In this Chapter, Professor W. Chan Kim build up the regulations which can robust the business model to ensure that a healthy profit on blue ocean market space. This chapter is to let all the managers to get the strategic sequence right. Four factors which the managers should follow in correct sequence of buyer utility, price, cost and adoption. The managers should set up questions from 4 sequences and activates the research and analysis on those sections one by one. Once the answer is No, the managers should rethink until the answer is Yes. Then they can jump to the next sequence to reach a viable Blue Ocean Idea.
1) Buyer utility: Is there a compelling reason for the mass of people to buy?
2) Price: Is your offering price to attract the mass of the target buyers so that they have a compelling ability to pay for your offering?
3) Cost: Can you produce your offering at the target cost and still earn a healthy profit margin?
4) Adoption: What are the adoption hurdles among the retailers or partners?
Netflix Inc is an American based provider of on demand internet streaming video in the United States and Canada. They also provide flat rate DVD by mail in United States. This company was established in 1997. The head quarter is in Los Gatos, California. They are the first company to use rental movie streaming process service to the public. At first, they find out most of the people return the rental DVD late to the local rental store. The customers will receive fine for the late return. According to the Professor W Chan Kim, the managers should study the six utility levers. This is the initial step to unlock exceptional utility for buyers. The six utility levers in sequence stages are Purchase, Delivery, Use, Supplements, Maintenance and Disposal. The Netflix consumers can join the subscription through internet for $7.99 USD per month and 1 month free for new members. Then they can download the movies via PC, iPhone, iPad, streaming device, Xbox 360, PS3, and Wii console to TV set without any limitation. Netflix highlights the slogan of “Watching Instantly”. All the family members can stay at home and watch the movies without any limitations in any time. If the managers find out blocks on one of the utility stage, the ideas are needed to be redefined.
Purchase: The consumers can select the movies on TV set via the streaming devices. Usually, they are family computers and video game console. They don’t have to purchase those devices separately.
Delivery: Setting up the streaming process won’t take more than 3 minutes.
Use: The setting process won’t be difficult. The consumers should have basic PC skill. Then they can follow the instructions guild to set up the streaming process.
Supplements: You need a TV set and the streaming devices e.g. video game console. Usually, all the family has PC or video game console.
Maintenance: You just need to pay the monthly fee on time.
Disposal: This is a streaming process. Thus the consumers won’t need to return the movie disc. On the other hand, the consumers won’t have to purchase DVD or go to cinema in watching instantly theory.
The second stage of the sequence of Blue Ocean strategy is price. The managers should consider the business should generate high volume of return. Then they should concern this business can be closed tied to the total number of people using it. Finally, the managers should concern the ease of imitate. Since if the product is easily to be imitated and the price of this product can be dropped within a short period. The managers should identify the price corridor of the mass and to specify a level within the price corridor. Netflix streaming process service is laid on different form and same function. The streaming process is high degree of legal with resource protection. It is difficult to be imitated. Netflix set up the rental fee mid to lower boundary strategic pricing from the start. Since watching instantly service has high fixed costs with marginal variable cost. The attractiveness depends heavily on network externalities. Plus low price strategy can generate volume. This can bring the cost advantages.
The third sequence is cost. Professor W. Chan Kim indicates that to maximize the profit potential of a blue ocean idea, the strategic price minus the target cost. Thus the managers should think the solutions to reduce the target cost. First involves how to smooth the operations and introducing cost innovations form manufacturing to distribution. Then find out the raw materials or employees can be replaced by unconventional or less expensive one. Another alternative way to reduce target cost partnering. Netflix will launch the new streaming process from movies channel to TV seasonal series. They will join partners with TV broadcast companies to deliver the latest TV series.
Finally, the last sequence is adoption. Usually, new ideas can be generated threatens. Three main stakeholders may not accept this business idea. They are its employees, partners and general public. Usually, its employees will fear about layoff, the partners will fear about the new product or service can be a bad image. The general public may be not well educated. They won’t accept the new business model. Netflix researches the general public, they are all well educated people and they use internet quite often. Netflix remains the DVD rental service which won’t carry out any layoff program. Plus the partners of Netflix, movie production houses and TV broadcast companies would like to carry out fast and watching instantly idea to the public in order to let the audience to see movies in unlimited condition. Thus Netflix overcomes such fear by educating the fearful.
Professor W. Chan Kim introduces the Blue Ocean idea (BOI) index. It can indicate a simple but robust test of the idea. The managers can draw out this BOI index among with the rivals towards its employees and partners to overcome such fear.