The third chapter discusses the first principle of the Blue Ocean Strategy, which is about reconstructing market boundaries to break existing competitive scenarios and initiate a blue ocean. This principle often involves companies facing search risks, with the difficulty lying in how to successfully identify market opportunities that possess blue ocean characteristics from numerous possibilities. This point is crucial for enterprise operators, as they should not rely on intuition or conventional methods to decide strategies. During our study, we attempted to clarify such questions: Does a systematic way exist to reconstruct market boundaries and initiate a blue ocean? If so, are these methods applicable to all industries (including consumer goods, industrial products, financial services, telecommunications and information technology, medicine, and e-commerce), or are they limited to certain special industries? We found a clear method for a blue ocean. Specifically, we discovered six basic methods for rebuilding market boundaries, called the "six paths" framework. These methods apply to all industries and can guide companies to find promising blue ocean opportunities. They do not require any special vision or predictive ability but are obtained by examining existing data through a new perspective. These six modes of thinking challenge the six basic assumptions underlying many enterprises' strategies. Many enterprises formulate their development strategies based on these six assumptions, but it is the inertia of thinking that leads enterprises into fierce competition in the red sea. Specifically, enterprises usually adopt the following practices: 1) defining the industry similarly to other enterprises and aiming to be the best in the industry; 2) examining their own industry using generally accepted business classification methods and striving to be the best within those classifications; 3) focusing on the same group of customers, whether purchasers, users, or influential people; 4) providing products or services using similar methods; 5) accepting the industry's functional or perceptual orientation; 6) developing strategies at the same point in time (usually when threatened by competition). Most enterprises adopt conventional ways of thinking to develop competitive strategies, leading to convergent competitiveness. To break the red sea ice, enterprises must first break the boundaries of their competitive limits. Enterprise operators should not always focus within the market borders but should use a systems approach to go beyond these boundaries to create a blue ocean. They should focus on more industries, more strategic businesses, more purchasing groups, providing complementary products and services, transcending the industry's existing functional or emotional tendencies, and even transcending time. Only in this way can enterprises obtain reconstructed market space and a new perspective on blue oceans. Below, we look at the specific content of the six paths.
Path One: Looking across Alternative Industries
In a broad sense, an enterprise competes not only with other enterprises in the same industry but also faces competition from other industries producing substitute products or services. Substitute products not only refer to replacement products but also include products or services that provide the same function or core utility despite different forms. On the other hand, substitute products also include those with different functions and forms but achieve the same purpose. For example, to manage personal finances, people can buy financial software, hire a certified public accountant, or simply use paper and pencils. Financial software, certified public accountants, and pencils are largely substitute products. Although they have different forms, their function is the same: to help people manage their money. Similarly, some products or services may have different forms and functions but share the same ultimate goal, such as cinemas and restaurants. Compared to cinemas, restaurants are fundamentally different in form but not equal: they provide talking and food enjoyment. The visual enjoyment provided by cinemas is completely different in form and function, yet there is a huge difference. However, the purpose of people going to restaurants or cinemas is the same: to enjoy a night out. They are not the same functional substitutes but alternative options. In a purchase decision, buyers often unconsciously compare different options. You want to relax for two hours? How do you achieve this objective? Would you choose to watch a movie, get a massage, or go to a nearby café to read a favorite book? Whether for individual consumers or group buyers, the thought process is realized. However, due to various reasons, when we become sellers, we often abandon intuitive ways of thinking about the sale of products. People seldom consciously consider how consumers select in alternative industries. Price changes, model changes, advertising campaigns, or even new advertisements may cause strong reactions from the same competitors within the industry, but if the same thing happens between alternative industries, they rarely attract attention. Industry magazines, trade shows, and consumer evaluation reports magnify industry and sector boundaries. But in fact, spaces between alternative industries usually provide opportunities for enterprise value creation. NetJets’ success in aircraft ownership sales is an example. In less than 20 years, NetJets has become larger than many airlines, owning over 500 aircraft and operating over 250,000 routes in more than 140 countries. In 1998, Berkshire Hathaway acquired the company, now making NetJets a billion-dollar business with annual revenue growth rates between 30-35% from 1993 to 2000. NetJets' success thanks to its flexibility in operations, reducing travel time, minimizing travel troubles, enhancing reliability, and executing pricing strategies. In fact, NetJets achieved this by examining alternative industries, breaking market boundaries, and creating a blue ocean.
Path Two: Looking Across Strategic Groups Within the Industry
Different strategy types within the same industry can also initiate a blue ocean. The so-called strategic type refers to enterprises in the same industry adopting a similar strategy. In most industries, according to differences in strategies, enterprises can be divided into several categories. Strategy types can generally be sorted by price and performance. Price changes cause corresponding changes in performance. Most enterprises focus on improving their competitive position within the same category in the strategy. For example, Mercedes-Benz, BMW, and Cheetah car companies compete in the luxury car domain, while other car companies fight in the economic car domain. However, few enterprises pay close attention to what other types of strategy enterprises are doing because, from the supply point of view, they are not competitive in that field. By considering different strategic types within the same industry, it is key to break through narrow perspectives and understand what factors mainly influence customers switching between business classes. Curves, a women’s fitness company headquartered in Texas, provides a good example. Since implementing chain operations in 1995, Curves spread rapidly like wildfire, with over 6000 sales networks, around 2 million members, and over $1 billion in total income on average every 4 hours. There is a newly opened Curves fitness center. But customer group rapid expansion is achieved through recommendations from relatives and friends. Initially, Curves was thought to enter an oversaturated market, providing services customers did not want, with poor competitiveness. In reality, Curves triggered an outbreak of demand in the American fitness market, opening a new market with a large number of women who wanted to shape up through fitness but had always failed. Curves fully leverages the advantages of two strategic categories in the U.S. fitness industry (traditional fitness clubs and home exercise programs), reducing or eliminating negative factors. Traditional fitness clubs are full of men and women, offering a complete set of exercise and sports facilities, usually located in higher consumption level urban areas. They use modern equipment to attract high-end customer bases. They offer a set of aerobic exercises, strength training equipment, beverage bars, fitness trainers, enclosed showers, and sauna rooms because their aim is to let customers exercise and conduct social activities. Customers demanding cross-town arrival at the fitness club will stay for at least one hour, usually within two hours. Membership fees are $100/month, maintaining small scale levels. Clubs only account for 12% of the entire population, usually focusing on big city areas. Setting up such a fitness club requires investments ranging from $500,000 to $1 million, depending on the downtown location. On the other hand, the U.S. fitness industry also includes home fitness programs, such as teaching exercise videos, books, and magazines. These costs are low, used at home, and generally do not need or need only very few instruments' help. Fitness guides rarely occur, with videos, books, and magazines demonstrating and explaining sports stars. The question is: What are the key factors influencing women converting between traditional fitness clubs and home fitness programs? Most women do not enjoy adequate equipment, beverage bars, closed saunas, swimming pools, meeting opportunities, and male fitness club choices. A non-occupation athlete ordinary woman does not want to encounter men when exercising, possibly because she does not want him to see her flesh. She does not want to row behind men's instruments because she needs to adjust the weight or angle. From a time perspective, for ordinary women, this factor is increasingly important, and few people can spend a few hours a week in a fitness club. Proved, most women choose Fitness Clubs mainly because when they exercise at home, it is easy to relax their requests. If they do not see themselves as sports enthusiasts, they also find it hard to strictly follow at home. Exercising together with others rather than alone easily motivates interest. In contrast, those choosing to exercise alone at home mainly consider time-saving, low cost, and convenience. Curves absorbs the advantages of two strategic categories, eliminates and reduces disadvantages, thus creating a blue ocean market. Curves removes unattractive services for most women in traditional fitness clubs. Removing special equipment, food, cosmetics, swimming pools, and even some locker rooms, changing regions separated by curtains makes Curves clubs feel entirely different from general fitness clubs. Entering the gym, members see fitness equipment (usually around 10), but unlike general fitness clubs, these devices are not in rows but arranged in a circle in front of a television, allowing members to communicate adequately and make exercise fun. Using a hydraulic device QuickFit loop Training system without adjustment, safe, and easy to use. These devices specifically designed for women reduce stress impact, enhance strength, and muscle exercise. In the exercise process, members can talk to each other, take care of each other, creating an easy, no-pressure atmosphere entirely different from traditional fitness clubs. Few mirrors, and no males staring at you. Members circle around the instruments and aerobic exercise mats, completing training in less than 30 minutes. Reducing unnecessary services, dedicated to providing main services results in prices dropping to $30/month, making the market oriented towards the average woman. Curves: “With a cup of coffee a day price, you can enjoy the right to exercise for health.” Curves provides value-added services to customers at lower prices. Unlike traditional fitness clubs requiring as high as $50-100 million initial investment, creating a Curves fitness center requires only an initial investment of $2.5-3 million (not including the $20,000 license fee) because they remove many unnecessary things. Variable costs are much lower, and maintenance costs are greatly reduced because of reduced space rent declining substantially. Original downtown high rents of $3.5-10 million per square foot are now regional rents of $1,500 per square foot in the suburbs. Curves' low-cost management mode reduces the cost of the chain store, growing and developing like bamboo shoots after a spring rain. The average attracting 100 members, chain stores begin earning within a few months. Built Curves chain stores in secondary markets transfer prices range from $100,000 to $150,000. Such that Curves chain stores throughout medium-small towns are not directly associated with the existing fitness concept competition but create a new blue ocean. When the U.S. and North American markets are saturated, enterprise managers begin planning European expansion. Expansion plans have started in Latin America and Spain. By the end of 2004, Curves fitness centers will reach 8,500. Besides Curves, many businesses create blue ocean markets in this way. Ralph Lauren creates a “no style fashion” blue ocean market. Its designer, noble stores, luxurious fabrics align well with high Women customer demands. Simultaneously, it is fashionable and classic styling and price with traditional clothing brands such as Brooks Brothers and Burberry are roughly the same. It combines the most attractive factors of two business categories while eliminating or reducing other adverse factors, making Polo Ralph Lauren not only gain a certain market share in these two categories but also attract many new customers. In luxury cars, Toyota approaches the lower end of Cadillac and Lincoln prices with high-end Mercedes-Benz, BMW, and Cheetah product quality, thus creating a new blue sea market. And Sony Walkman, combining the advantages of mobility of crystal radio with high-fidelity playback devices, created a personal mobile stereo system market in the late 1970s. The Walkman attracted two business class customers and, since the value upgrade, also attracted many new customers, including jogging enthusiasts and frequent travelers. Champion Enterprises, headquartered in Michigan, also created a blue sea in the housing market using this method. Testing two business categories, prefabricated housing providers and site developers, prefabricated housing prices are lower and can be finished quickly but are standardized products generally considered of poor quality. Conversely, developers-built houses provide multiple choices, better quality, but are more expensive and take longer. Champion combines both advantages to create a blue ocean market. It provides prefabricated houses that are easy to construct, benefiting from economies of scale and low costs. Price competitive, but Champion allows clients to choose some house components, including fireplaces, sunroofs, and even vaulted ceilings. Actually, Champion changed the definition of prefabricated housing. As a result, many low and middle-income families are more willing to buy prefabricated houses rather than rent or buy houses, even attracting some rich people to the market. Your industry's strategy types exist? What are the reasons for customers converting in the low-end business type?
Mode Three: Looking Across the Chain of Buyers
In most industries, enterprises participating in the competition define target customers similarly. However, in fact, there exists a customer chain, directly or indirectly involved in buying decisions. A purchaser of a product or service may be associated with the end user inconsistently, in some cases involving some very important persons. Although these three categories of people may overlap, they are usually not the same person. When the three people are inconsistent, their values also differ. For example, enterprises' procurement staff affirming the ultimate use of the product care more about cost, whereas the latter may care more about using similar products. Product manufacturers and retailers hope for timely replenishment of inventory and better financing provision. However, consumers buying products, although subject to these product channels, do not concern themselves with these things. An industry tends to choose different target customer groups, for example, big or small, from the customer industry, usually focusing on a certain kind of purchasing group. For example, the pharmaceutical industry mainly focuses on the influential group of physicians; the office supplies industry mainly focuses on procurement, enterprise procurement departments; and the clothing industry mainly sells products directly to users. Sometimes, focusing on the principle of economics, but more often it is simply due to industry practice, people usually do not question it. Challenging traditional ideas on target customer groups can find new blue oceans. Looking at different buyer groups, enterprises can generate new thoughts to construct their own value curves, finding previously ignored target customer bases. Consider Novo Nordisk as an example, a Danish insulin manufacturer creating a blue ocean in its own industry. Patients with diabetes use insulin to regulate blood sugar content. In the past, like other pharmaceutical industries, the insulin production industry mainly focused on influential groups, namely doctors. Because doctors significantly influence diabetic patients' choice of insulin, they naturally became the industry's target customers. Correspondingly, doctors' quality improvement requirements led the industry to focus on improving insulin purity. The problem was that, by the end of the 1980s, purification technology updates saw significant improvements. As long as insulin purity was the enterprise's key competitiveness index, enterprises struggled to improve. Novo itself also developed so-called “human monomer” insulin, chemically identical to human insulin. Soon, the main competitors converged in competition. However, Novo Nordisk saw it could break cruel competition and create a blue ocean: shifting attention from doctors to users themselves, i.e., patients. In the attention processes in patients with Nordisk, Novo found that the insulin installed in bottles made the patient's usage process inconvenient. Because it was bottled, handling syringes, needles, insulin, and adjusting doses according to need were complex, causing patients inconvenience. Needles and syringes also caused some people bad associations. Therefore, patients were generally unwilling to use needles and syringes outside but needed daily injections several times. These factors made Novo Nordisk find Lanhai opportunity, launching NovoPen in 1985. NovoPen was the first convenient-to-use insulin solution, eliminating the inconvenience and worry of using insulin syringes. NovoPen looks like a pen, comprising an insulin container, easy to carry, with a tube dose almost a week. This pen adopted an integrated touch device, even allowing the blind to easily control the dose, using insulin. Thus, patients could carry it without worrying about needle and syringe troubles and embarrassment. To dominate the new blue ocean market, Novo Nordisk...