February 8, 2005
Excerpts: Blue Ocean Strategy - Part III
Listing the groups of alternative products and services allows managers to see the full range of buyers they can poach from other industries as well as from nonindustries, such as parents (for the school lunch catering industry) or the noble pencil in managing household finances (for the personal finance software industry). Having done this, managers should then graphically plot the price and volume of these alternatives.
This approach provides a straightforward way to identify where the mass of target buyers is and what prices these buyers are prepared to pay for the products and services they currently use. The price bandwidth that captures the largest groups oftarget buyers is the price corridor of the mass.
In some cases, the range is very wide. For Southwest Airlines, for example, the price corridor of the mass covered the group of people paying, on average, $400 to buy an economy-class short-haul ticket to about $60 for the cost of going the same distance by car. The key here is not to pursue pricing against the competition within an industry but rather to pursue pricing against substitutes and alternatives across industries and nonindustries. Had Ford, for example, priced its Model T against other autos, which were more than three times the price of horse-drawn carriages, the market for the Model T would not have exploded.
About Dylan Schleicher
Dylan Schleicher has been a part of the 800-CEO-READ claque since 2003. Even though he's stayed on at the company, he has not stayed put. After beginning in shipping & receiving, he joined customer service and accounting before moving into his current, highly elliptical orbit of duties overseeing the ChangeThis and In the Books websites, the company's annual review of books and in-house design. He lives with his wife and two children in the Washington Heights neighborhood on Milwaukee's West Side.