Chapter 4 Chapter 2 Analysis Tools and Frameworks

In order to make the execution and implementation of blue ocean strategy more systematic and operable in the fierce market competition, we have spent decades researching a series of analytical tools and frameworks, filling the gap in the field of strategic analysis.In the field of strategic analysis, there are many impressive red ocean competitive strategy tools and frameworks, such as the five-element method for analyzing current industry conditions, etc., but there is still almost a blank on how to effectively implement blue ocean strategy.With higher requirements on the innovation ability and entrepreneurial spirit of operators, operators must learn from failures and seek breakthroughs.But it is not enough to have ideas without practical analysis tools.Without these tools, it will be difficult for operators to make breakthroughs in the existing competitive landscape.Effective blue ocean strategy is about mitigating risk, not taking it.

To bridge this research-level gap, we examine companies globally and create some practical methodologies for blue ocean capture.Apply and verify these tools and frameworks to the company's operations, and further enrich and enrich them in practice.These tools and frameworks are fully applied throughout the book, as we discuss six principles for implementing a blue ocean strategy.Before introducing these tools and frameworks, let's first understand the American wine industry and see how these tools are used in the practice of creating blue oceans. The United States is the third largest wine consumer in the world.However, the entire industry with an annual sales volume of 20 billion US dollars is very competitive.California wines dominate the domestic market, accounting for two-thirds of all sales in the country.These wines compete head-to-head with imports from France, Italy and Spain, as well as emerging market countries such as Chile, Australia and Argentina targeting the US market.At the same time, wine availability in Oregon, Washington and New York states is also increasing, and California has added new mature vineyards, and there are endless types of wines on the market.Yet the U.S. consumer base remained largely unchanged.In terms of per capita wine consumption, the United States remains at 31st globally.

Intense competition drives industrial concentration. Eight top companies produce 75% of all wine in the United States, while about 1,600 other wineries produce the remaining 25%.The dominance of a few major players allows them to influence distributors, fight for shelf space, and spend millions of dollars more in marketing budgets than other players.At the same time, US retailers and distributors are also undergoing similar consolidation, which can improve their bargaining power in the face of many manufacturers.In order to seize the retail and sales share, the competition among manufacturers tends to be fierce.Unsurprisingly, weak, poorly managed companies are constantly being weeded out of the market.The industry as a whole is beginning to face pressure to cut prices.

In short, the wine industry in the United States is facing many unfavorable situations: more severe peer competition pressure, rising price pressure, stronger negotiating power of retailers and distributors, more varieties of products but no obvious increase in demand.In normal strategic thinking, the industry has little appeal.For strategists, the key question is how to completely get rid of the bloody market competition in the red ocean, and open up and acquire a blue ocean market space that no one is fighting for? To illustrate these issues, let's look at the strategic map, an analytical framework central to both value creation and blue ocean creation.

The strategic layout map is a powerful blue ocean strategy diagnostic framework and analysis framework.Using the strategic layout map, you can obtain the current market competition situation, understand the investment direction of competitors, what factors are the competition concentrated on in terms of products, services and distribution, and what customers get from competing commodity choices.Figure 2-1 expresses this information graphically.The horizontal axis shows the factors that are important for competition and investment in the industry. In the case of competition in the US wine industry, 7 fundamental factors are at play:

*Price per bottle of wine; * Image identity on the packaging, including the award-winning statement on the label, the mysterious wine-making process term, the latter emphasizing the art and science of wine-making; * High-intensity marketing to increase brand awareness in a crowded market and encourage distributors and retailers to provide prominent placement for the brand's wines; *The brewing quality of the wine. * Prestige and historical origin of the winery (for this, list the names of the estates and castles, and the historical year in which the winery was established). *Complexity and elegance of wine taste, including tannin process and oak fermentation.

*Wines of different flavors made from various grapes to meet customers' different preferences from Chardonnay to Merlot. These factors are considered key to characterizing a wine and deserve special attention when promoting it to the connoisseured drinker. This is the underlying structure of the US wine industry as observed from a market perspective.Look again at the vertical axis of the strategic layout diagram, which shows how much buyers are getting in terms of all these competing elements.A higher value indicates that the enterprise provides higher utility to buyers and invests more in this factor.For the price factor, a higher score on price indicates a higher price.We can plot the level of wine manufacturers' existing products on all these factors, so as to understand the strategic outline of these enterprises, that is, the value curve.The value curve is a basic part of the strategic layout map, which graphically depicts the relative strength of an enterprise in various elements of industry competition.

Figure 2-1 shows that although there are more than 1,600 wineries in the U.S. wine industry, from the perspective of buyers, these manufacturers have a great convergence on the value curve.Although there are many competitors, we can find that their strategic outlines are basically the same when we plot the value curves of famous brand wines on the strategic layout map.These manufacturers set higher prices and pursue high standards in all key competitive factors.Their strategic profile follows a classic differentiation strategy.But from the market point of view, they want to pursue differentiation, but the result is similar to each other.On the other hand, the strategic contours of the economy wines are all the same.They are low in price and achieve low levels of competition on all factors.These manufacturers are typical low-price competitors.Additionally, the value curves for high-end and low-end wines have similar shapes.These two sets of strategies are nearly in sync, differing only in the levels achieved.

In this industry situation, if you want to push the company on the track of strong growth and profitability, if you just give customers a little more or a little less in the same elements compared with competitors, and hope to win the competition, it will not help. .This strategy might boost sales a bit, but it's hard to push the company into a market space without competition.Doing a lot of market research is not a viable path to a blue ocean either.Our research found that consumers rarely imagine how to create blue ocean spaces without competition.Their thinking is easy to go in the direction of "give me more or less", and what consumers want more is often the factors of the existing products and services in these industries.

In order to fundamentally change the strategic layout of the industry, the strategic focus must be shifted from competitors to alternative markets, from customers to non-customers.To consider value and cost simultaneously requires rejecting the old logic of benchmarking existing competitors and choosing between differentiation and cost leadership.By shifting the strategic focus from current competition to alternative markets and non-customers, it is possible to redefine the problems facing the industry, and then to rebuild the consumer value factor across industry boundaries.In contrast, the traditional strategic logic is to drive companies to seek better solutions than competitors for well-defined problems.

Still taking the American wine industry as an example, traditional thinking drives wineries to pay attention to the reputation of the wine and the quality of the wine based on the established price.This means increased wine complexity in terms of production and evaluation systems.Manufacturers, sommeliers, and connoisseured drinkers all agree that this complexity—that is, the variety of character traits that result from differences in soil, season, tannin, and fermentation—equates to quality. However, by finding alternatives to the market, Australian winemaker Casella has reframed the wine industry's problem as: How do you make an interesting, unconventional wine that everyone loves?Why do you think so?Because they found that, on the demand side, consumption of wine substitutes—Sprite, cocktails—is three times higher than wine consumption in the United States.Many American adults view wine as an appetizing drink.Because drinking wine is very complicated and pretentious.Although the complex flavors are the focus of manufacturers' competition, they are difficult for ordinary people to bear.With this understanding, Casela Wines is ready to readjust its strategic outline to open up a blue ocean.To this end, Casella Wines used the second basic analysis tool of blue ocean strategy: the four-step action framework. In order to reconstruct the buyer's value factors and shape a new value curve, we developed a four-step action framework.As shown in Figure 2-2, in order to break the substitution relationship between differentiation and low cost and create a new value curve, there are four core issues that are critical to challenging the industry's existing strategic logic and business model: * Which factors that are taken for granted in the industry should be considered? *Which factors should be below the industry standard? *Which factors should be contained above the industry standard? *Which factors that have never been provided in the industry should be considered? The first question prompts companies to consider removing factors that would allow them to compete in long-term competition in the industry.These factors are often taken for granted, but in fact no longer have value, or even reduce the value.Sometimes the values ​​buyers value change, but companies compete with each other without doing anything to address the change or even being aware of it. The second question prompts companies to consider whether a product or service is overdesigned.If a company provides more to consumers than is actually needed, it will increase costs without any benefit. The third problem drives companies to discover and eliminate the compromises consumers have to make. The fourth question helps uncover new sources of buyer value to create new demand and change the industry's strategic pricing norms. The first two issues (elimination and reduction) can help companies to lower their cost levels below those of their competitors.Our research has found that business managers rarely systematically try to eliminate and underinvest in factors that they are used to competing with.The result is ever-increasing costs and increasingly complex business models.In contrast, the latter two questions inspire us how to enhance the value of buyers and create new demands.Collectively, these four questions help us to systematically explore how to look beyond existing industry boundaries and restructure buyer value factors to provide buyers with entirely new experiences while keeping the cost structure low.Of particular importance are the two actions of cull and create, which put the company on a trajectory to maximize value beyond existing competition.They drive firms to change the factors themselves, making existing rules of competition irrelevant. When the four-step action framework is applied to the industry strategy map, a new understanding of the implementation of the original identification can be obtained.Taking the American wine industry as an example, applying the four-step action framework to analyze the logic of the current industry and examine other choices and non-consumers, Casella created the yellow tail wine (yellow tail) brand.Its strategy is very different from its opponents, and a blue ocean has been created as a result.Casella Wines did not launch Yellow Tail as a wine, but created a popular drink for all ages. Whether a person is used to drinking beer, cocktails or other non-alcoholic beverages, Yellow Tail can be accepted.In just two years, this fun social drink, Yellow Tail, has become the fastest-growing brand in the history of the Australian and American wine industries, surpassing French and Italian wines and becoming the number one imported wine in the US market.By August 2003, Yellow Tail was the No. 1 selling red wine in 750ml bottles, surpassing all California brands.By the first half of 2003, the average annual sales volume of Yellow Tail reached 4.5 billion cases.Yellow Tail is having to work overtime to keep up with sales amid a global glut of wine. What's more, while other large wine companies have invested heavily in marketing for decades to build strong brands, Yellow Tail has surpassed those without promotional activities, media or advertising to consumers. Big name competitors.Rather than stealing business from competitors, it expands the market.Yellow Tail has invited customers who did not consume wine—those consumers of beer and ready-to-drink cocktails—into the wine market.Others who only occasionally drank wine at the table began to drink Yellow Tail wine more frequently. People who were accustomed to drinking budget wines and those who drank high-end wines all converged and became Yellow Tail customers. Figure 2-3 shows the extent to which applying the four-step action framework enabled Yellow Tail to remove competition from the US wine industry.Graphically compare more than 1,600 wineries in the United States with Yellow Tail, which implements the blue ocean strategy.As shown, the value curve for the yellow tail stands out.Casella Wines implemented all four actions of eliminating, reducing, increasing, and creating, thus opening up a new market space that no one can compete for, and changing the face of the American wine industry within two years. Casella focuses on alternative markets such as beer and ready-to-drink cocktails, and considers the problem from the perspective of "non-consumers", creating three new factors in the industry: easy to drink, easy to choose, exciting and interesting, while eliminating or reducing the all other factors.Casella found that the American public rejected wine because of its complex tastes, which made it difficult to appreciate its beauty.In contrast, beer and ready-to-drink cocktails are sweeter and easier to drink.Therefore, through the recombination of wine characteristics, Yellow Tail launched a simple and clear wine structure, which was immediately appreciated by mass consumers.The wines are soft and easy to drink, like ready-to-drink cocktails and beers, and are available in original and various fruit flavors.The sweet taste of its fruit is also very appetizing, making people enjoy the next drink without knowing it.The result is wines so easy to drink that they don't need years of savoring to gain favor. While maintaining a simple taste, Yellow Tail also greatly reduces all other factors that the wine industry has always focused on, such as tannin craftsmanship, oak fermentation, vintage quality, etc.Yellow Tail wines do not focus on vintages, which reduces the working capital occupied by long-term cellaring and accelerates the return on products.People in the wine industry judge that the sweet and fruity taste of yellow tail reduces the quality of the wine, which runs counter to the traditional art of appreciating high-quality wine and the traditional winemaking process.They may have a point, but consumers of all stripes just love Yellow Tail. U.S. liquor retailers offer a wide variety of alcohol to the masses, but for the average consumer these choices can be overwhelming and daunting.The bottles all look the same, the labels are smeared with artisanal terminology that only experts or connoisseurs understand, and there are so many options that salesmen in retail stores can't figure it out. Not knowing how to recommend wine to confused customers.In addition, the rows of wine on the shelves make consumers feel tired and discouraged, and the selection of wine has become a difficult process, which makes ordinary customers feel difficult to grasp. Yellow Tail changed all that by creating easy options.It has significantly pared down its wine list to just two options: Chardonnay, the most popular white wine in the United States, and a red Sherlock.It strips away all the technical jargon printed on the bottle, leaving only an unconventional label that is bold and simple, featuring a kangaroo drawn in bright orange on a black background.The outer box is also bright in color, with yellow tail printed on both sides of the box.In addition to being used as packaging, such a box also attracts people's attention and does not discourage people. Yellow Tail has retail store employees dress up as Yellow Tail ambassadors in Australian Outback specials, including Australian bush hats and oilskin jackets.This idea helps customers to choose yellow tail more easily.The store employee's mood is affected by the clothing, and the recommendation is not so complicated, so the yellow tail wine is automatically recommended to the customer.In short, yellow tail is a joy to recommend. The business model was simplified as Casella launched with just two wines to choose from.Minimize inventory investment by minimizing inventory and maximizing inventory turnover.In fact, the simplicity of the variety also reduces the variety of packaging.Yellow Tail breaks the industry convention and puts red wine and white wine in the same bottle for the first time.This new attempt makes the production and purchase easier, and also makes the display of wine in the store surprisingly simple. The global wine industry enjoys shaping wine into an elegant drink with a rich history and tradition.This is particularly evident in the US market: educated high-income professionals are the main market consumers.Therefore, merchants are constantly paying attention to the quality and taste of the winery, the history and tradition of the castle or manor, and the various awards won by the wine.In fact, major players in the US wine industry have always positioned their growth strategies at the high-end market, investing tens of millions of dollars in advertising to strengthen their brand image.However, Yellow Tail found that among consumers of beer and cocktails, this boutique strategy of wine was incompatible with the public, and it was prohibitive.So Yellow Tail broke with tradition and created a new personality that condenses the characteristics of Australian culture: brave, casual, fun and adventurous.Its brand slogan emphasizes its affinity: "A great land - the essence of Australia".Traditional wine imagery is no longer present on labels and packaging.There is also no indication of the origin of the vineyard on the bottle.The lowercase yellow tail, accompanied by bright colors and kangaroo patterns, all reflect Australian characteristics.Its attraction is like the Australian kangaroo, as if it will jump out of the cup at any time. As a result, Yellow Tail has straddled the traditional alcohol market, appealing to a broad consumer base.By offering a leap in value, Yellow Tail was able to price itself above economy wines, at $6.99 a bottle, more than double the price of a bottle of grape.Since the launch of Yellow Tail in July 2001, sales have skyrocketed. The third tool is also the key to creating blue oceans.This is an auxiliary analysis tool for the four-step action framework, called the "elimination-reduction-increase-creation" grid (see Figure 2-4).This form requires companies not only to answer the four questions in the four-step action framework, but also to take action on all four areas to create a new value curve.By letting the enterprise fill in the actions to be taken in these four areas in the grid, the enterprise can immediately obtain the following four benefits: *Encourage enterprises to pursue differentiation and low cost at the same time, so as to break the trade-off relationship between value and cost. *Remind enterprises in a timely manner not to focus on increasing and creating two aspects, but raise the cost structure and over-design products and services.Many companies often find themselves in this situation. *This tool can be easily understood by managers at all levels, thus gaining a high degree of participation and support in the implementation of the strategy. *Because completing the form is a challenging task, it allows companies to rigorously examine each competitive factor to discover those assumptions embedded in the competition, which competing companies often unintentionally take for granted. Figure 2-5, Cirque du Soleil's Cull-Reduce-Grow-Create grid, provides yet another example of this tool in action, and shows what doing so can enable companies to discover.Those factors that industry competition has relied on for a long time and can be reduced or eliminated by companies filling in the coordinate grid are actually meaningless.Taking Cirque du Soleil as an example, it has eliminated some elements of traditional circus, such as animal performances, star performances and combined stages.These factors are taken for granted in the traditional circus industry, and their importance has never been doubted.But public aversion to using animals for performances is growing.And the animal show is the most expensive factor, not only the cost of the animals, but also the cost of training, health care, housing, insurance and transportation.Similarly, despite the circus industry's emphasis on star performers, so-called circus stars are nothing compared to movie stars in the public mind.This is yet another factor that means little to the audience but is costly.The same problem applies to combined stages, which not only confuse the audience's sight due to stage switching, but also increase the number of actors, which will obviously increase the cost. Like Cirque du Soleil, Yellow Tail has created a unique and superior value curve, opening up a blue ocean.As shown in the strategic layout diagram, the value curve of the yellow tail is focused, and the enterprise does not scatter its energy on all competitive factors.Compared with its competitors, its value curve is unique. It does not use competitors as a benchmark, but chooses alternative industrial markets.Yellow Tail's strategic silhouette has a clear theme of delivering a simple and fun wine that people can enjoy every day. As can be seen from the value curve, an effective blue ocean strategy like Yellow Tail must possess three complementary characteristics: focus, differentiation, and a compelling thesis.Without these characteristics, a company's strategy must be chaotic, drifting, and costly.The four-step process of creating a new value curve can guide companies in building a strategic profile.These three characteristics can be seen as the initial touchstones of a blue ocean idea's commercial viability. Examining Southwest Airlines' strategic profile reveals how these three characteristics underlie an effective strategy as the company recreates an effective strategy through value innovation (see Figure 2-6).Southwest created blue oceans by breaking the trade-offs customers had to make between the speed of airplanes and the economy and convenience of car travel.Southwest offers high-speed service with frequent and flexible departures and attractive fares for the general public.By removing and reducing some of the competitive elements of traditional airlines, adding others, and incorporating some new elements into the alternative industry of car travel, Southwest was able to provide travelers with unprecedented utility while at the same time A leap in value is achieved by maintaining a low-cost structure. On the strategic layout map, Southwest Airlines' value curve is clearly different from that of its competitors.Its strategic profile is a classic example of a convincing blue ocean strategy. Every great strategy has a focus, and a company's strategic profile, or value curve, should clearly show that focus.Looking at Southwest's strategic profile, we immediately see that the company emphasizes only three factors: friendly service, speed, and frequent point-to-point direct flights.While emphasizing these priorities, Southwest Airlines sets prices similar to those of car transportation.It made no extra investment in food, lounges and seating options.Instead, Southwest's traditional competitors have invested in these industry competitive factors, making it more difficult for them to compete with Northwest on price.The investment focus of these enterprises is too dispersed, and they are led by the nose by the competition, which ultimately leads to a high cost structure. When a company's strategy is designed to catch up with competitors, it loses its uniqueness.Think cookie cutter food and business class lounges on most airlines.Such reactive strategies tend to employ similar strategic outlines in the strategic map.In fact, as far as Southwest Airlines is concerned, the value curves of its competitors are almost the same, which is reflected in the strategic layout map, which is the same type of strategic curve. In contrast, the value curve of blue ocean strategy is different.By eliminating, reducing, increasing, and creating four actions, they differentiate their strategic profile from the industry's general strategic profile.For example, Southwest Airlines has opened up direct flights between medium-sized cities. Before that, the entire industry operated according to the hub-and-spoke system. A good strategy has a clear and compelling pitch. "We offer the speed of an airplane and the price of a car, whenever you want." That's the theme of Northwest's advertising, or at least it could be.What can its competitors say?Even the best ad agencies have a hard time combining standard service food, seating options, lounges, transit hubs, standard service, slower speeds, higher prices, etc. into a compelling thesis.A good theme should not only convey information clearly, but also be realistic, otherwise customers will lose confidence and interest.In fact, a good test of whether a strategy is effective and powerful is to see if it has a strong and believable theme. As shown in Figure 2-7, Cirque du Soleil's strategic outline also conforms to the three principles of blue ocean strategy: focused, distinctive, and convincing in theme.Cirque du Soleil's strategy map allows us to graphically compare strategies with other competitors.The graph clearly shows the difference in strategic logic between it and its competitors.Graphically, Ringling Family Circus, Barnum & Bailey Circus, and small local circuses have similar shapes, the main difference being that local circuses can only provide a lower level of competition factor due to limited resources. In contrast, Cirque du Soleil's value curve is different.It has new non-circus factors, such as themes, multiple productions, elegant environment, artistic music and dance, etc.These factors are new to the circus industry, but borrowed from other live entertainment industries.In this way, the strategic layout map clearly describes the traditional elements that affect industry competition, and guides the new elements that create new market spaces. Yellow Tail, Cirque du Soleil, and Southwest Airlines all created blue oceans in radically different business environments and industry contexts.Yet their strategic outlines share the same characteristics: focused, differentiated, and compelling themes.These three standards guide the enterprise to implement the process of industry reconstruction, bringing breakthroughs in value to both customers and the enterprise itself. A strategic roadmap enables companies to see the future through the present.To do this, companies must learn how to interpret the value curve.Behind the value curve lies valuable strategic information about the current state of the industry and future business opportunities. The first question answered by the value curve is whether a business project will be successful.If a company's value curve or that of its competitors satisfies the three criteria of blue ocean strategy: focus, differentiation, and compelling themes, the company is on the right track.These three criteria can serve as an initial litmus test for the commercial viability of a blue ocean idea. And when a company's value curve lacks focus, its cost structure will often be high, and its business model will become complex to implement and execute.When the value curve cannot be unique, the strategy of the enterprise will be the same, and it will not be able to stand out in the market.However, when an enterprise lacks a convincing publicity theme, it may be oriented by the internal conditions and needs of the enterprise, only innovating for the sake of innovation, lacking commercial potential, and lacking the ability to grow naturally. When a company's value curve converges with that of its competitors, the company is likely to be caught in a red ocean of competition.The strategy of such a company is always consciously or unconsciously trying to compete on cost or price.This slows down the growth rate of the business unless, by luck, the company benefits from the growth of the industry as a whole, which is not just luck and has nothing to do with the right strategy. On the strategic layout map, when a company's value curve reaches a high level in all elements, the question arises: Does the company's market share and profitability really reflect these investments, and is it proportional to the inputs?If not, it indicates that the company may provide more than what consumers actually need, and invest too much in some factors, but the value added to customers is not much.To achieve value innovation, companies not only need to decide which factors need to be added and created, but also which factors must be eliminated or reduced in order to build a differentiated value curve. When a company's value curve looks like a piece of spaghetti — zigzags and unfocused, with factors going up and down — it's a sign that the company doesn't have a coherent strategy as it should.Its strategy is likely to be composed of a number of independent sub-strategies.Taken individually, these strategies may work and make the business work, but taken together, they cannot be a strategic vision that differentiates itself from other competitors.This situation is often the result of multiple departments fighting in isolation. Does the strategy contradict itself?Contradictions arise when firms provide high levels of one competitive factor while ignoring other factors that underpin that factor.For example, if an enterprise designs its website content to be simple and easy to use, but does not increase the connection speed of the website, it will take a lot of time to open the webpage.Strategic inconsistencies can also be expressed in the relationship between the level and price of supply factors.For example, if a gas station plots a value curve and discovers that it was "charging more for less" than its competitors, it offers less and pays more than its competitors, so it's no wonder that it's losing market share . When an enterprise draws a strategic layout map, how to mark out the competitive factors of the industry?For example, do you use "megahertz" instead of "speed" or "heat source water temperature" instead of "hot water"?Are the competitive factors expressed in words that consumers understand and value, or in the technical terms of the company?From the language used in the strategic layout map, we can see whether the enterprise's strategy is driven by external demand or oriented by internal operations.Analysis of the language of the strategy map can help companies realize how far they are from creating industry demand. The tools and frameworks introduced in this chapter are the basic analysis tools that will be used throughout the book.Complementary tools are further covered in other chapters as needed.Only by combining these analysis techniques with the formulation and implementation of the six principles of the blue ocean, can enterprises get rid of competition and open up a market space that no one is vying for. We now turn to the first criterion, the reconstruction of market boundaries.In the next chapter, we'll explore how to maximize opportunity and minimize risk to create a path to a blue ocean. :1 Other options are not just replacements.For example, restaurants are other options for movies.The tour competes away potential customers who want to enjoy the film, and she is neither a direct competitor nor a functional substitute for the film.Premium companies can look for 3 heavy non-consumers.For a detailed discussion of the relationship between alternatives and nonconsumers, see Chapters 3 and 5 of this book, respectively.