Reach Beyond Existing Demand
How do you maximize the size of the blue ocean you are creating? This chapter provides a guide to reaching beyond existing demand, encouraging companies to challenge the conventional strategy practices of focusing on existing customers and finer segmentation to accommodate buyer differences. Instead of concentrating on customers, companies need to look to noncustomers and build on powerful commonalities in what buyer’s value in order to unlock new markets. Since the dawn of the industrial age, companies have engaged in head-to-head competition in search of sustained, profitable growth. They have fought for competitive advantage, battled over market share, and struggled for differentiation. Yet, these hallmarks of competitive strategy are not the way to create profitable growth in the future. In a book that challenges everything you thought you knew about the requirements for strategic success, 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. Based on a study of 150 strategic moves spanning more than a hundred years and 30 industries, the authors argue that lasting success comes not from battling competitors, but from creating "blue oceans"--untapped new market spaces ripe for growth. Such strategic moves--which the authors call "value innovation"--create powerful leaps in value that often render rivals obsolete for more than a decade. In this chapter, Professor W. Chan Kim introduces the way to maximize the size of the blue ocean. In order to achieve this result, you need to focus on the existing customer. Besides, you need to drive for finer segmentation to accommodate buyer differences. The managers should lead to finer segmentation and greater tailoring of offerings to better meet customer preferences. Those customers are non customers segment and they can create huge demand and sales volume to the business. Professor W. Chan Kim indicates the managers should study the buyers’ behavior. File up those non customers into 3 different types. Aggregate new demand and unlock those 3 type non customers. By aggregating the greatest demand for a new product / service, this approach avoid the scale risk - that is the risk of designing a market too small - when creating Blue Ocean. To maximize the size of their blue oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyer’s value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before. Through a shift in focus, away from existing clients, these mistakes are attenuated. There are two typical mistakes in strategy design that should be avoided: firstly focusing on existing customers, and secondly an ongoing segmentation to do justice to customer wishes (Kim and Mauborgne). According to Kim and Mauborgne, non-customers can be further classified into three tiers according to their distance from the market. The first tier is the group of soon-to-be customers. They sit on the edge of the market and are waiting to jump ship and leave the industry as soon as the opportunity presents itself. The second tier consists, of customers who refuse to use your industry’s offerings. These are buyers who have seen your industry’s offerings as an option to fulfill their needs but have voted against them. If a company has identified the reasons for this decision, it can start working on winning over this group of clients; hence it will help to develop additional market demand. Finally there is a third tier of customers is farthest from your market. They never thought of your market’s offerings as an option. By focusing on key commonalities across these noncustomers and existing customers, companies can understand how to pull...
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