Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. Makes sense right? Sign up for a free trial here. Many products benefit from network effects, where the value of the service scales with the number of users. Philip Kotler’s Pricing Strategies, also known as the Nine Quality-Pricing Strategy, consists of a matrix of nine pricing options. Uber: Ocean Blue Strategy. Case in point: health insurance. That’s where the huge money is…. Blue Ocean is where a competitor is clearly distanced from the others. Blue Ocean Strategy is a concept that has been pioneered by INSEAD Professors, W. Chan Kim, and Renee Mauborgne. The authors of Blue Ocean Strategy believe it’s better to capture the bulk of the market first, by pricing in the mass section of your price corridor, and establish brand to ward off imitators. This results in not fully developing your Blue Ocean strategy correctly. What Price? Strategic prices help earn reputation and brand immediately to build a defensible position. Blue Ocean strategy concept was introduced 2005 by Kim W. Chan and Mauborgne Renee in their own bestseller book [5] and articles [6, 7, 4 and 8]. The authors were co-directors of the INSEAD Blue Ocean Strategy Institute. Most prominently, since 2009 the Malaysian government has implemented a National Blue Ocean Strategy to lift the living standard of the country and to The book is based on a study of 150 strategic moves made by companies in 30 industries over 100 plus years. Also, as there is no competition, there is no pricing pressure because of lack of competition in the market. (Shortform example: Uber began with the premium Uber Black as an alternative to taxicabs, but quickly moved into the low-priced mass-market UberX as soon as it became clearly legal. While everyone wants health insurance, high premiums just don’t work for many. 6. This kind of strategy has been developed, and it is called Blue Ocean strategy. ACMI recently rolled out this policy under the name “Coverage on Demand” in Texas, a state where 27% of its population doesn’t have health insurance. First and foremost, a company using it chooses to create an uncontested market instead of entering into the existing one. Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean. Now that you’ve figured out an offering that offers superior utility to the customer, you need to figure out how to price it. This strategy, which is based on extensive research of hundreds of companies spanning across decades and including several industries, proclaims that instead of battling competitors, companies can create new markets for themselves. Our blue ocean was, and is, helping our industry become more Performance based. For example, if the product or service has strong patents and hard-to-imitate service capabilities one can use upper-boundary strategic pricing to attract the mass of buyers. For instance, pricing at a luxury level may increase value per customer, but this may not compensate for a drop in volume. Here’s an image of what the price corridor looks like. The … The blue ocean strategy – which we boiled down to four steps – is all about considering new approaches to make your blog unique by: Researching your competitor’s strategies. For each set of alternatives, plot the pricing and the volume of customers you’d attract at that pricing level. The phrase “blue ocean strategy” describes a market strategy that differs from the conventional approach of entering an established market and attempting to compete with existing players. Profit Model of Blue Ocean Strategy 30. Instead of paying an average annual individual policy premium of $2,836, ACMI offers plans that are about $1,100 a year. Blue Ocean Strategy argues that you must set a price that will capture the mass of target buyers from the very beginning, for these reasons: 1. Movies and restaurants have different functions, but their objectives are to have an entertaining night out. Your email address will not be published. When I first read this book I recognized the things that we’d been doing at NCI for the previous 10 years were actually part of a blue ocean strategy. 4. Includes a 4-step framework to define your Pricing Strategy. Blue ocean strategy is based on over decade-long study of more than 150 strategic moves spanning more than 30 industries over 100 years. Together with its founder, Silviu Dan Tanasie, we will explore the universe of value innovation at low cost, the hallmark of a Blue Ocean offering . Start figuring out your price corridor by gathering alternatives to your product. What B2B Companies Get Wrong About Volume Discounts. b. predatory pricing. You should price on the lower range of your price corridor if these factors apply: If your product is not defensible and you price too high in your price corridor, your blue ocean may initially capture good profits, but fast followers will be attracted by the ocean and compete away the profits. Price and features, for example, tend to be common ones. How much should you charge for your blue ocean strategy product? This article is based on their book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant (Harvard Business School Press, 2005).) INSEAD is a prestigious graduate business school in Fontainebleau, France.INSEAD also has campuses in Singapore and Abu Dhabi. If your product is not defensible, you’ll have to settle for lower pricing. By targeting young and healthy customers, ACMI stands to benefit in two ways: (1) Dormant customers are activated with a Blue Ocean pricing strategy and (2) The young and healthy demographic is highly profitable – ACMI estimates that less than 70 cents of every premium dollar will go towards medical costs. BLUE OCEAN STRATEGY This new thinking makes it possible for innovative entrepreneurs to increase their chances for success and the extent of potential success. Like this article? The Blue Ocean Strategy is based on creating an uncontested market space and making competition irrelevant. ∗Blue Ocean Strategy is a: ∗Value Innovation Strategy – competes in an uncontested market space ∗“Combination Strategy ”: pursue differentiation while controlling costs. Required fields are marked *. Shortform summary of "Blue Ocean Strategy", Creative Teams: Mental Models Can Bring Results, Transparency at Work Creates Radical Candor, Disney Pixar Case Study: Creativity and Efficiency, General Cinema History—Diverse Portfolio Leads to Big Payoff, New Employee Training: Methods + Intel Example, WIG Session: A Meetings Dedicated to Key Goals. But here’s the unique pricing twist: if you do get ill, ACMI’s policies allow you to buy an additional $5 million of coverage for a surcharge premium of $9,000 - $10,000 a year. The authors of Blue Ocean Strategy evaluated 108 companies and found that 86 were product line extensions that accounted for 62 percent of total revenues and 39 percent of total profits. The INSEAD Blue Ocean Strategy Open Enrolment Programme is based on the groundbreaking work developed by INSEAD Professors Chan Kim and Renee Mauborgne. Everyone can benefit from reexamining their pricing. They were also INSEAD professors. In other words, as opposed to Red Oceans that are saturated markets where differentiation or cost competition is prevalent, companies can instead create … Buyer value is lifted by raising … Our aim is to make the formulation and execution of blue ocean strategy as systematic and actionable as competing in the red wa-ters of known market space. The concept of blue ocean is based on the idea that the business universe is made up 2) understanding the blue ocean strategy, 3) how to apply the blue ocean strategy to your business, and 4) examples. The key idea of the book is to avoid entering a highly competitive industry (a “red ocean”). 8 This model relates pricing to the quality delivered. They assert that these strategic moves create a leap in value for the company, its buyers, and its employees while unlocking new demand and making the competition irrelevant. This benefited its network effects on both supply-side (drivers) and demand-side (riders). Blue Ocean opportunities can be enhanced by concept tests, also included in the Breakthrough Toolkit design. Learn more here. In order to maximize the efficiency of the strategy, it is better for companies to initiate it when the business starts. Definition of 'Blue Ocean Strategy' Definition: ' Blue Ocean Strategy is referred to a market for a product where there is no competition or very less competition. Before Shortform, he co-founded PrepScholar, an online education company. Apple and Blue Ocean Strategy Blue ocean strategy is based on several important notions. Apple Blue ocean-strategy 1. 8. Furthermore the Blue Ocean Strategy was awarded with “The Best Business Book of 2005″ at the Frankfurter Book Fair as well as one of the “Top Ten Business Books of 2005″ by Amazon. Consider what customers would do if your product didn’t exist. principles that define and separate blue ocean strategy from compe-tition-based strategic thought. Horse carriages and Model T both carry people places; parents making lunch serve the same function as school cafeterias. Chad Terhune wrote an interesting Wall Street Journal article (“New Insurance Plan has Novel Pitch - Get Sick, Buy More”) about a new health insurance plan being offered by American Community Mutual Insurance (ACMI). Southwest Airlines had a new idea (direct flights between secondary airports) but low IP defensibility and no exclusive assets. The concept of the blue ocean strategy was set out in a book of the same name, by W. Chan Kim and Renee Mauborgne in 2005. Blue ocean strategy is about best ways to service these opportunities. More than that, the stress is laid on creating and capturing new demand instead of exploiting the existing demand. About 10 years ago, a book titled, “Blue Ocean Strategy” was published by the Harvard Business Review Press. Die Wertkurve bezieht sich auf ein Unternehmen oder eine strategische Gruppe … Blockbuster had the change to buy Netflix in 2000 for $50 million. In the Blue ocean term, the ocean is a metaphor for the market space in the industrial world where the companies operate. Southwest Airlines considered cheap car travel their alternative. The Blue Ocean Strategy Presented by: Stephene Roy Cardines Condino 2. In many industries, fixed costs have increased and marginal costs decreased. Renée Mauborgne (The INSEAD Distinguished Fellow and a professor of strategy and management at INSEAD. My sincere thanks to Jordan Rich for having me on his radio show last night. I wonder if Blockbuster had A typical approach to pricing is to start with a premium price to attract early adopters, then gradually drop prices to attract mainstream customers. Here's what you'll find in our full Blue Ocean Strategy summary: Allen Cheng is the founder of Shortform. Blue Ocean strategy is a strategy that advice companies to go to a new market, which interest customers and avoid competition from the existing market. It includes: • Insights about the innovative positioning of new ventures; and • Tools to make it … Products under the concept of the Blue Ocean Strategy doesn’t make a consumer choose between value and affordability. The higher the level of protection against imitation, the higher the strategic price can be within the price range that still attracts the mass of target buyers. Blue Ocean Strategy 1. On the other hand, if a manager is uncertain about their patent and asset protection they should consider pricing … The belief that blue ocean strategy is the same as innovation. My point is that customers may be interested in your product, but your pricing strategy simply doesn’t work for them. So powerful is blue ocean strategy, in fact, that a blue ocean strategic move can create brand equity that lasts for decades. The key idea of the book is to avoid entering a highly competitive industry (a “red ocean”). The CEO of Blockbuster thought it was a very niche market and passed on the opportunity. Abkürzungsverzeichnis Abbildungsverzeichnis 1 Einführung 1.1 Motivation und zentrale Zielsetzung der Arbeit 1.2 Aufbau der Arbeit 2 Grundlagen 2.1 Begriffsdefinitionen 2.2 Wie Strategien entstehen 2.3 Wie Wettbewerbsvorteile entstehen 3 Etablierte Strategien 3.1 Marktorientierte Strategie 3.1.1 Konzeptioneller Ansatz 3.1.2 Branchenstrukturanalyse von Porter 3.1.3 Generische Wettbewerbsstrategien von Porter 3.2 Ressourcenorientiert… A company will have more success, fewer risks, and increased profits in a blue ocean market… It pursues differentiation and low cost Blue ocean strategy is based on the from HUMANITIES HUM 4013 at Manipal Institute of Technology He has a passion for non-fiction books (having read 200+ and counting) and is on a mission to make the world's best ideas more accessible to everyone. A blue ocean strategy reduces costs by reducing features or services that are competed over, but are not important to buyers. Coming up with new content structures. This is particularly true in software and R&D-heavy industries… BLUE OCEAN STRATEGY Red Ocean Strategy Blue Ocean Strategy Virgin Cola Red Bull Competed vs. Coke and Pepsi with Niche product: carbonated traditional cola … The goal of a Blue Ocean Strategy is for organizations to find and develop “blue oceans” (uncontested, growing markets) and avoid “red oceans” (overdeveloped, saturated markets). For struggling businesses, Mauborgne recommended the strategy canvas, which is featured in her and Kim's newest book, "Blue Ocean Shift: Beyond Competing" (Hachette Books, 2017). People normally want to jump right into the Strategy Canvas without going through the 5-step process outlined in the Blue Ocean Shift book or without doing the background exercises outlined in both books. This strategy revolves around searching for a business in which very few firms operate and where there is no pricing pressure. It is based on practical approaches that have proven results during live market executions. The goal of segment based pricing is to activate dormant customers by offering a new pricing strategy. Per the book, the term The belief that blue ocean strategy is a theory of marketing and a niche strategy. Blue Ocean strategy – in case you have not come across the concept before – is based on the idea that most organizations within any field or industry compete on the same basic factors. We’ll cover more of what this looks like in a number of examples, as well as frameworks for visualizing this. Blue ocean strategy is based on a decade long study of more than 150 strategic moves spanning more than 30 industries over 100 years. A typical approach to pricing is to start with a premium price to attract early adopters, then gradually drop prices to attract mainstream customers. Netflix is now valued at $32.9 billion. Blue Ocean strategy for marketing, as against the Red Ocean strategy where rivals fighting over a shrinking profit pool for customer creation, provides a systematic approach to making the competition irrelevant. It will always be important to swim successfully in the red ocean by out competing rivals. He reads broadly, covering a wide range of subjects including finance, management, health, and society. The misconception that blue ocean strategy is a low-cost strategy that focuses on low pricing. BLUE OCEAN STRATEGY OF APPLE FROM iPod to iPad Presented By Manu Balaji Kowshik Mayur 2. A key concept of this blue ocean strategy is value innovation. In the international bestseller Blue Ocean Strategy, W. Chan Kim and Renee Mauborgne argue that cutthroat competition results in nothing but a bloody red ocean of rivals fighting over a shrinking profit pool. Unless the Blue Ocean initiative is conducted by people with the distinctive opportunity-based thinking that is at the foundation of Blue Ocean strategy, it will risk having no impact. Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Blue ocean strategy is based on over decade-long study of more than 150 strategic moves spanning more than 30 industries over 100 years. We analysed not only winning business players who created blue oceans but also their less successful competitors. Your product has little legal protection through patents or copyright, Your product has no exclusive assets or capabilities that are hard to replicate, Your product depends on network effects for its strengths (you need to attract users quickly), Your product has high fixed costs and low marginal costs (you need to make up the high fixed costs with volume), Your cost structure benefits from economy of scale (volume gives you cost advantages). Pricing strategy is the policy a firm adopts to determine what it will charge for its products and services. This strategy makes possible for companies, entrepreneurs to increase their chances of success. But This case analyses Tata Motors' strategic move to create and launch the Tata Nano, exploring the factors behind the project's earlier success and the reasons for its execution failure. Blue Ocean Strategy vs. Check out the first post on cost plus pricing and second post on competitor based pricing.. We’re beginning every one of these posts with the same statement: “Pricing is the most important aspect of your business.” It then raises buyer value by creating new features or services the buyer wants. He’s genuinely a nice guy and we had an enjoyable hour long chat about pricing. Jun 13, 2017 - Increase your Pricing Strategy knowledge and skills by using a simple and comprehensive Toolkit created by ex-McKinsey, Deloitte and BCG Strategy Consultants, after more than 300 hours of work. Rather than looking at competitors or the market or the cost of the product, you go directly to the source, the customer, and choose a price based … The book presents analytical frameworks and tools to foster an organization's ability to systematically create and capture "blue oceans"—unexplored new market areas. Marketplaces like eBay and Uber are examples. It priced on the budget end, using car travel as its main alternative. An expanded edition of the book was published in 2015, while a sequel entitled Blue Ocean Shift was published in 2017. The letters INSEAD stand for Institut Européen d’Administration des Affaires, which translates into English as the European Institute of Business Administration. Price Corridor (Blue Ocean Strategy) – What Is It? Again, more than two decades later, W. Chan Kim and Renee Mauborgne argue in their 2005 book “Blue Ocean Strategy,” that the competitive approach of strategy is pretty flawed. Traditional Competitive Strategies. Refining your blue ocean strategy with helpful tools. Blue Ocean Pricing Strategy Posted on September 17th, 2007 (0 Comments) As many of you know, Blue Ocean Strategy is a bestselling business strategy book by W. Chan Kim and Renee Maubourgne. Blue Ocean Strategy is based on “time and again” proven data rather than unproven theories. The Blue Ocean Strategy book has been sold over 3,5 million times, was published in 43 languages and is a bestseller across five continents. Therefore, pricing to capture more users will help maximize profits. Based on the discussion, it is safe to say that the blue ocean is a better way that can bring fewer … As many of you know, Blue Ocean Strategy is a bestselling business strategy book by W. Chan Kim and Renee Maubourgne. Allen graduated from Harvard University summa cum laude and attended medical training at the MD/PhD program at Harvard and MIT. Read this Business Research Paper and over 89,000 other research documents. Value innovation involves the pursuit of both differentiation and low-cost strategies to … It’s clear that a 1% – 2% increase in price can have a dramatic effect on net profits. It was built on the notion of creating new markets where competition is irrelevant and the opportunity to grow and be profitable is unlimited. Covering topics none of your competitors are touching. Blue Ocean Strategy Case Study - Service NSW 3 1 Introduction Blue Ocean Strategy1 has been used extensively to transform the public sector around the world at a local, state and national level. In short, Red ocean strategy refers to competing for the existing marketplace where the blue ocean strategy denotes making a new uncontested marketplace. It illustrates the importance of having a strong and aligned set of value, profit and people propositions in order to create and capture a blue ocean. Blue Ocean Strategy recommends using the price corridor, a way to maximize the success of your strategy. What Blue Ocean Strategy comes down to is serving a “hidden segment” within an industry that is not currently served. The most appropriate unit of analysis is the strategic move, the set of managerial actions and decisions involved in making a major market-creating business offering. Examples of companies successfully employing a Blue Ocean Strategy include Home Depot (offering wide wholesale low price selection along with expert advice to help do-it-yourselfers), Cirque du Soleil (high priced theatrical circus), and Southwest Airlines (low price airline that initially catered to untapped markets where people would drive instead of fly). A strategy that focuses on developing new markets and avoids attacking core markets defended by rivals is called: a. a blue ocean strategy. The goal is the assist companies to position products based on their perceived place in the market relative to the competition. Blue Ocean Strategy is a theory explained in a 2005 book by W. Chan Kim and Renée Mauborgne, professors at INSEAD. Don’t reinvent the wheel. Red Ocean will always matter and will always be a fact of life. Your email address will not be published. In this context, value innovation is built around the break down of the cost-value trade-off. The Blue Ocean Strategy simulation was designed with extensive input from the authors of the bestselling book Blue Ocean Strategy. ∗Achieved via the delivery of features that have a highest marginal benefit to customer needs . Your course participants will truly experience the power of Blue Ocean Strategy by applying the theory and using the methodologies and tools described in the book. Download in a couple of clicks. With more funding and more aggressive expansion, competitors may take the lead. Creating blue oceans builds brands. Research pricing for major alternatives to your product, create a price range (or corridor) that will attract the most customers, then set a price within the corridor depending on your defensibility. The creation of blue oceans is about driving costs down while simultaneously driving value up for buyers. Basically, if your product is defensible and difficult to replicate, then you can command higher-level pricing. NTT DoCoMo priced its monthly subscription fee at the price of a magazine, in the range of impulse buying. Industries ranged from hotels, cinema, retail, airlines, energy, computers, broadcasting, and construction to automobiles and steel. Value-based pricing is a strategy that involves basing your prices on how the customer perceives the value of your product or service. Methodik und Vorgehensweise: 1) Definition der bestehenden Wertkurve: Das zentrale Analyseinstrument der Blue-Ocean-Strategie ist die Wertkurve, mit der sich das relative Leistungsprofil eines Unternehmens innerhalb einer Branche darstellen und analysieren lässt. Blue Ocean . 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. Fast followers may imitate your strategy quickly once you prove early success. In this article, we will look at 1) what is a blue ocean strategy? 9. Blue ocean strategy is a landmark idea founded by W. Kim and Renee Mauborgne in 2004. Here’s the catch: ACMI’s plans have annual benefit caps of $1,000 - $5,000…peanuts if you get seriously ill. 2.1.2. A new pricing strategy can activate these customers. 7. Lowering the price for mass adoption accelerates the flywheel. But if you want to hit a true home run, start brainstorming about what Blue Ocean pricing strategies you can implement to activate your dormant customers. Properties of Blue Oceans Too many firms do same-old, same-old, one-size-fits-all monolithic supply chain for all channels. Blue Ocean Strategy argues that you must set a price that will capture the mass of target buyers from the very beginning, for these reasons: How do you actually set your price? Blue ocean strategy is based on over decade-long study of more than 150 strategic moves spanning more than 30 industries over 100 years. Creating a blue ocean is difficult and generally requires the company to innovate (a concept coined as value innovation) in a way that creates a previously non-existent or unrealized demand. A blue ocean strategy enables the creation of new markets, buy moving beyond the boundaries of existing red ocean markets to create uncontested markets.