THE KEY POINT STATEMENT OF BLUE OCEAN STRATEGY , AUTHOR: W. CHAN KIM, RENÉE MAUBORGNE, CHAPTER 5

C H A P T E R 5

Reach Beyond Existing Demand

To maximize the size of their blue oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before.

Where is your locus of attention—on capturing a greater share of existing customers, or on converting noncustomers of the industry into new demand? Do you seek out key commonalities in what buyers value, or do you strive to embrace customer differences through finer customization and segmentation? To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation.

The Three Tiers of Noncustomers

There are three tiers of noncustomers that can be transformed into customers. They differ in their relative distance from your market. the first tier of noncustomers is closest to your market. They sit on the edge of the market. They are buyers who minimally purchase an industry’s offering out of necessity but are mentally noncustomers of the industry. They are waiting to jump ship and leave the industry as soon as the opportunity presents itself. However, if offered a leap in value, not only would they stay, but also their frequency of purchases would multiply, unlocking enormous latent demand. The second tier of noncustomers is people who refuse to use your industry’s offerings. These are buyers who have seen your industry’s offerings as an option to fulfill their needs but have voted against them.  The third tier of noncustomers is farthest from your market. They are noncustomers who have never thought of your market’s offerings as an option. By focusing on key commonalities across these noncustomers and existing customers, companies can understand how to pull them into their new market. Let’s look at each of the three tiers of noncustomers to understand how you can attract them and expand your blue ocean.

First-Tier Noncustomers

These soon-to-be noncustomers are those who minimally use the current market offerings to get by as they search for something better. Upon finding any better alternative, they will eagerly jump ship. In this sense, they sit on the edge of the market. A market becomes stagnant and develops a growth problem as the number of soon-to-be noncustomers increases. Yet locked within these firsttier noncustomers is an ocean of untapped demand waiting to be released. What are the key reasons first-tier noncustomers want to jump ship and leave your industry? Look for the commonalities across their responses. Focus on these, and not on the differences between them. You will glean insight into how to desegment buyers and unleash an ocean of latent untapped demand.

Second-Tier Noncustomers

These are refusing noncustomers, people who either do not use or cannot afford to use the current market offerings because they find the offerings unacceptable or beyond their means. Their needs are either dealt with by other means or ignored. Harboring within refusing noncustomers, however, is an ocean of untapped demand waiting to be released. What are the key reasons second-tier noncustomers refuse to use the products or services of your industry? Look for the commonalities across their responses. Focus on these, and not on their differences. You will glean insight into how to unleash an ocean of latent untapped demand.

Third-Tier Noncustomers

The third tier of noncustomers is the farthest away from an industry’s existing customers. Typically, these unexplored noncustomers have not been targeted or thought of as potential customers by any player in the industry. That’s because their needs and the business opportunities associated with them have somehow always been assumed to belong to other markets. It would drive many companies crazy to know how many third tier noncustomers they are forfeiting. Just think of the long-held assumption that tooth whitening was a service provided exclusively by dentists and not by oral care consumer-product companies. Consequently, oral care companies, until recently, never looked at the needs of these noncustomers. When they did, they found an ocean of latent demand waiting to be tapped; they also found that they had the capability to deliver safe, high-quality, low-cost tooth whitening solutions, and the market exploded.

Go for the Biggest Catchment

There is no hard-and-fast rule to suggest which tier of noncustomers you should focus on and when. Because the scale of blue ocean opportunities that a specific tier of noncustomers can unlock varies across time and industries, you should focus on the tier that represents the biggest catchment at the time. But you should also explore whether there are overlapping commonalities across all three tiers of noncustomers. In that way, you can expand the scope of latent demand you can unleash. When that is the case, you should not focus on a specific tier but instead should look across tiers. The rule here is to go for the largest catchment. The point here is not to argue that it’s wrong to focus on existing customers or segmentation but rather to challenge these existing, taken-for-granted strategic orientations. What we suggest is that to maximize the scale of your blue ocean you should first reach beyond existing demand to noncustomers and desegmentation opportunities as you formulate future strategies. If no such opportunities can be found, you can then move on to further exploit differences among existing customers. But in making such a strategic move, you should be aware that you might end up landing in a smaller space. You should also be aware that when your competitors succeed in attracting the mass of noncustomers with a value innovation move, many of your existing customers may be attracted away because they too may be willing to put their differences aside to gain the offered leap in value.

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