by price and waiting time which are functional. This industry rarely competes on emotional appeal.
Many of us respond to trends in our industry at the point they are making an impact. In other words we create reactive strategies, which allow us to adapt to a changing environment. All industries are subject to external trends that affect their business over time. Instead of adapting incrementally and somewhat passively, one can gain insights into how the trend(s) will change value to customers and impact their organization’s business model.
To assess trends across time, three criteria are critical: the trend must be decisive to the business, irreversible and have a clear trajectory. By knowing what trends have a high probability of impacting your industry, are irreversible, and evolving in a clear trajectory, you can open up unprecedented customer utility.
When we look across these six paths at the commencement of our strategy formulation we find that this process helps us create new perspectives. Our thinking becomes more creative.
It seems simple, because it is. However, it’s when we actually start the process of looking across these six paths we find our assumptions start to break down and simultaneously we awaken to new perspectives about our organization and its industry. And it’s from this place that innovations and new opportunities are created.