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BLUE OCEANS: CHAPTER 2 ANALYTICAL TOOLS AND FRAMEWORKS By: Anthony Gauthier, John Bell, Austin Hughes, Travis Messerschmitt, and Michael Wilson AN ABSENCE OF ANALYTICS There are many tools for success in red oceans. Effective blue ocean strategy is risk minimization not risk taking. AN EXAMPLE 20 billion dollar U.S. wine industry highly competitive. Oversaturation of large competitors. Despite large array of choices consumer base stagnant. Prices going down, small competitors cannot compete. Not conventionally attractive… THE STRATEGY CANVAS “A diagnostic and an action framework for building a compelling blue ocean strategy.” Seven Principals of U.S. Wine Industry: Price per bottle Elite packaging Above the line marketing Aging quality Prestige of vineyard Complexity of taste Diverse range of wines Value Curve -Depicts a company’s performance across its industry’s factors of competition. The higher the point on the graph, the more the company invests in that factor of competition. WHAT KNOWLEDGE CAN YOU GAIN FROM ANALYZING THE VALUE CURVE? -Potential to create a blue ocean. Blue Ocean: Makes competition irrelevant by exposing/creating new factors of competition How does a company create a blue ocean? 1. Reorient their strategic focus from benchmarking its competitors to finding new alternatives 2. Shifting focus from its consumers to its nonconsumers -Result: Finding better solutions than your rivals to existing problems in your industry How to Change Your Industry’s Strategic Logic The Four Actions Framework- Consists of four questions that help to challenge an industry’s strategic logic 1. Which of the factors that the industry takes for granted should be eliminated? Intensive Distribution 2. Which factors should be reduced well below the industry’s standard? Sports promotions: Air Race World Series, X-Fighters World Tour, Crashed Ice, Cliff Diving World Series A factor RedBull has already reduced is the sale of apparel. They do not sell merchandise, and this makes the consumer market crave RedBull products. 3. Which factors should be raised well above the industry’s standard? Prestige, exclusivity (merchandise not sold) 4. Which factors should be created that the industry has never offered? Sell merchandise? The Four Actions Framework allows a company to make the current rules of their industry irrelevant CASELLA WINES – BLUE OCEAN • • • • Casella Wines’ strategic profile broke from the competition and created a blue ocean. Did so by creating a social drink of wine [yellow tail] was accessible to drinkers of all types (beer, wine, nonwine) [yellow tail] was able to leapfrog competitors without significant marketing investment. CASELLA WINES Drinkers of more expensive wines began moving down to drink more [yellow tail] and drinkers of less expensive wines began moving up. [yellow tail] found a new market for fun and adventurous wines that hadn’t been tapped in to. A FUN WIN Casella Wines created a mass-appealing wine by softening the taste and sweeting the flavor, which shortened the aging time required. This new wine was approachable like beer and cocktails. Doing this significantly lowered the costs associated with wineries and the aging process. [YELLOW TAIL] [yellow tail] created a simple, attractive label and packaging that was less intimidating than traditional wine producers. By only offering two wines at the start, [yellow tail] simplified the selection process. Most wines were targeted at upper income professionals, not the general public. [yellow tail] did not try to portray itself as a traditional winery exclusive to the elite. ELIMINATE-REDUCE-RAISE-CREATE ELIMINATE Which factors that the industry has long competed on should be eliminated? Casella Wines eliminated sophistication and pretentiousness of wine REDUCE Which factors should be reduced well below the industry’s standards? Casella Wines reduced wine complexity and vineyard prestige/legacy. RAISE Which factors should be raised well above the industry’s standards? Casella wines raised price vs. budget wines. CREATE Which factors should be created that the industry has never offered? Casella made it easy to drink, fun and adventurous, comparable to beer and mix drinks. COMPONENTS OF A GOOD BLUE OCEAN STRATEGY 1. 2. 3. Focus Divergence (from industry) Compelling Tagline That Speaks to the Market FOCUS Every great strategy has focus. Southwest Airlines: Friendly service Speed Frequent point to point departures They also determine what NOT to focus on. Lounges Meals Seating Choices THINK ABOUT IT… Why would a company NOT focus on certain things? DIVERGENCE Divergence is how companies with a Blue Ocean Strategy set themselves apart. It shows up in their value curve. How to create a blue ocean out of a red ocean value curve: Eliminate some areas Reduce some areas Increase some areas Create new areas …CHANGE THINGS SWA VALUE CURVE COMPELLING TAGLINE “The speed of a plane at the price of a car—whenever you need it.” VS. “Set yourself apart from the middle class passengers as you get food, normal customer service, lounges, slower speeds, and higher prices.” Tag lines must have: Clear message Truthful advertisement of offering COMPONENTS OF A GOOD BLUE OCEAN STRATEGY 1. 2. 3. Focus Focus, or costs will be very high. Diverge from industry standards, or be thrown into the Red Ocean of stiff competition. Divergence Compelling Tagline That Speaks to the Market If it doesn’t have one of these, it might not have potential to be great. SHOULD RED BULL EXPAND INTO A BLUE OCEAN? Red Bull’s rapid growth and success rely on it’s marketing strategy more so than it’s unique product. The Soft Drink manufacturing has 135 companies competing with big names such as Coca Cola and Pepsi co = a red ocean. Could Red Bull already be competing in a blue ocean? The jury is still out… RED BULL VS THE WORLD Traditional Soft Drink (Coca Cola or Pepsi) Typical soft drink product, firmly established in the red ocean. Coca Cola brings people together. Everyone drinks Coke and Pepsi. Can afford to drive prices down to compete. Red Bull Energy Drink product, road less traveled. Only serious direct competitor is Monster. Red Bull is heavily marketed towards the young, and sports savvy. Due to supply chain Red Bull is already more expensive than most cheap brands. But can afford the premium, why? RED BULL’S BLUE OCEAN STRATEGY Eliminate- Red Bull surrendered its potential broad appeal on the soft drink market to pursue the niche field of energy drinks. Rethink the formula. Reduce- Red Bull reduced the overall approachability and availability of its product by producing energy drinks. Raise- Red Bull raised the price of its product relative to cheaper soft drinks. Create- Red Bull created a niche product that targets consumers outside or already consuming soft drinks for other reasons. As well as a marketing campaign that targets these consumers relentlessly.
