3. Merriam-webster
- A careful plan or method for achieving a particular goal usually over a
long period of time.
Wikipedia
- A high level plan to achieve one or more goals under conditions of
uncertainty.
Business dictionary
1. A method or plan chosen to bring about a desired future, such as
achievement of a goal or solution to a problem.
2. The art and science of planning and marshalling resources for their
most efficient and effective use.
Definition of Strategy
Oxford dictionaries
- A plan of action designed to achieve a long-term or overall aim.
P 2/129
4. Definition of Tactic
Oxford dictionaries
- An action carefully planned to achieve a specific end.
Business dictionary
- Means by which a strategy is carried out; planned and ad hoc activities
meant to deal with the demands of the moment, and to move from one
milestone to other in pursuit of the overall goal(s).
- In an organization, strategy is decided by the board of directors, and tactics
by the department heads for implementation by the junior officers and
employees.
Merriam-webster
- An action or method that is planned and used to achieve a particular goal.
Wikipedia
- A conceptual action implemented as one or more specific tasks.
P 3/129
6. BOS-Introduction-01
- Blue ocean strategy is based on a decade long study of
more than 150 strategic moves spanning more than 30
industries over 100 years.
- BOS is based upon analyzing winning business players who
created blue oceans and their less successful competitors.
Search was done for convergence among the group that
created blue oceans and within less successful players caught
in the red ocean, and also for divergence across these two
groups.
Southwest
Airlines
- Blue Ocean Strategy book has sold over 3.5 million copies
and is being published in a record-breaking 44 languages. It is
a bestseller across five continents. It has won numerous
awards.
P 5/129
7. BOS-Authors
Renée Mauborgne
The INSEAD Distinguished Fellow and a professor
of strategy at INSEAD, the world’s second largest
business school. She is also Co-Director of the
INSEAD Blue Ocean Strategy Institute.
Mauborgne is a member of President Barack
Obama’s Board of Advisors .She is also a Fellow of
the World Economic Forum.
Mauborgne has been consistently ranked in the
top 3 in The Thinkers50 listing of the World’s Top
Management Gurus.
. In 2014, Mauborgne and W. Chan Kim, received the Carl S. Sloane Award for Excellence from the Association
of Management Consulting Firms due to the impact their management research has made on the global
consulting industry, in 2013 were named among the world’s top five best business school professors in 2013
by MBA Rankings.
Both won the 2011 Thinkers50 Strategy Award, and both were selected for the 2011 Leadership Hall of Fame
by Fast Company magazine.
W. Chan Kim
Chair Professor of Strategy and International
Management at INSEAD, France and Co-Director of
the INSEAD Blue Ocean Strategy Institute.
He was a professor at the University of Michigan
Business School, USA.
He is an advisory member for the European Union
and serves as an advisor to several countries.
Kim is a Fellow of the World Economic Forum.
Kim has been consistently ranked in the top 3 in
The Thinkers50 listing of the World’s Top
Management Gurus.
P 6/129
8. Red Ocean Vs Blue Ocean Strategy
Align the whole
system of a firm’s
activities WITH ITS
STRATEGIC CHOICE
of differentiation
or low cost.
Compete in
existing
market
Beat the
competition
Make the
“value-cost
trade off
Exploit
existing
demand
Align the whole
system of a firm’s
activities
IN PURSUIT
of differentiation
or low cost.
Create
unconte-
sted
market
space
Make the
competiti
on
irrelevant
Break the
“value-cost
trade off
Create &
Capture
New
demand
P 7/129
9. BOS-Tools
Formulation
Sequence of
Blue Ocean Strategy
Buyer
Utility Map
Pioneer Migrator
Settler Map
Price corridor
of the mass
Visualizing
Strategy
Execution
Four Hurdles to
Strategy Execution Tipping Point Leadership Fair Process
Value
Innovation
Four Actions
Framework ERRC Grid
Six Paths
Framework
Strategy Canvas
Analysis and Planning
Three Tiers Of
NonCustomers
P 8/129
10. BOS-Cornerstone_ Value Innovation 01
Value
Innovation
{Value + Innovation} Differentiation + Low Cost
Creating Greater Value @t Higher Cost.
OR
Creating Reasonable Value @ Lower Cost.
Value
Creation
{Value – Innovation}
Technology innovation
(Market Pioneering)
Innovation Value
Creation
Lifts company’s position in the existing Market Space, but doesn’t create Blue Ocean.
P 9/129
11. BOS-Cornerstone_ Value Innovation 02
Eliminate,
Reduce,
Raise,
Create,
FactorsIndustryCompeteson.
Elements that Industry has (not) never
offered.
P 10/129
12. BOS-Red Ocean vs Blue Ocean
Compete
in existing
market
Exploit
existing
demand
Racing to
beat the
competition
Create
uncontested
market space
Make the
competition
irrelevant
Create &
Capture New
demand
P 11/129
13. BOS-Analysis & Planning
The Eight Principles
Formulation Principles Risk Factor Each Principle Attenuates
Reconstruct market boundaries. Search risk (for opportunities).
Focus on the big picture, not the numbers. Planning risk.
Reach beyond existing demand. Scale risk.
Get the strategic sequence right. Business Model risk.
Execution Principles Risk Factor Each Principle Attenuates
Overcome key organizational hurdles. Organizational risk.
Build execution into strategy. Management risk.
Align the value, profit and people propositions. Sustainability risk.
Renew Blue Oceans. Renewal risk.
P 12/129
14. BOS-Analytical Tools & Frameworks
01-Analysis & Planning
Four Actions
Framework
ERRC Grid
Strategy Canvas
Six Paths Framework
Three Tiers Of
NonCustomers
P 13/129
15. Analysis & Planning BOS-01_Strategy Canvas-01
Diagnostic & Action Framework for building BOS.
1- It shows the strategic profile of an industry by depicting clearly the present & the
possible future factors that affects competition among industry players.
2- It shows the strategic profile of current & potential competitors, identifying which
factors they invest in strategically.
3- It shows the company’s strategic profile (value curve), depicting how it invests in the
factors of competition (present & future).
P 14/129
16. Analysis & Planning BOS-01_Strategy Canvas-02
Focus and Divergence
Mission:
Cirque du Soleil is an
international organization
founded in Quebec
dedicated to the creation,
production and
performance of artistic
works whose mission is to
invoke the imagination, to
provoke the senses and to
evoke the emotions of
people around the world.
Goal:
In the pursuit of its
dreams and in its business
practices, Cirque du
Soleil strives to
position itself in the
community as a
responsible proponent
of change.
P 15/129
19. Analysis & Planning BOS-02_Four Actions Framework-01
A new
Value
Curve
Reduce
Which Factors
should be
reduced below
the industry’s
standard?
Create
Which factors
should be created
that the industry
has never/not
offered?
Raise
Which factors
should be raised
well above the
industry’s
standard?
Eliminate
Which of the
factors that the
industry takes to
granted should be
eliminated?
Eliminate factors that companies in
the industry have long competed on
while benchmarking one another,
often no longer they have value or
may even detract from value.
Reduce products or services
overdesigned in the race to
match or beat the competition.
Uncover & eliminate
compromises industry forces
customers to make.
Discover new values for buyers,
create new demand.
Will drop cost
structure vis-à-vis
competitors.
It will shift the
strategic pricing of
the industry.
P 18/129
21. Analysis & Planning BOS-03_ERRC Grid-01B
Eliminate Raise
Star Performers
Price
Animal Shows
Aisle Concession Sales
Unique Venue
Multiple Show Arenas
Reduce Create
Fun and Humor Theme
Refined Environment
Thrill and Danger Multiple Productions
Artistic Music and Dance
P 20/129
22. Analysis & Planning BOS-03_ERRC Grid-02A
Aurora Health Care is an integrated, not-for-profit, and all-for-people
health care provider serving communities throughout eastern
Wisconsin and northern Illinois.
Aurora got its start in 1984
when two established
Milwaukee hospitals, St.
Luke's Medical Center and
Good Samaritan Medical
Center, came together to
form Aurora Health Care.
Today Aurora Healthcare serves communities throughout eastern
Wisconsin and northern Illinois, with 15 hospitals, more than 150 clinics
and 70 pharmacies in 30 communities.
Aurora St Luke’s Medical Center financial model is –roughly- 80% FFS and
20% VBP now; expecting to be 65%FFS/35%VBP in the near future. (Mr.
Bradley Kruger, Vice President of Operations)
P 21/129
23. Analysis & Planning BOS-03_ERRC Grid-02B
Aurora St. Luke Medical Center applying a blue ocean approach ; they value-
innovated their “Transcatheter Aortic Valve Replacement” program (TAVR).
Traditionally, in our strategy meetings we spent a lot of time talking
about the competition, analyzing their trends, numbers, and
drilling down into the procedural details of their volumes. Our goal
was to beat the competition and grow by taking their market
share. And very often, we cut costs at the expense of value, or
improved value at increased costs.
Blue ocean strategy inspired me to ask; instead of choosing between lowering
costs and improving value and quality, could we achieve differentiated value at
lower cost? And I realized that to do so we needed to apply blue ocean strategy.
The results:- A leap in value for the patients, a 40% decrease in staffing
costs and a spectacular 350% raise in contribution margin.
P 22/129
24. Analysis & Planning BOS-03_ERRC Grid-02C
- The physicians and administration at
Aurora St. Luke’s partnered with GE
Healthcare and the device company
Medtronic to redesign the care model.
- The objective was to deliver the care
faster and with greater precision to
patients, thereby greatly reducing the
risk for patients associated with a long
waiting period or a second-time
operation. In the meantime.
The redesigned model also significantly lowered the
procedure cost.
The GE Discovery IGS 730 at Aurora St. Luke’s Medical Center
P 23/129
25. Analysis & Planning BOS-03_ERRC Grid-02D
Eliminate
Conventional Operating
room
Switching cost for the
patient
Reduce
Number of teams in the
same period of time
Number of staff for the
procedure.
Raise
Speed of getting patients
to the procedure
Quality of the procedure
Seamless handover to
traditional surgery
Create
Hybrid ORs combined by
a central control room
Inter-system pathway
Cross system surveillance
P 24/129
26. Analysis & Planning BOS-03_ERRC Grid-03A
- The insulin industry, like most of the pharmaceutical industry,
focused its attention on the key influencers: doctors, their
importance in affecting the insulin purchasing decision of diabetics
made them the target buyer group of the industry.
- The industry geared its attention and efforts to produce purer
insulin in response to doctors’ quest for better medication.
By the early 1980s Novo itself had already created insulin that was a chemically
exact copy of human insulin. As long as the purity of insulin was the major
parameter upon which companies competed, little progress could be made further
in that direction and competitive convergence was rapidly occurring.
- Novo created a blue ocean by shifting the industry’s longstanding focus on doctors
to the users – patients themselves.
Regular Human Insulin
P 25/129
27. Analysis & Planning BOS-03_ERRC Grid-03B
- The Novo Nordisk case study illustrates how market boundaries can be reconstructed
by looking across the chain of buyers, in blue ocean strategy’s six paths framework.
Regular Human Insulin
NovoPen, the first user-friendly insulin delivery solution.
NovoLet, a pre-filled disposable
insulin injection pen with a dosing
system
Innovo, an integrated electronic memory and
cartridge based delivery system.
P 26/129
29. Analysis & Planning BOS-04_ERRC Grid-01A
Tier3
“Unexplored”
Tier2
“Refusing”
Tier1
“Soon-to-be”
Current
Market
Tier 1:
“Soon-to-be” noncustomers who are on
the hedge of the company’s market
waiting to jump ship.
Current Market:
Customers of the company’s industry.
Tier 2:
“Refusing”; noncustomers who
consciously choose against the
company’s market.
Tier 3:
“Unexplored” noncustomers who are in
markets distant from the company’s.
P 28/129
30. Analysis & Planning BOS-04_ERRC Grid-01B
How Gillette unlocked the three tiers of customers
- Early in 1900s, the customers of the industry were “Medium and
High income city dwellers” and Barbers.
- The main competition between manufacturers was about life
lasting razors, forged blade, size of blade and price of the razor.
- Shaving was not a common habit, mostly barbers were the one to
shave since it was a hassle.
- In 1900, less than 26 million people lived in metropolitan cities
were barber shops were available.
P 29/129
31. Analysis & Planning BOS-04_ERRC Grid-01C
How Gillette unlocked the three tiers of customers
Tier3
“Unexplored”
Tier2
“Refusing”
Tier1
“Soon-to-be”
Current
Market
Tier 1:
Occasional shavers (usually go to barber shops).
Current Market:
“Medium and High income city dwellers” and Barbers.
Tier 2:
Rural residents (70% of population), they didn’t
shave because shaving was considered
inconvenient, difficult, unsafe and not in
fashion, only for special occasions.
Shaving kit was $15.75 while a man’s suit was
$12-15.
Tier 3:
Women (37 million, 12 million between 20-39 age), certainly couldn’t go
to barber shops, shaving kits were expensive and unsafe to use..
P 30/129
32. Analysis & Planning BOS-04_ERRC Grid-01D
How Gillette unlocked the three tiers of customers
Eliminate
Life lasting razors
Forged blade
Reduce
Size of blade
Raise
Safety
Ease of use
Create
Maintenance-free
Fashion & image
In 1903, Gillette changed the business model of
the industry by inventing the safety razor with
disposable blades
P 31/129
33. Analysis & Planning BOS-04_ERRC Grid-01E
How Gillette unlocked the three tiers of customers
- In 1910, fashion introduce less length
for skirts & dresses, hair removal for
women started to become fashionable.
- Gillette introduced “Milady Décolleté.
P 32/129
34. Analysis & Planning BOS-04_ERRC Grid-01F
How Gillette unlocked the three tiers of customers
High
Low
P 33/129
35. Analysis & Planning BOS-04_ERRC Grid-01G
How Gillette unlocked the three tiers of customers
- During WWI, soldiers needed to be
shaven to use gas mask.
- Gillette sold to the army 3.5 million
razors and 32 million blades.
- Returning home, these soldiers were seen heroes, shaving began
to be fashionable and they had acquired the habit to shave
regularly during the war.
P 34/129
36. Analysis & Planning BOS-Characteristics of a successful strategy-01
The Three Characteristics of a Good Strategy
P 35/129
37. Analysis & Planning BOS-Characteristics of a successful strategy-02
When the value curve lacks “Focus”: Cost structure tends to be high
& the business model tends to be complex in implementation &
execution.
X
When the value curve lacks “Divergence”: Company strategy will be
“me-too”, with no reason to stand apart in te market space.X
When the strategy lacks “Compelling Tagline” that speaks to the buyers:
It is most likely to be internally driven, i.e. a classic example of
innovation for innovation’s sake with no great commercial potential.
e.g. Southwest tagline would be successful : The speed of a plan at the
price of the car.
X
P 36/129
38. Analysis & Planning BOS-Characteristics of a successful strategy-03
Abnormalities
Overdelivery without Payback: If the value curve on the strategy canvas is shown to
deliver high levels across all factors, it signals that the company is oversupplying to its
customers.
- Strategic contradictions: Happens when offering high level on one competing
factor while ignoring other(s) that support that factor; e.g. investing heavily in
making a company’s website easy to use but failing the site’s slow speed of
operation.
- Internally driven: Labeling the industry competing factor on the strategy canvas
should be sated in terms buyers understand and value, operational jargon is to
be avoided.
e.g. Megahertz instead of speed.
P 37/129
40. Functional-
emotional
orientation
Focuses on improving price
performance within the
functional-emotional
orientation of its industry
Rethinks the functional
emotional orientation of its
industry
Scope of product
or service offering
Focuses on maximizing the
value of product and service
offerings within the bounds
of its industry
Looks across to
complementary product and
service offerings
Strategic Group Focuses on competitive
position strategic group
Looks across strategic groups
within industry
Buyer group Focuses on better serving
the buyer group
Redefines the industry buyer
group
Industry Focuses on rivals within its
industry
Looks across alternative
industries
Analysis & Planning BOS-04_Six Paths Framework-01
(Reconstruct Market Boundaries)
From Head-To-Head Competition To Blue ocean creation
Time Focuses on adapting to
external trends as they occur
Participates in sharing
external trends over time
P 48/129
41. Analysis & Planning BOS-04_Six Paths Framework-01A
Path 1-Look across alternative industries
Fractional Jet Ownership
- Purchased by Berkshire Hathaway in 1998 and in less than 20 years it grew its
fleet to over 700 aircrafts flying to over 170 countries, now it’s the largest
private jet fleet in the world.
- NetJet created its blue ocean by looking across alternative industries;
focusing on the most lucrative mass of customers in the aviation industry:
Corporate travelers.
- NetJets success is attributed to its Flexibility, shortened travel time, hassle-
free travel experience, increased reliability and strategic pricing.
P 49/129
42. Analysis & Planning BOS-04_Six Paths Framework-01B
Path 1-Look across alternative industries
Business or First class on
a commercial airline
Corporate
aircraft
$ 7 Million
Customer (Value)
1. Long Check-in &
Security Lines.
2. Hectic flight
transfers.
3. Overnight stays.
4. Congested airports
Cost
(Customer)
Corporate
Business
Traveller Fraction of a Jet
$ 400,000
50 Flight hrs/Year
Cost (Customer):
Less than Corporate aircraft.
Higher than Fraction of a Jet.
Cost
(Customer)
Customer (Value)
1. Cut total Travel Time.
2. Reduce hassle of congested
airports.
3. Allow for point to point travel.
4. Arrive energized (productivity).
5. Jet is available with 4 hrs notice.
Cost
(NetJet)
Ref. NBAA
P 50/129
43. Analysis & Planning BOS-04_Six Paths Framework-01C1
Path 1-Look across alternative industries
P 51/129
44. Analysis & Planning BOS-04_Six Paths Framework-01C2
Path 1-Look across alternative industries
Southwest
Airlines
Flying in a private Jet for the
price of First class
The speed of an aircraft at a
price of a car transport.
P 52/129
45. Analysis & Planning BOS-04_Six Paths Framework-01D
Path 1-Look across alternative industries
- Japan 1992; NTT Mobile Communications Network, Inc. took over mobile
communications business of the reorganizing Nippon Telegraph and Telephone
Corporation (NTT)
- NTT DoCoMo asked: what are the distinctive strengths of the internet over
cell phones and vice versa?
- Internet was reached through
computers & laptops, the killer apps
at that time were e-mails, simple
information (news, weather forecast
an telephone directory),
entertainment like in games & music
entertainment.
- The key downside of internet was
expensive hardware, nuisance of
logging on, fear of giving credit card
information online.
- While strengths of mobile phones were
mobility, voice transmission & ease of use.
P 53/129
46. Analysis & Planning BOS-04_Six Paths Framework-01E
Path 1-Look across alternative industries
- In 1999; NTT DoCoMo launches “i-mode” phone as
world's first mobile Internet-services platform, thus
creating a blue ocean of wireless transmission that
reconstructed the mobile phone industry & the
internet.
- NTT DoCoMo broke the trade-off between the two alternatives, not by creating
new technology but by focusing on the decisive advantages that the internet has
over the cell phone and vice versa.
- The “i-mode” phone was priced 25% higher than regular cell phones, but still
was less expensive that the hardware needed to access internet (Computers &
laptops).
- After 10 years (2009), i-mode subscribers climbed to 50 million while revenue
from transmission of data, text & images increased from $2.6 million to $17
billion.
P 54/129
47. Analysis & Planning BOS-04_Six Paths Framework-02A
Path 2-Look across strategic groups within industry
- Curves, the Texas women fitness company, was
entering an oversaturated market and began
franchising in 1995.
In 2005 Curves had more than 2 million
members, and ten years later it has nearly
ten thousand clubs worldwide serving more
than four million members.
- Curves created a veritable blue ocean by building on the decisive advantages
of two strategic groups in the US fitness industry: Traditional Health clubs
Home exercise programs while eliminating & reducing everything else.
P 55/129
48. Analysis & Planning BOS-04_Six Paths Framework-02B
Path 2-Look across strategic groups within industry
- Traditional Health Club used to offer full range of exercise & sport options,
usually in upscale urban locations, usually down town (heavy traffic).
- Traditional Health Club had full range of aerobic &
training machines, a juice bar, instructors and full
locker room with showers and sauna.
- Subscription was average $100/month which was
not cheap, their customers represented 12% only of
population. Investment ran from $500,000 to $1M.
- The second strategic group was home exercise programs such as exercise
videos, books and magazines, they were less in cost, used at home, required
little or no exercise equipment, presented with minimal instructions with
illustrations.
- Curves found out that women trade up to health club just because when
they’re home they get no chance for regular exercising.
- Conversely, women use home exercise programs for the time saving, lower
costs and privacy.
P 56/129
49. Analysis & Planning BOS-04_Six Paths Framework-02C
Path 2-Look across strategic groups within industry
- Machines were arranged in a circle to facilitate interchange among members.
- The QuickFit circuit training system used hydraulic exercise machines, they needed no
adjustments, safe and easy to use.
- Those machines were specifically designed for women, they reduced impact stress &
built strength & muscle.
- Members could socialize, talk, support each other, few or no mirrors on the wall,
and no men were there to stare at them.
- Price (Subscription) fell to $30/month.
- Startup investment in Traditional health club 0.5M-1M, Curves $20,000 to 30,000 +
20,000 franchise fee.
- Variable costs, personnel, maintenance & rent were dramatically reduced.
- The low business Model of Curves made its franchises easy, they mushroomed
quickly, were profitable in few months upon recruitment of a 100 members.
P 57/129
50. Analysis & Planning BOS-04_Six Paths Framework-02D
Path 2-Look across strategic groups within industry
Curves Tagline could be: for the price of a cup
of coffee/day, you can obtain the gift of
health through proper exercise.
P 58/129
51. Analysis & Planning BOS-04_Six Paths Framework-02E
Path 2-Look across strategic groups within industry
Toyota’s Lexus carved out a new blue ocean
by offering the high quality of the high-end
@ a price closer to the lower-end
P 59/129
52. Analysis & Planning BOS-04_Six Paths Framework-03A
Path 3-Redefine the industry buyer group
- Usually 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.
- They don’t likely share the same interests, as in case of “Purchasers” who pay for
the product /service who may differ from the actual “Users.
- And in some cases here there are important “Influencers” as well.
- A corporate purchasing agent is more concerned with costs, while corporate user
would be more concerned with ease of use.
- A retailer may value a manufacturer’s just-in-time stock replenishment and
innovative financing rather than consumer who wouldn’t value those things.
- Individual companies in an industry target different customer segments, but an
industry converges on a single buyer group.
P 60/129
53. Analysis & Planning BOS-04_Six Paths Framework-03B
Path 3-Redefine the industry buyer group
P 61/129
54. Analysis & Planning BOS-04_Six Paths Framework-03C
Path 3-Redefine the industry buyer group
- Canon created the small desktop
copier industry by shifting the target
customer of the copier industry from
corporate purchasers to end users.
P 62/129
55. Analysis & Planning BOS-04_Six Paths Framework-04A
Path 4-Look across complementary product/service offerings
- Rare products/services are used in a vacuum, in most cases other
products/services affect their value.
- For example; movie theaters: the ease & cost of getting a baby
sitter (or driving the kids to one of the couple’s parents) and
parking the car affect the perceived value of going to the movies.
- For example, operating & application software are used along
computer hardware, some applications may require minimum
specifications hardware.
- Another example is ground transportation used after the flight
which is a part of what the customer needs to travel from one
place to another.
P 63/129
56. Analysis & Planning BOS-04_Six Paths Framework-04B
Path 4-Look across complementary product/service offerings
- NABI is a Hungarian bus company that was acquired by New Flyer
(American Bus Manufacturer company).
- Competition between manufacturers has been long based
upon lowest purchase price, but designed were outdated,
delivery times were late, quality was low.
- The major customers in the industry are Public
Transport Properties (PTPs), municipally owned
transportation companies serving fixed-route public bus
transportation in major cities or counties.
- NABI discovered that the highest cost for municipalities was not the price
of the bus per se, but rather the costs post purchase over the 12 years
average life cycle: The maintenance, repairs after traffic accidents, fuel
usage, wear & tear on parts due to heavy weight, corrosion & rusting
and preventive body work to deal & prevent them, last was the new
cost rising from the new demands for clean
air.
P 64/129
57. Analysis & Planning BOS-04_Six Paths Framework-04C
Path 4-Look across complementary product/service offerings
- By looking at the total solution of complementary activities, NABI
created a bus unlike any seen before in the industry.
Fiberglass bodies
are corrosion-free.
Body repairs became
faster, cheaper &
easier; simply cut out &
solder new materials.
Lighter in weight (30-35%)
than steel, so reduced fuel
consumption.
Less fuel consumption led
to reduced emissions.
Light weight allowed NABI to
use lower-powered engines.
- Results: Lower manufacturing costs, less operating costs, more space inside
the bus and better environmental friendliness level.
- NABI charged higher initial purchase price in return for all reduction in
operating costs. Municipalities & riders loved NABI buses, ridership expanded
by 30%.
- Buses were usually made of steel, NABI adopted fiberglass in making
its buses killing five birds with one stone:
P 65/129
58. Analysis & Planning BOS-04_Six Paths Framework-04D
Path 4-Look across complementary product/service offerings
P 66/129
59. Analysis & Planning BOS-05_Six Paths Framework-01A
Path 5-Look across Functional or Emotional Appeal to Buyers
- Some industries compete principally on price and function; their appeal
is rational.
- Other industries compete largely on feelings; their appeal is emotional.
transformed the functionally driven budget watch industry into an
emotionally driven fashion statement.
transformed the emotionally driven industry of cosmetics into a functional,
no nonsense house.
Pfizer shifted the focus from medical treatment to lifestyle enhancement.
turned the coffee industry on its head by shifting its focus from
commodity coffee sales to the emotional atmosphere in which
customers enjoy their coffee.
P 67/129
60. Analysis & Planning BOS-05_Six Paths Framework-01B
Path 5-Look across Functional or Emotional Appeal to Buyers
- Pfizer shifted the focus
from medical treatment
to lifestyle
enhancement.
- Transformed the functionally
driven budget watch industry
into an emotionally driven
fashion statement.
P 68/129
61. Analysis & Planning BOS-05_Six Paths Framework-01A
Path 6-Participate in shaping external trends over time
- All industries are subject to external trends that affect their businesses over time,
like the rapid rise of the cloud or the global movement toward protecting the
environment.
- It is not about predicting the future, nobody can, it’s impossible.
- Key insights into blue ocean strategy rarely come from projecting
the trend itself, they arise from business insights into how the trend
will change value to customers and impact the company’s business
model.
- Three principles are critical to assessing trends across time:
1. Decisive to the business.
2. Irreversible.
3. Have a clear trajectory.
- Many trends can be observed at any one time, like a discontinuity for in
technology, the rise of a new lifestyle, a change in regulatory or social
environments; but usually not all will have a decisive impact on any particular
business.
P 69/129
62. Analysis & Planning BOS-05_Six Paths Framework-02A
Path 6-Participate in shaping external trends over time
In the late 1990s, Apple observed the flood of illegal music file
sharing programs as:
By 2003, more than 2 billion illegal music files were being traded/month.
At that time, buying a CD album (legally); it costed an average of $19.
The demand on MP3 players was rising & increasing rapidly, like Apple hit iPod.
P 70/129
63. Analysis & Planning BOS-05_Six Paths Framework-02B
Path 6-Participate in shaping external trends over time
iTunes made an agreement with 5 major music companies to offer legal, easy
to use and flexible †„†„†„Žà la carte song downloads.
iTunes allowed buyers to freely browse 200,000 songs, listen to 30 second
sample, and download an individual song for 99 cents or an entire album for
$9.99; they broke a customer annoyance factor that was the need to buy an
entire album for one song, and customers get their need legally.
Moreover, iTunes music editors included a number of added features usually
found in physical music stores like Best Love Songs, celebrity playlists and
Billboard charts.
The sound quality was higher than any illegally shared music because iTunes
were encoding songs in a format called AAC which was superior to MP3.
P 71/129
64. Analysis & Planning BOS-05_Six Paths Framework-03
Path 6-Participate in shaping external trends over time
CNN created the first real-time 24 hour global news
network based upon the rising tide of globalization.
When CNN entered the US news market; it induced a
strategic reversal and market share upset.
ABS, CBS and NBC –though had historically strong market
shares- were devastated.
P 72/129
65. Analysis & Planning BOS-05_Six Paths Framework-04
Path 6-Participate in shaping external trends over time
- Cisco’s insight to create a blue ocean was as much about
value innovation as it was about technology.
- The world was hampered by slow data rates &
incompatible computer networks, the number of internet
users was doubling every 100 days.
- Cisco routers, switches and other networking devices
were designed to create breakthrough value for
customers, offering fast data exchange in a seamless
networking environment.
P 73/129
67. Formulation
Sequence of
Blue Ocean Strategy
Buyer
Utility Map
Pioneer Migrator
Settler Map
Price corridor of the mass
Visualizing Strategy
P 75/129
68. - Compare your business with
competitors by drawing “as is” canvas.
- See where your strategy needs to
change.
- Draw the “to be”
strategy.
- Get feedback on
alternative strategy
canvas from
customers,
competitors’
customers and
noncustomers.
- Use the feedback
to build the best “to
be’ future strategy.
- Go into the field to explore the six
paths.
- Observe the distinctive advantages of
alternative products & services.
- See which factors you should
Eliminate, Reduce, Raise &/or Create.
- Distribute “Before-
and-after strategic
profiles on one
page for easy
comparison.
- Support only
those projects and
operational moves
that allow company
to actualize the new
strategy.
Visual Exploration
Visual Awakening
Formulation-BOS-01_Visualizing Strategy-01
Focus on the big picture Not the numbers
VisualStrategyFair
VisualCommunication
P 76/129
69. Formulation-BOS-01_Visualizing Strategy-01A
European Financial Services Co._vs_Clearskies__Visual awakening
EFS began the strategy process by bringing together more
than twenty senior managers from subsidiaries in Europe,
North America, Asia and Australia and splitting them into 2
teams.
- One team was responsible to produce a value curve describing
EFS’s current strategic profile in its traditional corporate foreign
exchange business relative to its competitors.
- The other team was charged with the same task for EFS’s
emerging online foreign exchange business.
90 mns
- Both teams had heated debates about what constituted a
competitive factor and what the factors were. Debates included
differences arising from different regions and even for different
customer segments.
- For example; Europeans argued that “consulting services on risk
management” were crucial, while Americans stressed “value of
speed” and “ease of use”.
P 77/129
70. Formulation-BOS-01_Visualizing Strategy-01B
European Financial Services Co._vs_Clearskies __Visual awakening
- The 2 teams completed the assignment and presented in a general meeting of all participants:
- Traditional & online value curves
demonstrated a lack in Focus, means the Co.
was spending in diverse and numerous
factors in both businesses.
- The two curves are very similar to those of
competitors.
- Presence of contradictions was clear in the
heavy investment in making the website easy
to use (it –even-won awards), but speed was
overlooked, resulting in one of the slowest
websites in the business; while Clearskies
website was attracting customers and
converting them to sales.
P 78/129
71. Formulation-BOS-01_Visualizing Strategy-02
European Financial Services Co._vs_Clearskies __Visual exploration
- EFS sent its managers into the field for 4 weeks to explore the six paths
framework, each manager was to interview and observe 10 people
involved in corporate foreign exchange: new customers, lost customers,
customers of EFS competitors and even members of companies that didn’t
yet use corporate foreign exchange services but might in the future, such
as internet based companies with a global reach like Amazon.com.
- The field research overturned many of the conclusions managers had
reached in the first step of strategy creation process; and to everyone’s
astonishment, the factor customers valued most was getting speedy
confirmation of transactions , which only one manager had previously
suggested as important.
- Returning to the drawing board, each team had to draw six new value
curve using the “six path framework”, where each curve had to show a
strategy that make the company stand out in its market.
- For each strategy the teams had to come up with a compelling tagline,
this second phase took 2 weeks.
P 79/129
72. Formulation-BOS-01_Visualizing Strategy-03A
European Financial Services Co._vs_Clearskies __Visual strategy fair
2 Hours
- Teams presented their new strategy canvas; attendees were: senior
corporate executives, noncustomers, customers of competitors, and some
of the most demanding customers of EFS.
- Each curve was to be presented in 10 mns, i.e. the whole fair took 2
hours. The pictures were hung on the walls for audience to easily see
them.
- After the 12 strategies were presented, each judge (an invited attendee)
was given 5 sticky notes and told to put them next to his/her favorites.
- After posting the notes, the judges were asked to explain their picks and
why they didn’t vote for the other curves.
- Teams realized that one third of the factors they thought of value to
customers, were not. Another third was not well articulated or had
been overlooked in the “awakening” phase.
- They also learned that buyers from all markets had
a basic set of needs & expected similar services.
P 80/129
73. Formulation-BOS-01_Visualizing Strategy-03B
European Financial Services Co._vs_Clearskies __Visual strategy fair
Eliminate
Relationship
Management
The relationship managers were
thought one of the main
competitive assets of EFS in the
“awakening” session.
Reduce
Account executives.
Both were thought to be their
main competitive assets
Corporate dealers.
Raise
Ease of use.
Security.
Accuracy.
Speed.
Market commentary.
Create
Confirmation.
Tracking.
Conclusion of “Visual strategy fair”
P 81/129
75. Formulation-BOS-01_Visualizing Strategy-04A
European Financial Services Co._vs_Clearskies __Visual communication
- The last step was to communicate in a way that can be easily understood
by any employee.
- EFS distributed the one page picture showing its new and old
strategic profiles so that every employee could see:
- Where the company stood and where it had to focus its efforts
to create a compelling future.
- The direct managers who participated in developing the strategy
held meetings with their direct reports (subordinates) to walk
them through the picture, explaining and focusing on what
needed to be eliminated, reduced, raised and created.
- Employees were so motivated by the “clear game plan” that many pinned up a version
of the strategy canvas in their cubicles as a reminder of EFS’s new priorities and the gaps
they needed to close.
- The new picture became a reference point for all investment decisions. Only
those ideas that would help EFS move from the old to the new value curve
were given the “go-ahead”.
P 83/129
76. Formulation-BOS-01_Visualizing Strategy
Samsung Electronics
- Samsung Electronics institutionalized the use of strategy canvas
in its key business creation decisions by establishing the Value
Innovation Program (VIP) Center since 1998.
- The VIP center is a 5 story building where core
cross-functional team members meet & discuss
strategic projects, focusing on strategy canvas.
- More than 2,000 people/year cycle through the
VIP center to hammer out detailed specifications
for new products; designers, engineers, planners
& programmers gather for days and sometimes
months.
- Since the VIP center was established; Samsung sales grew from $16.6
billion in 1998 to $216.7 billion in 2013.
- Samsung Electronics is now ranked as one of the top-ten most valuable
global brands.
P 84/129
78. Formulation-BOS-02_PMS Map
Pioneer-Migrator-Settler Map
Settlers
Today
Testing the growth potential of a portfolio of business
Migrators
Pioneers
Tomorrow
Pioneers: the businesses that offer
unprecedented value, they are the blue ocean
offerings and represent the most powerful
sources of profitable growth.
Settlers: they are the “me-too” businesses,
they are the cash (main income) generator,
but they –generally- do not contribute much
to company’s future growth.
Migrators: these businesses are of a
potential that lays in between “Pioneers” and
“Settlers’.
- The more an industry is populated with “Settlers”, the greater is the opportunity to
value-innovate and create blue ocean of new market space.
- Tooth whitening was considered a service provided by dentists. When
Oral care consumer product companies delivered safe, high-quality, low
cost tooth whitening solutions, market exploded; those companies
unlocked the 3rd tier noncustomers and created Pioneer business.
P 86/129
79. Formulation-BOS-03_Right strategic sequence
Buyer Utility
Is there exceptional buyer utility in your
business idea?
Price
Is your price easily accessible to the target
mass of buyers?
Cost
Can you attain your cost target to profit at
your strategic price?
Adoption
What are the adoption hurdles in
actualizing your business idea?
Are you addressing them up front?
A commercially viable Blue
Ocean Idea.
Yes
Yes
Yes
Yes
No-Rethink
No-Rethink
No-Rethink
No-Rethink
P 87/129
83. FormulationBOS-03_Right strategic sequence-01D
The Buyer utility
- Iridium, the global satellite phone company backed by Motorola (MOT), filed for
bankruptcy in 1999, after the company had spent $5 billion to build and launch its
infrastructure of satellites to provide worldwide wireless phone service.
- The service had been such a failure that it only had 10,000
subscribers. This was due to :
- Because Iridium's technology depended on line-of-sight between the
phone antenna and the orbiting satellite, subscribers were unable to use the
phone inside moving cars, inside buildings, and in many urban areas.
- The cellular phone business had started to take hold as its
infrastructure was built out in most of the large developed countries.
- Technical difficulties with Iridium's first handsets.
- An Iridium handset cost $3,000 and talk time was as much as $5 a minute. Cellular
service was not as broadly available, but it was far less expensive.
P 91/129
84. Formulation-BOS-03_Right strategic sequence-01E
The Buyer utility
- The “Philips CD-I” was an engineering marvel, promoted as the
“Imagination Machine”; it was:
a video machine, music system, game player, and teaching tool, all
wrapped in one.
- It had a difficult interface that people could not understand how
to use it without a significant investment in time and complicated
manuals.
- Managers responsible for Philips CD-I and Motorola
Iridium were impressed by their new technology, they
acted on the assumption that bleeding-edge technology is
equivalent to bleeding-edge utility for buyers, which is
rarely the case.
- Unless the technology makes buyers’ lives dramatically
simpler, more convenient, more productive, less risky or
more fun and fashionable; it will not attract the masses.
P 92/129
85. Formulation-BOS-03_Right strategic sequence-01F
The Buyer utility
- More than 500 automakers in US were focused on building custom-made luxury
cars for the wealthy.
- In terms of “Buyer utility”, the entire industry focused on “image” in the use phase,
which is one of the 36 utility spaces.
- Industry was overlooking convenience in use phase, roads were muddy and bumpy.
- Second block to utility was maintenance since it was hand made, it needs experts to
fix them which was expensive.
- Ford T model eliminated those 2 blocks; it came with one
color (Black), less options, not handcrafted (assembly lines),
durable & designed to travel easily over dirt roads and in
rain, in short , it was made for everyday use not for
weekends in the country side.
P 93/129
86. Formulation-BOS-03_Right strategic sequence-02A
Price
- Usually, companies take a reverse course in pricing, first
testing the waters for a new product or service by targeting
novelty-seeking, price insensitive customers at the launch
of a new business idea, over time they drop prices to
attract mainstream buyers.
- Another way to do it is to know from the start what price will quickly capture the
mass of target buyers and –in the same time- block or limit the “Free Riding”.
- One of the Blue Ocean tools is “Price Corridor of the Target
Mass”, it helps managers find the right price for an
irresistible offer, it’s not necessarily the lower price.
- This tool involves two distinct interrelated steps.
P 94/129
87. Formulation -BOS-03_Right strategic sequence-02B
Price_Price corridor of the target mass__Alternatives
- Same form: all companies look first at the products/services that most closely
resemble their idea in terms of form.
- Different form, same function: A product/service that performs the same function
or bears the same core utility but takes a very different form.
- A horse-drawn carriage had the same core utility
as the car: transportation of individuals &
families.
- Ford with its model T, converted horse-drawn
carriage (auto noncustomers) to customers by
pricing against horse-drawn carriage.
- Different form and function, same objective: Cirque du soleil diverted customers
from a wide range of evening activities.
- Bars and restaurants have few physical features in common with a
circus, they also serve a distinct function by providing conversational and
gastronomical pleasure which a very different experience from the visual
entertainment that a circus offers.
- Yet although such differences, all share the same objective: a night out.
P 95/129
88. Mid-level pricing
Formulation-BOS-03_ Price_Price corridor of the target mass
- Step1: Identify the price
corridor of the target mass.
- Step2: Specify a price level
within the price corridor.
Three alternative product/service types
Different form and
function, same objective
Same Form
Different form,
same function
Price corridor of
the target mass
Size of circle is proportional to number of
buyers that product/service attracts
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.
The price bandwidth that captures the
largest group of target buyers is the
price corridor of the target mass.
P 96/129
89. Formulation -BOS-03_ Right strategic sequence-03A
Target costing
The profit model of blue ocean strategy
The strategic price
The target
profit
The target cost
Streamlining &
cost innovations
Partnering
Price Innovation
P 97/129
90. Formulation -BOS-03_ Right strategic sequence-03B
Cost_Target costing
To maximize the profit of a blue ocean idea, company should start with
the strategic price then deduct its desired profit margin from the
price to arrive at the target cost. (Cost Innovation)
- To hit the cost target, companies have 3 principle levers:
1- Introducing cost innovations from manufacturing to distribution, as
well as streamlining operations.
2- Partnering: IKEA seeks lowest cost by partnering with 2,000
manufacturing companies in more than 50 countries to produce 20,000
IKEA items.
- Can the product or service’s raw material be replaced by unconventional
one(s); e.g. from metal to plastic; or shifting a call center from UK to
Bangalore, or can the physical location be shifted from prime real estate
location to lower cost locations (Curves, Home Depot, Walmart, IKEA
and Southwest Airlines by shifting from major to secondary
airports).
3- Changing the “pricing model” used: NetJets changed the price
model from Jets To “timeshare” model.
- Others models are “slice-share” in financial services and Freemium
in digital offerings (software).
P 98/129
91. Formulation -BOS-03_ Right strategic sequence-03C
Cost_Cost Innovation
The Swiss watch company Swatch was able to innovate a cost
structure 30% lower than any other watch company in the world.
- The chairman set up a project team to determine the strategic price for
Swatch.
- Market fact:
High-precision quartz watches from Japan and Hong Kong were capturing
the mass market for an average of about $75/piece.
- Swatch set the price at $40, so that:
1. People could buy multiple “Swatches” as fashion accessories.
2. This price will block competitors, since $40 will leave no profit margin
for Japanese or Hong Kong companies to copy Swatch and undercut
its price.
- The Swatch project team worked backwards to reach the target cost:
1. The team determined the margin to support marketing and services.
2. Instead of using metal & leather, they used plastic.
3. Swatch engineers simplified the design of the inner workings and
reduced the number of parts from 150 to 51 parts.
4. Engineers developed a new assembly technique; e.g. used ultrasonic
welding instead of screws.
- The direct labor costs dropped from 30% to 10% of total costs.
P 99/129
92. Formulation -BOS-03_ Right strategic sequence-04
Adoption
1- Employees
When Merrill Lynch’s management announced plans to create an
online brokerage service, its stock price fell 14% as reports emerged
of resistance and infighting within the company’s large retail
brokerage division.
2- Business partners
When SAP developed ASAP methodology to gain access for
mid. & small businesses, its consulting partners who benefited
from lengthy implementations were not happy. SAP
consultants convinced them that although ASAP methodology
will reduces implementation time, but they will gain access to a
new client data base & penetrate a new segment.
3- The General Public Organ transplants in Islamic countries at its beginning.
P 100/129
96. Execution-BOS-01_Four Hurdles-01C
Cognitive Hurdle
An organization wedded to
the status Quo
Motivational Hurdle
Unmotivated staff
Political Hurdle
Opposition from powerful
vested interests
Resource Hurdle
Limited Resources
Hot spots
Cold spots
Horse
Trading
Zoom on kingpins
Put kingpins in
a fish bowel
Make people
see and
experience
harsh reality
firsthand.
Meet with
disgruntled
customers.
Leverage your
angels and
silence your
devils.
Atomization
P 104/129
97. Execution-BOS-01_Four Hurdles-01D
Cognitive Hurdles-01
Cognitive
Ride the electric sewer
Case: New York subway reeked of fear, young
street gangs , harassers and aggressive beggars
patrolled the cars, the citizens boycotted the
system and called it the “Electric sewer”.
Members of New York City Transit Police Dept.
did nothing since only 3% of the city major
crimes happened on the subway.
Bratton: Starting with himself, he made top
& middle brass ride the sewer day & night.
Although statistics may have told the police
that the subway is safe, now they see what
every New Yorker faced every day. The
police could no longer evade the ugly truth.
Cognitive
Superiors
Case: MBTA board decided to purchase small
squad cars that would be cheaper to buy and to
run.
Bratton: He invited the MBTA for a tour to see the
district. Bratton picked him in a small car just like
the ones that were being ordered.
He jammed the seats up front to let the manager
feel how little legroom a six foot cop would get,
especially if a criminal is in the back seat. Bratton
also put his belt, cuffs and gun, asked the manager
to put his belt too.
In 2 hours the manager wanted out and Bratton
got the larger cars his new strategy demanded.
Make people see and experience harsh reality firsthand.
P 105/129
98. Execution-BOS-01_Four Hurdles-01E
Cognitive Hurdles-02
- In the late 1970’s, Boston police district 4 was experiencing a serious surge of
crimes.
- Public was increasingly intimidated and residents were selling their homes and
leaving.
- The police force felt they’re doing a fine job since KPIs were fine; 911
response times were down and crime arrests were high.
- Police officers couldn’t understand the reason for disgruntled
residents (customers).
- Bratton: arranged a series of town hall meetings between the police force and
residents. Meetings revealed that although officers were appreciated for short
response times and their record in solving major crimes, but those efforts went
unnoticed because the public felt victimized and harassed by the constant minor
irritants: winos, panhandlers and graffiti.
- The meetings led to a change in police priorities focusing on the blue ocean
strategy of “Broken windows”.
Crime went down and the neighborhood felt safe again.
Meeting with disgruntled customers
P 106/129
99. Hot spots:
Execution-BOS-01_Four Hurdles-02A
Resource Hurdles-01
Instead of focusing on getting more resources, tipping point leaders
concentrate on multiplying the value of the resources they have.
Activities that have low resource input but high potential performance
gains.
Cold spots: Activities that have high resource input but low performance impact.
Trading horses: Trading one unit’s excess resource(s) for another unit’s excess
resources to fill remaining resource gaps.
P 107/129
100. Execution-BOS-01_Four Hurdles-02A
Motivational Hurdles
Kingpins are –relatively- a small number of people who are natural leaders,
who are well respected and persuasive, or who have the ability to unlock or
block resources. These are the key influencers.
As in bowling, hitting them straight on, all the other pins come toppling
down.
Zoom in on
Kingpins
Place Kingpins
In a fishbowl
Motivate the “kingpins” in a sustained and meaningful way.
Make kingpins actions and inactions well visible to others, as
transparent as are fish in a bowl of water (fishbowl management).
Atomization
As sensitive as it is, but doable; break strategy into simple and clear tasks
that every employee can understand, then relate it to each unit to do its
task(s) as perfect as possible, no more (Effectiveness & efficiency).
P 108/129
101. Execution-BOS-01_Four Hurdles-02A
Political Hurdles
The more likely change becomes, the more fiercely and vocally
negative influencers –both internal and external- will fight for their
positions and earnings; such resistance can seriously damage and
even derail the strategy execution process.
Tipping point leaders focus on 3 disproportionate
influence factors:
those who have the most to gain from the strategic shift.
Leverage “Angels”:
(BOS Supporters)
Silence “Devils”:
(BOS Detractors)
those who have the most to loose from the strategic shift.
Get a “consigli„†ère”
From the management team, politically adept, non biased,
respected insider who can predict in advance who will fight and
who will support.
P 109/129
102. Execution-BOS-02_Fair process_EEE
Strategy formulation Process
Fair Process (EEE)
Engagement.
Explanation.
Expectation clarity.
Attitudes
Trust & commitment
“I feel my opinion
counts”.
Behavior
Voluntary cooperation
“I’ll go beyond the call
of duty”.
Strategy execution
Exceeds expectations
Self initiated.
How Fair process affects people’s
attitudes and behavior
P 110/129
104. Starbucks service deterioration _ By: Prof. Myers-Tierney
- Founded in 1971, one small coffee shop in Seattle. Specialized in whole
beans, focused on coffee purists.
-Howard Shultz’s idea with Starbucks mid 1980’s was to create a chain of
coffeehouses with:
1. Product differentiation of specialty “Live coffee”.
2. Service or customer intimacy with an “experience”.
3. An atmosphere of a “Third place” to add to work and home
alternatives.
-In 1992: 140 stores in Northwest + Chicago and Starbucks went public.
- By 2002, there were 5,000 stores around the globe.
P 112/129
105. Starbucks service deterioration _ By: Prof. Myers-Tierney
Starbucks in 1992
Brand
Perceptions
Best coffee,
classy, upscale, a
“Third place”.
Consumption
Patterns
Tendency to linger,
ritualistic
consumption,
Looking to self-
indulge.
Target Customer
Sophisticated, affluent coffee lover,
embracing the “live coffee” lifestyle.
- In contrast to the way Starbucks management viewed the company, 2002 research indicated that
“customers did perceive many independent coffee houses as a “third place” while Starbucks was seen
more as a convenient, quick and consistently good coffee provider”.
P 113/129
106. Starbucks service deterioration _ By: Prof. Myers-Tierney
What went wrong?
Background and Problems
- Customer satisfaction was declining due to the time to be served (SGH_Patient
journey, late clinic or inconsistent attendance?)
- Customer satisfaction was declining due to employee attitude (SGH_Customer
service & clinic’s receptionists?)
- Many other chains competed directly with Starbucks, and many other chains
could at anytime enter retail specialty coffee sales (Dunkin Donuts and many
similar retail food stores).
- Starbucks was expanding store opening as rapidly as possible (almost 3/day),
it cannibalized existing stores sales.
- There were very little image and product differentiation between Starbucks
and competing chains (Differentiation & Value innovation?).
- Unexpectedly & against company expectations; new customers were younger,
less educated, in lower income brackets, had less frequent visits and had a
different perception of Starbucks.
P 114/129
110. Starbucks service deterioration _ By: Prof. Myers-Tierney
Too little
experienced Labor
Baristas have no
time to chat
Grumpy employees
Employee turnover
Lots of new customers
acquisitions
Tendency to order Hand-
crafted drinks
+
Desire for customization
Long lines
Grumpy Customers
New product
complexity
Complex orders
Leave before ordering
Don’t come back as often
Less of a “Third place”
attachment (Diminished loyalty)
Order something simple rather than
complex (Lower ticket value)
P 118/129
111. Starbucks service deterioration _ By: Prof. Myers-Tierney
Options & Solutions
1. Investment of $40 million annually to
increase speed of service (expected
impact=customer satisfaction, translated
to sales).
2. Alter the product mix, change is
determined depending on store size and
location.
3. Process of measuring service
performance (Categories: Speed of
Service, Cleanliness, Product Quality).
4. Retail expansion (New stores in new
markets, geographically cluster stores in
existing markets).
5. Product innovation.
6. Service innovation(Starbucks store Value
card).
Starbucks Options Starbucks Solutions
1. Starbucks should
pursue all of these
alternatives.
2. Starbucks appears
to consider
competition as
minimal, and they
are somewhat
insulated.
Earnings:
-2003: revenues up 25%.
-2004: plan to open 1,300 stores.
-Long term goal: 10K in US, 15K
international.
P 119/129
