Strategy Growth-Strategiesstudents PDF

« Generic Strategies, Value Proposition
& Blue Ocean Strategies »

M1 ‘14 – C4
7th November
20/11/14 M1 2014 -‐ Strategy -‐ Pr Bruno M.WATTENBERGH -‐ © 1

Structure of the Course today
•  In detail in the Value Proposition
•  Generic strategies of Porter
•  Blue Ocean Strategies
•  Distribution strategy
•  Marketing or Strategic Segmentation ?
•  Spotfire & Railnova
CLIENT CLIENT
CLIENT
CLIENT
KEY ACLIENT
CTIVITIES RELATI°SHIPS
SEGMENTS
SEGMENTS
SEGMENTS SEGMENTS
PARTNER
CLIENT
CLIENT VALUE
CLIENT
CLIENT CLIENT
CLIENT
CLIENT
HOW?
NETWORK
SEGMENTS
SEGMENTS WHAT?
PROPOSAL
SEGMENTS
SEGMENTS
WHO?
SEGMENTS
SEGMENTS
SEGMENTS
KEY
CLIENT
CLIENT DISTRIBUT°
CLIENT
CLIENT
RESOURCES
SEGMENTS
SEGMENTS CHANNELS
SEGMENTS
SEGMENTS
COST
CLIENT
CLIENT REVENUE
CLIENT
$?
STRUCTURE
SEGMENTS
SEGMENTS €?
CLIENT
FLOWS
SEGMENTS
SEGMENTS
Describing a company’s business model
INFRASTRUCTURE PARTNER CUSTOMER CUSTOMER
NETWORK RELATIONSHIP
CORE OFFER TARGET
Portrays the network of Explains the
CAPABILITIES cooperative relationships a CUSTOMER
agreements with other VALUE company establishes
Outlines the capabilities companies PROPOSITION with its customers Describes the
required to run a
customers a company
company's business
Gives an overall view of DISTRIBUTION wants to offer value to
model VALUE
a company's bundle of CHANNEL
CONFIGURATION
products and services
Describes the channels
Describes the to communicate and
arrangement of get in touch with
activities and resources customers
Sums up the monetary Describes the revenue

consequences to run a
COST FINANCE REVENUE streams through which
business model STRUCTURE STREAMS money is earned

Do you remember
the “Magic Trio” ?

Let’s start with the “magic trio” :
Value ProposiGon Market Segment
DistribuGon Channel
VALUE
CLIENT
CLIENT CLIENT
CLIENT
CLIENT
HOW? WHAT?
PROPOSIT°
SEGMENTS
SEGMENTS
WHO?
SEGMENTS
SEGMENTS
SEGMENTS
DISTRIBUT°
CLIENT
CLIENT
CHANNELS
SEGMENTS
SEGMENTS
-‐ € ? + € ?
Do you remember
what is the Value Proposition ?

1st Step the Value Proposition
•  The Value Proposal or The Value Proposition ?
•  The USP - Unique Selling Proposition ?
•  The Unfair Value Proposition ?
The perception by a segment of customers of the economic or/and

social value of a (bundle of) product and services. Establish a value for
the decision to buy or not. The perception of value must be higher than
the price.

Product ? Service ?
The Perception !
Direct – indirect ?
Rational – non rational ?
Emotional ?
Measurable ?
DMU ?
Levitt Theory !
Product or service ?
Product & service ?

Describing a company’s offer The Ques(ons ?
What value will we deliver to the customer ? Which one of our
VALUE customer’s problems are we helping / contribuGng to solve
PROPOSITION
(noGon of customer pain) ?
value proposition 1 Which customer (unmet) needs are we saGsfying ?
value proposition 2
… What bundles of products and services are we offering to each
OFFER
Customer Segment ?
Ø  Describes the bundle of products and/or services that create value for a
specific Customer Segment …
Ø  The Value ProposiGon is the reason why customers turn to one company over
another … (and give up money)
Ø  It solves a customer problem or saGsfies a (unmet) customer need.

CLIENT
VALUE
CLIENT
PROPOSIT°
SEGMENTS
SEGMENTS
Ø  Each Value ProposiGon consists of a selected bundle of products and/or
services that caters to the requirements of a specific Customer Segment.
Ø  The Value ProposiGon is an aggregaGon, or bundle, of benefits that a company
offers to customers.
Ø  Some Value ProposiGons may be innovaGve and represent a new or disrupGve
offer.
Ø  Others may be similar to exisGng market offers, but with added features and
abributes.

Any idea how you can differentiate
the Value Proposition ?
Give some types of differentiation ?

Ø  VP creates value for a Customer Segment through a disGnct mix of
CLIENT
VALUE
CLIENT elements catering to that segment’s needs.
PROPOSIT°
SEGMENTS
SEGMENTS
Ø  Values may be quanGtaGve or qualitaGve
Ø  Newness ... ? Ø  Price …
Ø  Performance … ? Ø  Cost ReducNon …
Ø  CustomizaNon … ? Ø  Risk ReducNon … ?
Ø  GeOng the job done … ? Ø  Accessibility … ?
Ø  Design … ? Ø  Convenience / Usability … ?
Ø  Brand / Status … ? Ø  … or whatever U want !

Value Proposition ?
•  A value proposition is generally a clear and succinct statement
(e.g., 2-4 sentences) that outlines to potential clients and
stakeholders a company's (or individual's or group's) unique
value-creating features.
•  A value proposition is a clear statement of the tangible results a
customer gets from using your products or services.
•  A value proposition is an offer to some entity or target in which
they (the possessor) get more than they give up (merit or utility),
as perceived by them.
•  A value proposition is the basic reasoning for why people should
consider your product or service.
•  Describes what you do in terms of tangible business results. It
draws interest and shares a success story within a few words.
Value Proposition (2) ?
ü  Some questions / issues about the VP ?
ü  P.P.A.S.X. ?
ü  Product / service / Levitt ?
ü  Business model ?
ü  Pay attention to Swiss knife syndrome !
ü  Make choices !!!!!

ü  P.P.A.S.X. ?
ü  Product à characteristics ?
ü  Price à more than costs àstrategy ?
ü  Access à distribution à PoC with client / CR ?
ü  Service à Levitt / whole product ?
ü  eXperience à feelings, emotions ?
ü  The challenge of the Value Proposition ?
ü  Identify & compose the characteristics …
ü  … identified clients are ready to pay for …
ü  … with a clear differentiation …
ü  … while making a minimum / maximum profit …
ü  … being able to present it attractively / value

ü  USP à Unique Selling Proposition ?
ü  One value that distinguishes your from others
ü  One value that lets you dominate the offer
ü  The other values must meet the standards of the

competition

Value Proposition (6)
Value proposition can be synthetized …
–  Domino’s Pizza : Fresh, hot pizza delivered to your door in 30 minutes or less, or it’s
free
–  FedEx : When your package absolutely, positively has to get there overnight
–  IBM : Global solutions for a small planet
–  Intel : Intel inside
–  Lexus : Passionate pursuit of perfection
–  Visa : It is everywhere you want to be

–  M&M’s : the milk chocolate melts in your mouth, not in your hand

ü Test you VP à 4C’s check :
ü  Consistent / Logical / Durable
ü  Concise
ü  Clear
ü  Credible

How to look for a VP ? :
ü  Step 1 : Use your biggest benefits (value chain / RVB ?)

ü  Step 2 : Be unique (avoid “me too” syndrome)
ü  Step 3 : Solve an industry “pain point” or “performance gap”
ü  Step 4 : Be specific and offer proof (QVP / Business Case ?)
ü  Step 5 : Condense into one clear and concise sentence

ü  Step 6 : Integrate your USP into all marketing materials
ü  Step 7 : Deliver on your USP’s promise

What is a quantified
Value Proposition ?
What is the interest of a QVP ?

Quantify the Value Proposition ?
ü  Value Proposition must be quantified ?
ü  Measure clearly the economic & social benefits
ü  Move from burden / cost to RoI (return on investment)
ü  Imposes to know the client well à Study / prepare
ü  Ideally à a well documented / quantified test case
ü  Ideally you need to focus on a specific vertical market à Focus

Quantify the Value Proposition (2) ?
ü  Get into your client’s mind
ü  Try to understand how your client currently solves his problem
ü  Assess the impact of your value proposition on his processes
ü  Calculate – Estimate the change à you need to give a good
return on investment
ü  Be better, faster, cheaper !
ü  Pay attention to NIH

ü  NIH : à In-house competition is a trap you need to manage
ü  Be capable of evaluating the option of in-house development rather than
evaluating your value proposition
ü  Economic redemption
ü  Learning and scale curves
ü  Maintenance
ü  Synergies
ü  …

ü  How to fix prices ?
ü Cost + à hmmm, not so good

ü Vs competition à not so good
ü Rather a benefit for the client à good
ü Ideally : integrated approach of all these options
ü Be creative

What is a D.M.U ?

Decision Maker Unit – DMU ?
ü  Who will you pitch to sell ? Why ?
ü  You might have some choices ? Do you ?
ü  Choose the good / right interlocutor regarding your quantified

value proposal …
ü  The pitch must fit the DMU …
ü  Prepare, prepare (identification, quantification, …)

Decision Maker Unit – DMU ?
ü  Focus on ONE market subset
ü  Startup à lack of resources (time, money, …)
ü  Credibility <-> capacities
ü  Need to validate the BM quickly
ü  Know a vertical market very well, test your VP quickly, adapt
your VP, test again, validate, explain, scale up

What is a
Blue Ocean Strategy ?

Use the BOS methodology ?
•  Blue Ocean Strategy
principle
•  Define the
compeGGon’s factors
•  Analyze the curve
•  Design your own curve :
reduce, delete,
increase, create
•  Does it make sense for
the customer ?

BOS methodology …

BOS methodology …
Create a value step for the venture
Cost for the and the customers
Venture
The objecGve is to bring a real
increase of the value offered to the
Value customer by answering his essenGal
InnovaGon expectaGons
+
Value for the reducing the cost of the venture by
customer reducing or eliminaGng non-‐essenGal
funcGonaliGes or services.

BOS Methodology …
Research on 108 companies (W. Chan Kim & Renée Mauborgne)
“Blue Ocean Strategy”
Incremental innova.ons Radical innova.ons
CreaNon 14%
Impact/C.A. 38%
Impact/Profits 61%

BO Methodology
2 options to launch a BOS :
1.  Launching a completely new industry, like eBay did it

with online auctions …
2.  Create a Blue Ocean inside of a Red Ocean when a

venture enlarge the borders of an existing industry …
more common … easier … (Cirque du Soleil).

Red Ocean vs. Blue Ocean Strategy
In the red ocean, differentiation costs because firms
compete with the same best-practice principle.
Here, the strategic choices for firms are to pursue either
differentiation or low cost.
In the reconstructionist world, however, the strategic aim is to
create new best-practice rules by breaking the existing value-
cost trade-off and thereby creating blue ocean.

Red Ocean vs. Blue Ocean Strategy
Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space. Create uncontested market space.
Beat the competition. Make the competition irrelevant.
Exploit existing demand. Create and capture new demand.
Make the value-cost trade-off. Break the value-cost trade-off.
Align the whole system of a firm’s Align the whole system of a firm’s
activities with its strategic choice of activities in pursuit of differentiation
differentiation or low cost. and low cost.

6 principles !
•  Formulation Principles
1.  Reconstruct market boundaries
2.  Focus on the big picture, not the numbers
3.  Reach beyond existing demand
4.  Get the strategic sequence right
•  Evaluation principles
5.  Overcome key organizational hurdles
6.  Build execution into strategy

6 principles à reduce risk !
•  Formulation Principles
1.  Reconstruct market boundaries ê Search risk
2.  Focus on the big picture, not the numbers ê planning risk
3.  Reach beyond existing demand ê Scale risk
4.  Get the strategic sequence right ê Business model risk
•  Evaluation principles
5.  Overcome key organizational hurdles ê OrganizaGonal risk
6.  Build execution into strategy ê Management risk

BOS in an existing Company
Strategy : Result :
Quality Search for quality in all All the companies
the competitive factors develop the same
factors
High
War Price,
Low
Red Ocean
1 2 3 4 5 6
Competitive Factors :
Those on which the quality of the product / service is build on

Blue Ocean Strategy
Breaks the trade-‐off between

differenGaGon and low cost and
creates a new value curve

4 Questions … ?
•  The four actions framework offers an technique that breaks
the trade-off between differentiation and low cost and intend
to create a new value curve.
•  It answers four key questions :

1.  What industry takes for granted and needs to be eliminated;
2.  What factors need to be reduced below industry standards;
3.  What factors need to be raised above industry standards;
4.  What should be created that the industry has never offered.

Eliminate-reduce-raise-create grid … ?
The real objective is to act on all four to create a new value
curve.
By driving companies to fill in the grid with the actions of

eliminating, reducing, raising, and creating, the grid
provides four immediate benefits:
Eliminate Raise
1.  It pushes them to simultaneously pursue ? ?
differentiation and low costs;
Reduce Create
2.  Identifies companies who are only raising and ? ?
creating thereby raising costs;
3.  Makes it easier for managers to understand and

comply;
4.  Drives companies to scrutinize every factor the

industry competes on.

Four Steps of Visualizing Strategy
1.  Visual 2.  Visual 3.  Visual Strategy 4.  Visual
Awakening Exploration Fair Communication
•  Compare your •  Go into the field to •  Draw your “to be” •  Distribute your before-
business with your explore the six paths strategy canvas based and-after strategic
competitors’ by to creating blue on insights from field profiles on one page for
drawing your “as is” oceans. observations. easy comparison.
strategy canvas.
•  Observe the •  Get feedback on •  Support only those
•  See where your distinctive alternative strategy projects and operational
strategy needs to advantages of canvases from moves that allow your
change alternative products customers, competitors’ company to close the
and services. customers, and gaps to actualize the
noncustomers. new strategy.
•  See which factors
you should eliminate, •  Use feedback to build
create, or change. the best “to be” future
strategy.

Searching for “non-customers”
A corporate management team
pursuing profitable growth can plot the
company’s current and planned
portfolios on a pioneer-migrator-settler
(PMS) map.
This strategy can help a company
determine which businesses experience
the highest and lowest growth and cash
flow.
These are classified accordingly with
the highest growth potential being
pioneers, then to migrators, then to the
lowest rung, settlers.

Searching for “non-customers”
There are three tiers of
noncustomers that can be
transformed into customers. They
differ in their relative distance from
your market :
1.  The first tier of customers
minimally buy an industry’s
offering out of necessity.
2.  The second tier of noncustomers
refuse to use your industries
offerings.
3.  The third tier are noncustomers
who have never thought of your
market’s offerings as an option.

BOS in an existing Company
Red Ocean : Companies are in competition inside of the same sectors. Their aim is to
satisfy the actual customers.
Blue Ocean : Companies have a slightly different strategic profile. In the beginning of
their activity those companies have no competitors as they are not considered as
potential competitors.
Conventional profile
New profile
High
Low
1 2 3 4 5 6 Competitive factors
The example of the “Cirque du Soleil”

A Unique Selling Proposal
•  The Cirque du Soleil
combines uniquely
(Unique Selling Proposal)
humor and suspense of Circus
the classical circus + the
Cirque
sophisGcaGon and du Soleil
intellectual abracGvity of
the theatre + the musical Opera Theatre
creaGon of the opera.

A Unique Selling Proposal
•  The unique selling proposal talks to Circus’s fan, Theatre’s fan or
dance and opera amateurs : the best out of those 4 worlds ?
•  Each representation has a unique theme and its scenario. This
enable to develop the brand, create intangible assets and a strong
and affective link with the customers.
•  Cost of creation is valorized on multiple venues all over the world
•  Aisles concessions are avoided as the distribution of tickets through
expansives networks.
Differenciation & medium-cost !

The Classical Circus Business Model
PARTNER KEY OFFER CUSTOMER CUSTOMER
NETWORK logistics
ACTIVITIES RELATIONSHIPS SEGMENTS
ng
performi animal shows
shows io nal
animal transact
care
focus on
rs
sta r performe families
KEY DISTRIBUTION
RESOURCES
brand CHANNELS
star s ticketing
fo rmer or
e r
p loads of fun & hum channels
animals
COST STRUCTURE REVENUE STREAMS
animal fees for relatively low
logistics
nance”
“mainte20/11/14 stars ticket fees
M1 2014 -‐ Strategy -‐ Pr Bruno M.WATTENBERGH -‐ © 53
Blue Ocean & Cirque du soleil
High
Cirque Bouglione (Regional Circus)
Cirque du Soleil

Niveau de l’offre
Cirque Pauwels
(Local Circus)
Low ArGsGc music and

dance
Animal Shows MulGple Show Arenas Thrills and danger Theme PulGple producGons
Price
Star
20/11/14 Aisle M1 2014 Fun and Humor
-‐ Strategy -‐ Pr Bruno M.WATTENBERGH
Unique -‐ © Refined watching 54
performers Concessions Venue environment
Blue Ocean à Example of the Cirque du Soleil
High Eliminate Reduce Increase Create
Cirque Bouglione
(Regional Circus)
Cirque du Soleil
Level of the offer
Cirque Pauwels
(Local Circus)
Low ArGsGc music & dance
Price Animal MulGple Show Arenas Thrills and Danger Theme MulGple producGon
Shows
20/11/14
Stars Aisle M1 2014 -‐Fun
Strategy -‐ Pr Bruno M.WATTENBERGH
and Humor Unique -‐ © Refine watching 55
performers concessions Venue environment
PARTNER KEY OFFER CUSTOMER CUSTOMER
NETWORK logistics
ACTIVITIES RELATIONSHIPS SEGMENTS
ng
performi animal shows
shows io nal
animal transact
care
sic
urm & thfo
ecautesr,oonpera
asrttaisr tpice,rm
fo e r s
families
ws
KEY dance sho DISTRIBUTION visitors
RESOURCES
brand CHANNELS
star s ticketing
fo rmer or
e r
p loads of fun & hum channels
animals
COST STRUCTURE REVENUE STREAMS
animal fees for relatively low s
logistics g h ti c ke t fee
nance”
“mainte20/11/14 stars ticket fees hi
M1 2014 -‐ Strategy -‐ Pr Bruno M.WATTENBERGH -‐ © 56
CdS : Summary of the USP creation
Eliminate Increase
•  Stars •  Piste unique -‐ centrale
•  Performance with animals
•  Candy
•  Mulitple show arena
Reduce Create
•  Thrills & perceived danger •  Spectacle with a themaGc
•  Fun & Humor •  Refine watching environment
•  MulGple producGons
•  High quality of the Music & Dance

Another example of BOS ? The console market
Red Ocean à Microsoft & Sony hard competition based on « I’ve the
biggest one”à HD readers, high power, billions of cores, high sales
price (and almost no margin), targetting the hardcore gamer, hypothetic
launches (France with PS3),
… NINTENDO launch a small console (Wii), low power, but with
a revolutionary concept à new way of playing ! à FANTASTIC
SUCCESS !
… NINTENDO also launch the concept of the « Serious
game » (Dr Kawashima, …).
It is not because you innovate that you create a Blue Ocean : NGage &
PSP have been very innovative but without an efficient result !

The BO Wii …
•  Has been selling at the rate of one unit per second

since its launch on 19th November 2006.
•  While Sony loses $240-300 on each Playstation 3 sold.
•  Nintendo makes $50 on ever unit.
•  Became one of Japan’s top 10 companies for the first
time in 2007.

The BO Wii …

The example of the book :
Strategy canvas for electrical components companies

Sequences of a
BOS
Be sure to “get the strategic
sequence right.” à this can then
reduce business model risk.

In this model, potenGal Blue
Ocean ideas must pass through a
sequence of :

1.  Buyer uGlity,
2.  Price,
3.  Cost,
4.  AdopGon.

6 stages of Buyer experience ?
The “Buyer Utility Map” helps managers look at this issue from the right perspective. It outlines all the levers
companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a
product or service.

Uncovering Blocks to Buyer Utility
Uncovering blocks to buyer utility can identify the most compelling hot spots to unlock exceptional utility. By locating your proposed offering on the thirty-
six space of the buyer utility map, you can clearly see how, and whether the new idea not only creates a different utility proposition from existing offerings
but also removes the biggest blocks to utility that stand in the way of converting noncustomers into customers.

Buyer Experience Cycle – Key questions ?
A buyer’s experience can usually be broken into a cycle of six stages, running more or less sequentially from
purchase to disposal. Each stage encompasses a wide variety of specific experiences. At each stage, managers
can ask a set of questions to gauge the quality of buyer’s experience.

What about the price ?
The Profit Model of

BOS shows how
value innovation
typically maximizes
profit by using the
three levers of :
1. Strategic price,
2. Target cost,
3. Pricing innovation.

How to test the idea in the beginning ?
Blue Ocean idea Index ? C-S 1 C-S 2 YOU
Is there exceptional utility ? Are there

Utility
compelling reasons to buy your offering ?
Is your price easily accessible to the mass

Price
of buyers (big picture) ?
Does your cost structure meet the target

Cost
cost ?
Have you addressed adoption hurdles up

Adoption
front ?

BOS Evaluation & Decision
This matrix show
you the reactions Good but
of your customer Good &
not
about your value different
different
ß GOOD à
proposition,
instead of taken
their reaction for
grants Not good Different
and not but not
different good
Which one is
testing the best
with customers ?
ß DIFFERENT à

BOS à Evaluation & decision
Good but not different : Good & different :
•  Does very well in test •  Does poorly in test
•  Goes to market easily •  Goes to market with difficulty
•  Generates incremental profits unGl •  Customers soon equates « different » with
challenged by compeGtors « good »
•  Earns small market share •  Generates lasGng profits
ß GOOD à
•  Some brand potenGal •  Earns large market share

•  Strong “brand potenGal”
Not different & not good : Good & not different :

•  Does poorly in test •  Does well in test
•  Goes to market with difficulty •  Goes to market easily
•  Eventually fails in marketplace as customer •  Generates incremental profits but eventually
equate « different » with « bad » fails in marketplace
•  Earns no market share •  Earns small market share
•  No “brand potenGal” •  Lible brand potenGal

Think about it ?
•  Do not offer me things
•  Do not offer me clothes. Offer me an attractive looks.
•  Do not offer me shoes. Offer me comfort for my feet and the
pleasure of walking.
•  Do not offer me books. Offer me hours of pleasure and the
benefit of knowledge.
•  Do not offer me records. Offer me leisure and the sound of
music.
•  Do not offer me things. Offer me ideas, emotions, ambience,
feelings and benefits.
•  Please, do not offer me things !

Strategic Options of a Business Unit

Concept of SBU
(Strategic Business Unit)
A strategic business unit (SBU) supplies goods or services for a distinct
domain of activity.
A small business has just one SBU.
A large diversified corporation is made up of multiple businesses
(SBUs).
SBUs can be called “divisions” or “profit centers”
SBUs can be identified by :
•  Market based criteria (similar customers, channels and competitors).
•  Capability based criteria (similar strategic capabilities).

The purpose of SBUs
•  To decentralize initiative (part of the strategy) to smaller units
within the corporation so SBUs can pursue their own distinct
strategy.
•  To allow large corporations to vary their business strategies

according to the different needs of external markets
(conglomerate is the ultimate approach).
•  To encourage accountability – each SBU can be held

responsible for its own costs, revenues and profits.
•  Example of Danone ?

What about the positioning of the company ?
•  Companies have a palette of possible strategic choices or
options
•  Of of this choice concern “How an organization at a business
level position itself in relation to competitors”. This means how
to compete in a market.
•  This choice will / might be specific for each of the Business
Unit / market segment.
•  Those positioning strategies are called “Generic Strategies”.
•  You must be able to understand those positions and their
consequences on the strategy of the company.

What is the positioning challenge ?

Generic Strategies (M.Porter)
•  Porter introduced the term “Generic Strategy” to mean
basic types of competitive strategy that hold across
many kinds of business situations.
•  Competitive strategy is concerned with how a strategic
business unit achieves competitive advantage in its
domain of activity.
•  Competitive advantage is about how an SBU creates
value for its users both greater than the costs of
supplying them and superior to that of rival SBUs.

3 Generic Strategies

Strategic positioning
Broad Target Cost Leadership Differentiation

Also called « Volume » unique in its industry along some
(low cost producer or best dimensions that are widely
value for money producer) appreciated by buyers
Target
Narrow target
Concentration Differentiation Focus
or Cost focus or “Niche”
Strategic advantage based on Strategic advantage based

the price on the perception (product)

Give an example ? Strategic positioning

Also called « Volume » unique in its industry along some
(low cost producer or best dimensions that are widely
value for money producer) appreciated by buyers
Target
Narrow target
In the car market ? Strategic advantage based on Strategic advantage based

the price on the perception (product)

Strategic positioning

Also called « Volume » unique in its industry along
(low cost producer or some dimensions that are
best value for money widely appreciated by
Target
producer) buyers
Narrow target
Strategic advantage Strategic advantage

based on the price based on the
perception (product)

Cost-leadership ?
Cost-leadership strategy involves becoming the lowest-cost organization in a domain of activity (+
differentiation if possible) …
If more than one company try to achieve Cost Leadership, this is usually disastrous à Red Ocean ?
Must be difficult to replicate. No improvisation ! Air France – KLM …
Four key cost drivers that can help deliver cost leadership :
1.  Lower input costs (labor, raw material, …).
2.  Economies of scale (if there are high fixed costs à Pharma).
3.  Experience.
4.  Product process and design (Logitech à China).

Cost Leadership
Interesting if : Potentially influenced by :
•  High competition on prices •  Economy of scale
•  Relatively similar products •  Experience / learning curve
•  Difficult to achieve differentiation •  Percentage of production
capacity used
•  Little loyal clients switching for
low prices •  Manufacture designed for low
cost
•  Important bargaining power of
clients •  Marketing adapted (Toyota e.a)
•  New comers on the market •  Cost sharing : R&D, logistic, …

Costs, prices and profits for generic strategies

Differentiation Strategies ?
Principle : to achieve uniqueness on its market along some dimensions
(product features + branding ideally) that are sufficiently valued by some
specific customers to allow a price premium (price desensitization) :
•  Greater flexibility of the product, greater compatibility, versatility, lower
cost, enhanced service, less maintenance, easier to use, easier to
access, greater service, more useful features, less feature, … …
•  Propose to the customer an offer with a recognized specificity, while
addressing the whole market and not only a limited segment.
Source of the competitive advantage = the satisfaction of customers by
goods and services perceived by them as differentiated.

Differentiation Strategies
•  But !
–  A differentiator can not ignore its cost position. In all areas that do
not affect its differentiation it should try to decrease cost; in the
differentiation area the costs should at least be lower than the price
premium it receives from the buyers.
–  Areas of differentiation can be : product, distribution, sales,
marketing, service, image, etc.
–  Reminder : Source of the competitive advantage = the satisfaction
of customers by goods and services perceived by them as
differentiated.

Types of Differentiations ?
•  D … by the features (Characteristics of the product
•  D … by the quality (Real ? Measurable ? Perceived ?)
•  D … by the image (Brand ? Tribe ?)
•  D … by the design (Mimic ? Style ? Mode ? Fashion ?)
•  D … by the price (Low ? High ? Personalize ? Dynamic ?)
•  D … by the support (Service ? Maintenance ?)
•  D … by the simplicity (Easy to use ?)
•  …

Limits of the differentiation strategy ?
•  Traditional differentiation is a war where companies are
investing too much energy to generate too few
competitive advantages : functionalities, color, lower
price, higher speed, … (Red Ocean)
•  Radical differentiation is rather identifying new

defendable market generating profits for years rather
than for months or weeks … (BO strategy ?)

Focus strategies (1)
Principle : Achieving Focus means that a firm sets out to be best
in a segment or group of segments.
A focus strategy targets a narrow segment of domain of an
activity and tailors its products or services to the needs of that
specific segment to the exclusion of others.
Two types of focus strategy:
1.  Cost-focus strategy (e.g. Ryanair or Dacia Logan).
2.  Differentiation focus strategy (e.g. Ecover or Tesla
Car).

Focus strategies (2)
Successful focus strategies depend on at least one
of three key factors :
1.  Distinct segment needs.

2.  Distinct segment value chains.
3.  Viable segment economics.

Focus Strategy
•  Cost Focus or Best value
–  When differentiation or cost leadership are not possible
–  A specific cost based focalization of resources & competences

on :
•  a small and well defined segment where costs matter
•  a differentiated offer targeting specific clients looking for best value
à Dacia Logan for example

Focus Strategy
•  Differentiation focus
–  Achieving Focus means that a firm sets out to be
best in a segment or group of segments.
–  A small and well defined segment with a

differentiated offer targeting specific clients with
specific needs
–  Example of Tesla Car

Focus Strategy : the risk ?
•  Niche must be not too small … not too large
•  Be aware of too much segmentation
•  Be aware of curious large companies
•  Customer intimacy or knowledge
•  Be aware of technology
‘Stuck in the middle’?
M. Porter’s argues :
•  It is best to choose which generic strategy to adopt and then

stick rigorously to it.
•  Failure to do this leads to a danger of being “stuck in the
middle” i.e. doing no strategy well.
•  The argument for pure generic strategies is controversial.

Even Porter acknowledges that the strategies can be
combined (e.g. if being unique costs nothing).

Stuck in the middle ?

Do you have examples ?
•  Stuck in the middle ?
–  Car market ?
–  Distribution ?
–  …

Combining generic strategies ?
•  A company can create separate strategic business units each
pursuing different generic strategies and with different cost
structures : Example of Renault Group à “Renault”/ “Nissan”
& Dacia-Logan”.
•  Technological or managerial innovations where both cost

efficiency and quality are improved : low cost iPhone ?
•  Competitive failures – if rivals are similarly “stuck in the

middle” or if there is no significant competition then “middle”
strategies may be OK.

« Generic Strategies, Value Proposition
& Blue Ocean Strategies »
M1 ‘14 – C4
17th November

Structure of the Course today
•  In detail in the Value Proposition
•  Generic strategies of Porter
•  Blue Ocean Strategies
•  Distribution strategy
•  Marketing or Strategic Segmentation ?
•  Spotfire & Railnova
Slides of Cynthia Montgomery - HBS
•  Slides 14 à 18
20/11/14 MISM 2014 -‐ Strategy -‐ Pr Bruno M.WATTENBERGH -‐ ©
Courtesy of Cynthia Montgomery
20/11/14 HBS – “The
M1 2014 -‐ Strategy -‐ Pr Bruno M.WATTENBERGH -‐ ©s trategist” 102
20/11/14 HBS – “The
20/11/14 HBS – “The strategist” M1 2014 -‐ Strategy -‐ Pr Bruno M.WATTENBERGH -‐ © 104
20/11/14 HBS – “The strategist” M1 2014 -‐ Strategy -‐ Pr Bruno M.WATTENBERGH -‐ © 105
20/11/14 HBS – “The
Courtesy of Cynthia
Montgomery
HBS – “The strategist”
20/11/14 HBS – “The
Strategy Clock
Two Generic options ?
•  Cost Leadership :
–  Generate economic value by having lower costs than
competitors
•  Examples : Ikea, Ryanair, Lidl, Netto (FR)
•  Product/service Differentiation :
–  Generate economic value by offering a product that customers
prefer over competitors’ product
•  Examples : Apple, Victoria Secret
Strategy Clock ?
Base of differentiation ?
In theory, anything can differentiate :
•  Image •  Beauty •  Safety •  Furthering a cause
•  Hunger •  Status •  Quality •  Reliability in use
•  Comfort •  Style •  Service •  Nostalgia
•  Cleanliness •  Taste •  Accuracy •  Belonging
In practice, a differentiated product fills one or more customer

needs better than the products of competitors.
Strategy Clock Differentiation
Strategies in this zone seeks to provide products that offer
benefits that differ from those offered by competitors.
A range of alternative strategies from :
•  Differentiation without price premium (12 o’clock) – used to
increase market share (Toyota in the 80’ ?).
•  Differentiation with price premium (1 o’clock) – used to
increase profit margins (Toyota Prius ?).
•  Focused differentiation (2 o’clock) – used for customers that
demand top quality and will pay a big premium (Toyota
Lexus ?).
Strategy clock – low price
Low price combined with :
•  Low perceived product benefits

focusing on price sensitive market
segments – “no frills” strategy
typified by low cost airlines like
Ryanair or Renault with Dacia
Logan in Europe ? – ROUTE 1
•  Lower price than competitors while

offering similar product benefits
(àincreasing market share)
typified by Walmart in grocery
retailing or Toyota in the 60’ and
70’ in Europe ? – ROUTE 2
No frills ?
No Frills ?
Operate with Develop a
lower gross unique cost
margins structure
Focus on
Create
market
efficiency in
segments with
organizaGonal
low
capabiliGes
expectaGons
No Frills ?
margins structure
Focus on
Create
market
efficiency in
segments
organizaGonal
with low
capabiliGes
Super efficient opera.ons expectaGons
Focus on providing one Customers bring their own
type of customer benefit shopping bags …
be<er Agile supply chain Products are on pallets (not
on shelves)
Sells more than compe..on
3rd most trusted branded No Frills ? 95% own store brand
Only 700 products
Germany
But higher opera.ng Small shops / low start-‐up
margins costs
(due to lower fixed costs) Cheap retail estate (loca.on)

margins structure
Focus on
Create
market
efficiency in
segments with
organizaGonal
low
capabiliGes
expectaGons
Route 2 : Low-Price Strategy
Lower price / similar product benefits
•  Pitfalls ?
–  Margin reductions / Inability to reinvest
–  Need large economies of scale/scope
to be profitable
Supported by deep corporate pockets
(till sufficient scale/scope)
•  ASDA (owned by Wal-Mart)
•  Or new low-cost base
–  Amazon vs Filigrane ?
Strategy clock - Differentiation
Differentiation without price premium :
•  Route 3 Hybrid à used to increase
market share
Differentiation with price premium :
•  Route 4 Differentiation à used to
increase profit margins (Club
Med, ...)
Focused differentiation :
•  Route 5 Focused differentiation à
used for customers that demand top
quality and will pay a big premium
Strategy clock - hybrid
•  Seeks to simultaneously achieve differentiation
and low price relative to competitors.
•  Hybrid strategies can be used (Dacia Logan in
emerging countries ?):
–  To enter markets and build position quickly.
–  As an aggressive attempt to win market share.
–  To build volume sales and gain from mass production.
Case Low-cost or
differentiation
?
Case Low-cost or differentiation ?
Successful service differentiation :
•  Cleanliness, consistency, and fun in fast-food outlets
Because attractive to many :
•  Led to increase in sales volume
•  Over time became market share leader in fast-food
Enabled it to cut costs, became cost leader as well
Differentiation and cost advantage à Together very
costly to imitate
Amazon's strategy as drawn by Jeff
Bezos in 2001
Image: IKEA
Case IKEA : what is the positioning of
the company from your point of view ?
Case Ikea : Differentiation + Low Price
Differentiation : Selling a lifestyle and not just products off a shelf
•  Contemporary designed products with a connecting “theme”
–  Corporate branding in store colors : Consistent store layout
–  Range of products is extensive (unusual in low price stores) + Use of the catalogue
Low price : Cost management better than competitors with differentiated products
•  Systematically from idea to product dvpt, supply, distribution, retail to home
–  Choice of materials and designs that are cheap to manufacture.
–  Scale of operation (many more stores)
–  Flat pack reduces transport costs for both the company and the customer
–  Low cost behavior by senior managers (e.g. economy class air travel)
–  An (almost obsessive?) culture of frugality
Ikea : the courage to do “trade-offs”
Have the •  Ability to change Most
stomach to be •  Fun project important to
bad where •  Independence IKEA target
market
•  A desGnaGon
others used to
focus
+ change •  Durability Least
customer habits •  Assembly important to
of an emerging •  Sales Assistance IKEA target
market
•  LocaGon
market segment.
IKEA’s Strategy
“The many, not the few” - those Wide range of house wares and home furnishings sold in
with limited financial resources flat packs for do-it-yourself delivery and assembly
CUSTOMERS PRODUCTS Attractive, Scandinavian styles with clean lines.

Frugal culture that Explicitly designed for ease of manufacturing
promotes from within HUMAN
and low cost
DESIGN
RESOURCES Offer
customers an
extensive
Not just cheap, nor just cheaper - but very much
Closely held; owned by foundation. FINANCE AND range of PRICES cheaper… so that ordinary people can quickly
Highly disciplined financial controls CONTROL practical, identify the lowness of the price
well-designed
furnishings at
SUPPLY low prices DISTRIBUTION
CHAIN
Long-term partnerships with low-cost Catalog and vast, modern, self-service stores, offering
suppliers in developing countries wide ranges of merchandise and providing on-site
RESEARCH AND DEVELOPMENT
child care and low-priced restaurants
Pursue development of new, low cost materials

and unconventional sources of production
20/11/14 Courtesy of -‐ ©

M1 2014 -‐ Strategy -‐ Pr Bruno M.WATTENBERGH Cynthia
Montgomery 130
-‐ HBS
Imitate IKEA?
Many competitors could try to copy one or two of these

things. The difficulty is when you try to create the totality of
what we have. You might be able to copy our low prices,
but you need our volumes and global sourcing presence.
You have to be able to copy our Scandinavian design, which
is not easy without a Scandinavian heritage. You have to be
able to copy our distribution system with the flat pack. And
you have to be able to copy our interior competence - the
way we set out our stores and catalogues.
Anders Dalvig, former IKEA Group President
The Industry effect
Airlines
Comm. Equipment
Paper & Forest Products
Computers & Peripherals
Relative Industry Profitability 1990 - 2010
Insurance Return on Equity
Soft Drinks
Automobiles
Household Furniture
Commercial Banks
Security Brokers
Software
Retailing
Aerospace Defense
Footwear
Oil Refining
Clothing Shoes
Toiletry Cosmetics
Pharmaceuticals
Fruit Veg Products
Tobacco
ROE % -20 -10 0 10 20 30 40

Montgomery 132
-‐ HBS
The Firm Effect
Furniture Retailing: Ikea estimates:

Net Profit Margin 2003 - 2010 9.6 - 22.9%
16%
12%
8% Industry Average: 4.9
4%
0%
-4%
Cost Plus Pier 1 Haverty Laura Otsuka Ethan Allen Fantastic BMTC Nitori Leon’s Nick Furniture IKEA
US US Furniture Ashley Kagu US Holdings Group Holdings Furniture Scali Ltd Mart
US UK Japan Australia Canada Japan Canada Australia Botswana
Source: Worldscope
Montgomery 133
-‐ HBS
A Strategist as
MAKER of
MEANING
Ingvard Kamprad
“To design a desk which may cost $1,000 is easy for a furniture designer, but to design
a functional and good desk which shall cost $50 can only be done by the very best.”

Montgomery 134
-‐ HBS
Strategy Clock ?
Differentiation with price premium
Route 4 – Differentiation with price premium
•  Used to increase profit margins …
•  Differentiation desensitize the price
•  Differentiation has a double cost :
–  Cost to produce the differentiation
–  Cost to explain it !
Differentiation with price premium
Examples ?
•  Club Med
–  Up-market segmentation
–  More recession-proof
•  Victoria Secret : World’s leading

specialty retailer (1977)
–  Set up by men … partially to meet
men’s coyness about buying lingerie
as a gift à Large price premium!
Strategy clock – “non-competitive”
Increased prices
without increasing service/
product benefits
à Route 6.
•  In competitive markets
such strategies will be
doomed to failure.
•  Only feasible where there
is strategic “lock-in” or a
near monopoly position
(iTunes ?).
Strategic lock-in ?
•  Strategic lock-in is where users become dependent on a
supplier and are unable to use another supplier without
substantial switching costs.
•  Lock-in can be achieved in two main ways :
–  Controlling complementary products or services. E.g. Cheap
razors that only work with one type of blade.
–  Creating a proprietary industry standard. E.g. Microsoft with its
Windows operating system or iTunes …
–  The example of the tires company … : customer lock-in /
competitor lock-out ?
“Hypercompetition” & behaviour
•  Hypercompetition describes markets with continuous disequilibrium
and change e.g. popular music or consumer electronics.
•  Successful hypercompetition demands speed and initiative rather
than defensiveness.
•  Four key principles :
–  Cannibalize bases of success (Starbucks).
–  A series of small moves rather than big moves (Colruyt).
–  Be unpredictable (Ryan Air).
–  Mislead the competition (Amazon.com).
Risk : Commoditization
Prices & benefits go down
Low-end discounter sucks everyone into low-end
market
Everyone has to make cheaper and cheaper goods
Black hole”
•  Either stuck in commodity trap
•  Or move away into irrelevance
How to react to commoditization ?
Every move is a signal
Respond to smallest
new move to keep
Invest in deterrence Ensure predictability
momentum
potenGal Price-‐cut follows price-‐cut
Maintain extra capacity to Won’t raise prices again
flood the market first
Hold minor posiGon in Learn from each other’s
compeGtor’s key market moves in a legal way
that could easily be
expanded Commitment
= strongest signal
Caesar burnt his ships on the
shores of England:
Conquer or die
Problem with defensive strategy ?
“Hypercompetitors” induce customers to adapt to their capabilities :
•  Educate customers to become more price-conscious (Ryan Air ?)
•  Become more open & extroverted with your personal informations

even if in real life you are more introverted (Facebook ?)
•  Become more information-savvy on a world-wide scale : browse,

check prices, create and trace a buying path (Amazon ?)
Solutions to escape “Hypercompetititon” ?
1.  Become an Hypercompetitor yourself !
–  If you have the unique strategic capability
(Madonna)
2.  Escape hypercompetition à BOS
The “Innovator Dilemma & Solution”
The “Innovator Dilemma & Solution”
Describing who a company offers value to …
OFFER CUSTOMER
VALUE TARGET
PROPOSITION CUSTOMER
value proposition 1 target customer 1

value proposition 2 target customer 2
… …
Benefit of Segmentation
Segmenting your customers into groups according to their needs can help
you to :
•  Identify your most and least profitable customers
•  Focus your marketing on the customers who will be most likely to buy your
products or services
•  Avoid the markets which will not be profitable for you
•  Build loyal relationships with customers by developing and offering them
the products and services they want
•  Improve customer service
Benefit of Segmentation
Segmenting your customers into groups according to their needs can help you to :
•  Improve customer service
•  Get ahead of the competition in specific parts of the market
•  Use your resources wisely
•  Identify new products
•  Improve products to meet customer needs
•  Increase profit potential by keeping costs down, and in some areas enabling you to charge a
higher price for your products and services
•  Group your customers by factors such as geographical location, size and type of
organization, type and lifestyle of consumers, attitudes and behavior
Describing who a company offers value to The Ques(ons ?
For whom are we creaGng value ?
OFFER CUSTOMER Who are our most important customers ?
VALUE TARGET “Mass Market”
PROPOSITION CUSTOMER
“Niche Market”, “Segmented”,
value proposition 1 target customer 1 “Diversified”,
value proposition 2 target customer 2 “MulG-‐segment”,
… …
…
Ø  Customer groups represent separate segments if :

ü  Their needs require and jusGfy a disGnct offer (VP)
ü  They are reached through different DistribuGon Channels
ü  They require different types of relaGonships
ü  They have substanGally different profitabiliGes (Revenue model)
ü  They are willing to pay for different aspects of the offer (VP)

B2B or B2C ?
B2B - If you are segmenting business markets, you could divide the market by :
–  What they do - industry sector, public or private, size and location
–  How they operate - technology, use of your products
–  Their buying patterns - how they place orders, their size and frequency
–  How they behave - loyalty and attitude to risk
B2C - If you are segmenting consumer markets, you could group customers by:
–  Location - towns, regions and countries
–  Profiles - such as age, gender, income, occupation, education, social class
–  Attitudes and lifestyles
–  Buying behavior - including product usage, brand loyalty and the benefits they seek from the product or service
Market Segmentation ?
•  The purpose is to identify successful strategic groups, valuable market
segments and attractive ‘Blue Oceans’ within industries.
•  Types of industries :
–  Monopolistic industries - an industry with one firm and therefore no competitive
rivalry. A firm has ‘monopoly power’ if it has a dominant position in the market. For
example, BT in the UK fixed line telephone market.
–  Oligopolistic industries - an industry dominated by a few firms with limited rivalry and
in which firms have power over buyers and suppliers.
–  Perfectly competitive industries - where barriers to entry are low, there are many
equal rivals each with very similar products, and information about competitors is freely
available. Few (if any) markets are ‘perfect’ but may have features of highly competitive
markets, for example, mini-cabs in London.
Market Segmentation ? (2)
–  Hypercompetitive industries - where the frequency, boldness and
aggression of competitor interactions accelerate to create a condition of
constant disequilibrium and change.
•  Hypercompetition often breaks out in otherwise oligopolistic industries

(e.g. mobile phones).
•  Organisations interact in a series of competitive moves in

hypercompetition which often becomes extremely rapid and
aggressive as firms searh for market leadership.
Cycle of CompeNNon

Source: Adapted with the
permission of The Free Press,
a Division of Simon &
Schuster, Inc., from
Hypercompe..ve Rivalries:
Compe.ng in Highly Dynamic
Environments by Richard A.
D’Aveni with Robert
Gunther. Copyright © 1994,
1995 by Richard A. D’Aveni.
All rights reserved
See also
http://www.youtube.com/
watch?v=0xCQaUsEeQ8

The
Industry
Life
Cycle
Product Life Cycle for innovative
product
The “S” Curve
The “S” Curve
Strategic Groups ?
Strategic groups are organisations within an industry or sector
with similar strategic characteristics, following similar strategies
or competing on similar bases.
•  These characteristics are different from those in other
strategic groups in the same industry or sector.
•  There are many different characteristics that distinguish
between strategic groups.
•  Strategic groups can be mapped on to two dimensional charts
– maps. These can be useful tools of analysis (see Next page
& Figure 2.8. in the book – Strategic Groups in the Indian
Pharma Industry)
Figure 2.8. in the book Example of a 2 two dimensional charts
“Strategic Groups in the Indian Pharma Industry”
Source :
Developed from R. Chittoor and
S. Ray, ‘Internationalization
paths of Indian pharmaceutical
firms: a strategic group
analysis’, Journal of
International Management, vol.
13 (2009), pp. 338–55

Characteristics for identifying strategic groups
Why using strategic group analysis ?
•  To understand competition - enables focus on direct
competitors within a strategic group, rather than the whole
industry. (E.g. Tesco will focus on Sainsburys and Asda)
•  To analyse strategic opportunities - helps identify attractive

“strategic spaces” within an industry.
•  To analyse “mobility barriers” i.e. obstacles to movement

from one strategic group to another. These barriers can be
overcome to enter more attractive groups. Barriers can be
built to defend an attractive position in a strategic group. (see
also the session about resources & competences).
Market segments
A market segment is a group of customers who have similar needs
that are different from customer needs in other parts of the market.
•  Where these customer groups are relatively small, such market
segments are called “niches”.
•  Customer needs vary. Focusing on customer needs that are highly
distinctive is one means of building a secure segment strategy.
•  Customer needs vary for a variety of reasons – these factors can
be used to identify distinct market segments.
•  Not all segments are attractive or viable market opportunities –
evaluation is essential.
Don’t get confused
•  Marketing segmentation : technique of separating a global
population in homogeneous subsets based under certain criteria
explaining differences in behavior. The goal is to reach the subset of
demand, homogeneous on a number of factors (demographic,
behavioral, lifestyle, ...) which react specifically to offer the market.
Using e.a couples product / market segments. It allows to adapt the
product to customers to choose the commercial targets, define the
channels, ...
•  Strategic Segmentation : Identifying couples product / market
homogeneous behavior. It should highlight the synergy between
operations, acquisition opportunities and above will help to define
the resource allocation process à inside / outside factors !
Market or Strategic segmentation ?
Domain How ? ObjecNve ? Term ?
Split the Define the

Strategic Concern all the businesses & porwolio of Long term
SegmentaNon acGviGes of the acGviGes in acGviGes
enterpise homogeneous Organize the
groups acGviGes
Split the customer

SegmentaNon Concer a specific in homogenoeous Set a mix of Mid term
acGvity segments products for each
markeNng
customer segment
Some bases of Market Segmentation
What is a “strategic customer”
A strategic customer is the person(s) at whom the strategy is
primarily addressed because they have the most influence
over which goods or services are purchased (Decision Maker
Unit).
Examples :
•  For a food manufacturer it is the multiple retailers (e.g. Tesco)
that are the strategic customers not the ultimate consumer.
•  For a pharmaceutical manufacturer it is the health authorities
and hospitals not the final patient.
Critical Success factors ?
Critical success factors are those factors that are either
particularly valued by customers or which provide a significant
advantage in terms of cost.
•  Critical success factors are likely to be an important source of

competitive advantage if an organisation has them (or a
disadvantage if an organisation lacks them).
•  Different industries and markets will have different critical

success factors (e.g. in low cost airlines the CSFs will be
punctuality and value for money whereas in full service airlines
it is all about quality of service).
Don’t forget the B.O.S.
•  When analyzing the market or conducting market
segmentation, don’t forget the Blue Ocean Strategy
… : new market spaces where competition is
minimised.
•  Blue Ocean thinking encourages entrepreneurs and
managers to be different by finding or creating
market spaces that are not currently being served.
•  A “strategy canvas” compares competitors
according to their performance on key success
factors in order to develop strategies based on
creating new market spaces à
Market Segmentation Assignment ?
•  Integrative case :
–  Describe the market segments chosen by the company ?
•  Maturity, size, growth rate, leaders & main competitors (strategic groups), … ?
What are the key success factors in those segments, … ?
•  What is the positioning chosen by the company in each of this segment ?
•  How can you describe the competition in each of this segment ?
–  Can you identify Strategic Groups and SBU ?
–  Describe the strategic customer ?
–  What are the opportunities & threats in each of those market / Strategic
segments ?
Where are we up to ?
•  We know how to analyze a Value Proposition, how to
compose it using various tangible and non-tangible
values for customers …
•  We have seen how to analyze markets, to segment
them in market segment and strategic segments …
•  In both of these previous elements, we know we have
to think about potential BOS (Blue Ocean Strategy) …
•  We are ready to analyze the distribution channels …
VALUE
CLIENT
CLIENT CLIENT
CLIENT
CLIENT
HOW? WHAT?
PROPOSIT°
SEGMENTS
SEGMENTS
WHO?
SEGMENTS
SEGMENTS
SEGMENTS
DISTRIBUT°
CLIENT
CLIENT
CHANNELS
SEGMENTS
SEGMENTS
-‐ € ? + € ?
OFFER CUSTOMER Describes how a company
VALUE DISTRIBUTION TARGET
communicates with and
PROPOSITION CHANNEL CUSTOMER reaches its Customer
value proposition 1 distribution channel 1 target customer 1
Segments to deliver a Value
value proposition 2 distribution channel 2 target customer 2 Proposi.on.
… … …

The Ques(ons ?
Through which Channels do our Customer Segments want to be reached ?
How are we reaching them now ? How are our Channels integrated ?
Which ones work best ? Which ones are most cost-‐efficient ?
What about the sales cycle of the considered channels ?
How are we integraGng them with customer rouGnes ?
Which one are we capable to develop ?
Can we test easily the considered channels ?
Do we have some potenGal partnership in the distribuGon ?
CommunicaGon, distribuGon, and sales Channels
DISTRIBUT° comprise a company's interface with customers.
CLIENT
CLIENT
CHANNELS
SEGMENTS
SEGMENTS Channels are customer touch points that play an
important role in the customer experience.
Ø  Channels serve several funcGons, including :

ü  Raising awareness among customers about a company’s products and services + learn
ü  Helping customers evaluate a company’s Value ProposiGon + get feedback
ü  Allowing customers to purchase specific products and services + get feedback
ü  Delivering a Value ProposiGon to customers
ü  Providing post-‐purchase customer support + keep in touch with the customer …
Each channel can cover some or all of these phases.
DISTRIBUT°
CLIENT
CLIENT
CHANNELS
Finding the right mix of Channels to saGsfy how customers
SEGMENTS
SEGMENTS want to be reached is crucial in bringing a Value
ProposiGon to market.
Assignment for the Distribution Channel ?
•  List and describe briefly all the distribution

channels used and make associate them
with the market segments ?
•  What are the trends in distribution in each
of those market segment ?
•  What are the opportunities and threats on
the distribution side ?
CLIENT
CLIENT
CLIENT
RELAT°SHIPS
SEGMENTS
SEGMENTS
VALUE
CLIENT
CLIENT CLIENT
CLIENT
CLIENT
HOW? WHAT?
PROPOSAL
SEGMENTS
SEGMENTS
WHO?
SEGMENTS
SEGMENTS
SEGMENTS
DISTRIBUT°
CLIENT
CLIENT
CHANNELS
SEGMENTS
SEGMENTS
-‐ € ? + € ?
Describing the relationships a company builds The types of relaGonships a
OFFER
company establishes with specific
CUSTOMER Customer Segments
VALUE CUSTOMER TARGET
PROPOSITION RELATIONSHIP CUSTOMER
Need to clarify the type of
relaGonship it wants to establish
value proposition 1 relationship type 1 target customer 1
with each Customer Segment.
… … …
RelaGonships can range from
personal to automated.
The Objec(ves ?
Customer acquisiGon or Customer retenGon …BoosGng sales (upselling)

The Ques(ons ?
What type of relaGonship does each of our Customer Segments expect us to establish and
maintain with them ?
Which ones have we established ? How costly are they ?
How are they integrated with the rest of our business model ?
OFFER CUSTOMER
VALUE CUSTOMER TARGET
PROPOSITION RELATIONSHIP CUSTOMER

… … …
Ø  Personal assistance à human Ø  Automated services à customer self-service

interaction ... real customer representative, with automated processes.
on- site at the point of sale, call centers, e-
mail, … Ø  Communities à Increasingly, companies are
utilizing user communities to become more
Ø  Dedicated personal assistance à involved with customers/prospects and to
dedicating a customer representative facilitate connections between community
specifically to an individual client. members.
Ø  Self-service à no direct relationship with Ø  Co-creation à More companies are going
customers. It provides all the necessary beyond the traditional customer-vendor
means for customers to help themselves. relationship to co-create value with
customers.
Assignment on the Customer relationship ?
•  Describe the strategy of the company regarding

Customer Relationship ?
•  Does this strategy differs from customer
segment ? Why ?
•  How is this strategy consistent with the Value
Proposition ?
•  You heard about “Big Data” … what is the strategy
of the company about the exploitation of data’s to
open new opportunities ? What could it be ?
CLIENT
CLIENT
CLIENT
RELATI°SHIPS
SEGMENTS
SEGMENTS
VALUE
CLIENT
CLIENT CLIENT
CLIENT
HOW? WHAT?
PROPOSIT°
SEGMENTS
SEGMENTS
WHO?
SEGMENTS
SEGMENTS
DISTRIBUTION
CLIENT
CLIENT
CHANNELS
SEGMENTS
SEGMENTS
REVENUE
CLIENT
-‐ € ? €?
CLIENT
FLOWS
SEGMENTS
SEGMENTS
Describing how a company makes money The cash a company generates
from each Customer Segment
OFFER FINANCE CUSTOMER
If customers comprise the heart
VALUE REVENUE TARGET of a business model, Revenue
PROPOSITION STREAM CUSTOMER
Streams are its arteries.
value proposition 1 revenue stream 1 target customer 1
value proposition 2 revenue stream 2 target customer 2 A company must ask itself, for
… … … what value is each Customer
Segment truly willing to pay ?
The Ques(ons ?
For what value are our customers really willing to pay ?
For what do they currently pay ? How are they currently paying ?
How would they prefer to pay ?
How much does each Revenue Stream contribute to overall revenues ?
Can we develop a recurrent revenue flow ?
Describing how a company makes money
OFFER FINANCE CUSTOMER What value is each Customer

VALUE REVENUE TARGET
Segment truly willing to pay ?

… … …
Ø  Successfully answering that quesGon allows the firm to generate one or more Revenue
Streams from each Customer Segment.
Ø  Each Revenue Stream may have different pricing mechanisms, such as fixed list prices,
bargaining, aucGoning, market dependent, volume dependent, or yield management.
Ø  A business model can involve 2 different types of Revenue Streams :
Ø  TransacGon revenues resulGng from one-‐Gme customer payments
Ø  Recurring revenues resulGng from ongoing payments to either deliver a Value
ProposiGon to customers or provide post-‐purchase customer support
OFFER FINANCE CUSTOMER The list of the potenNal

revenue channels ?

… … …
Ø  Asset sale : selling ownership rights to a physical product (Car brand).
Ø  Usage fee : the use of a parGcular service. The more a service is used, the more the customer pays (TelCo, Hotel, …).
Ø  SubscripGon fees : selling conGnuous access to a service (A gym, WoW, …).
Ø  Lending/RenGng/Leasing : created by temporarily granGng someone the exclusive right to use a parGcular asset for
a fixed period in return for a fee.
Ø  Licensing : generated by giving customers permission to use protected intellectual property in exchange for
licensing fees (Media Industry, …).
Ø  Brokerage fees : intermediaGon services performed on behalf of two or more parGes (Credit Cards provider, Real
Estate Agent, …).
Ø  AdverGsing : fees for adverGsing a parGcular product, service, or brand.
OFFER FINANCE CUSTOMER What price Mechanism can

you choose ?

… … …
Assignment on the Revenue Stream ?
•  What is the turn over of each customer segment
and its evolution the last 3 years ? What is your
opinion after analyzing those turn over ?
•  What is the pricing positioning of the company ? Is
this position the same in each of its customer
segment ?
•  What could be the future strategy of the
company ?
Interesting Article ?
Article McKinsey Quarterly - Setting value, not price
•  The first task is to map benefits versus price—as the
customer sees them. Bear in mind that equal value doesn’t
mean equal market share. The key decision: do you stay on
the line of value equivalence, or get off?
•  February 1997 | byRalf Leszinski and Michael V. Marn
•  http://www.mckinsey.com/insights/marketing_sales/
setting_value_not_price?cid=other-eml-cls-mip-mck-oth-1307
Spotfire … •  hbp://
www.theregister.co.uk/
2007/06/25/
Gbco_buys_spowire/
•  hbp://
www.informaGonweek.co
m/Gbco-‐acquires-‐spowire-‐
for-‐$195-‐million/d/d-‐id/
1054661
•  hbp://
bisproconsulGng.com/
2007/05/01/Gbco-‐buys-‐
spowire.html
•  hbp://www.american-‐
buddha.com/
AZ.spowireciacyberterrcarn
ivore.htm
Integrative case for the “right size of the
BMC”
1.  Read and prepare the Spotfire Business Case
2.  What was the value proposition of Spotfire ?
3.  What was the strategy when they launched the
company and what happened ?
4.  How and when did they selected the market vertical ?
Why ?
5.  Can you explain of they selected the Decision Maker
Unit ?
6.  Can you explain their quantitative value proposition ?
7.  What is your position regarding the decision to split the
activities between Goteborg and Boston ?
Spotfire / Railnova ?
•  What are your conclusions …
–  Quantitative Value Proposition ?
–  Decision Maker Unit ?
–  Market Vertical ?
–  Industry Business Case ?
–  …
Bibliography ?
•  Download the canvas :
http://www.businessmodelgeneration.com/canvas
•  Download the book :

http://www.businessmodelgeneration.com/book
•  Download the app to play with the canvas :

http://www.businessmodelgeneration.com/toolbox
Thank You
for your attention
Any question ?
Keep it up and see you next session !


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« Generic Strategies, Value Proposition

& Blue Ocean Strategies »

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Sums up the monetary Describes the revenue

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Value ProposiGon Market Segment

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• The USP - Unique Selling Proposition ?

• The Unfair Value Proposition ?

The perception by a segment of customers of the economic or/and

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Ø It solves a customer problem or saGsﬁes a (unmet) customer need.

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Give some types of differentiation ?

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Ø Newness ... ? Ø Price …

Ø Performance … ? Ø Cost ReducNon …

Ø CustomizaNon … ? Ø Risk ReducNon … ?

Ø GeOng the job done … ? Ø Accessibility … ?

Ø Design … ? Ø Convenience / Usability … ?

Ø Brand / Status … ? Ø … or whatever U want !

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ü … identified clients are ready to pay for …

ü … with a clear differentiation …

ü … while making a minimum / maximum profit …

ü … being able to present it attractively / value

ü One value that distinguishes your from others

ü One value that lets you dominate the offer

ü The other values must meet the standards of the

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– IBM : Global solutions for a small planet

– Intel : Intel inside

– Lexus : Passionate pursuit of perfection

– Visa : It is everywhere you want to be

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ü Step 1 : Use your biggest benefits (value chain / RVB ?)

ü Step 3 : Solve an industry “pain point” or “performance gap”

ü Step 4 : Be specific and offer proof (QVP / Business Case ?)

ü Step 5 : Condense into one clear and concise sentence

ü Step 7 : Deliver on your USP’s promise

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What is the interest of a QVP ?

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ü Move from burden / cost to RoI (return on investment)

ü Imposes to know the client well à Study / prepare

ü Ideally à a well documented / quantified test case

ü Ideally you need to focus on a specific vertical market à Focus

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ü Cost + à hmmm, not so good

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ü You might have some choices ? Do you ?

ü Choose the good / right interlocutor regarding your quantified

ü The pitch must fit the DMU …

ü Prepare, prepare (identification, quantification, …)

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20/11/14 M1 2014 -‐ Strategy -‐ Pr Bruno M.WATTENBERGH -‐ © 1

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•  The USP - Unique Selling Proposition ?

•  The Unfair Value Proposition ?

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Ø  It solves a customer problem or saGsﬁes a (unmet) customer need.

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Ø  Newness ... ? Ø  Price …

Ø  Performance … ? Ø  Cost ReducNon …

Ø  CustomizaNon … ? Ø  Risk ReducNon … ?

Ø  GeOng the job done … ? Ø  Accessibility … ?

Ø  Design … ? Ø  Convenience / Usability … ?

Ø  Brand / Status … ? Ø  … or whatever U want !

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ü  … identified clients are ready to pay for …

ü  … with a clear differentiation …

ü  … while making a minimum / maximum profit …

ü  … being able to present it attractively / value

ü  One value that distinguishes your from others

ü  One value that lets you dominate the offer

ü  The other values must meet the standards of the

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–  IBM : Global solutions for a small planet

–  Intel : Intel inside

–  Lexus : Passionate pursuit of perfection

–  Visa : It is everywhere you want to be

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ü  Step 1 : Use your biggest benefits (value chain / RVB ?)

ü  Step 3 : Solve an industry “pain point” or “performance gap”

ü  Step 4 : Be specific and offer proof (QVP / Business Case ?)

ü  Step 5 : Condense into one clear and concise sentence

ü  Step 7 : Deliver on your USP’s promise

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ü  Move from burden / cost to RoI (return on investment)

ü  Imposes to know the client well à Study / prepare

ü  Ideally à a well documented / quantified test case

ü  Ideally you need to focus on a specific vertical market à Focus

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ü Cost + à hmmm, not so good

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ü  You might have some choices ? Do you ?

ü  Choose the good / right interlocutor regarding your quantified

ü  The pitch must fit the DMU …

ü  Prepare, prepare (identification, quantification, …)

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ü  Startup à lack of resources (time, money, …)

ü  Credibility <-> capacities

ü  Need to validate the BM quickly

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1.  Launching a completely new industry, like eBay did it

2.  Create a Blue Ocean inside of a Red Ocean when a

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Breaks the trade-‐oﬀ between

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•  It answers four key questions :

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3.  Makes it easier for managers to understand and

4.  Drives companies to scrutinize every factor the

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