June 18, 2021

📚️ Book Notes: Blue Ocean Strategy

This book provides good frameworks to pursue differentiation at low-cost with lots of case studies.

Here are my notes from Blue Ocean Strategy:

1. A compelling aspect of Cirque du Soleil’s success is that it did not win by taking customers from the already shrinking circus industry, which historically catered to children. Cirque du Soleil did not compete with Ringling Bros. and Barnum & Bailey. Instead it created uncontested new market space that made the competition irrelevant. It appealed to a whole new group of customers: adults and corporate clients prepared to pay a price several times as great as traditional circuses for an unprecedented entertainment experience. Significantly, one of the first Cirque productions was titled “We Reinvent the Circus.”
   Cirque du Soleil succeeded because it realized that to win in the future, companies must stop competing with each other. The only way to beat the competition is to stop trying to beat the competition.
   To understand what Cirque du Soleil achieved, imagine a market universe composed of two sorts of oceans: red oceans and blue oceans. Red oceans represent all the industries in existence today. This is the known market space. Blue oceans denote all the industries not in existence today. This is the unknown market space.
   In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody.
   Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries, as Cirque du Soleil did. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.
2. What consistently separated winners from losers in creating blue oceans was their approach to strategy. The companies caught in the red ocean followed a conventional approach, racing to beat the competition by building a defensible position within the existing industry order. The creators of blue oceans, surprisingly, didn’t use the competition as their benchmark. Instead, they followed a different strategic logic that we call value innovation. Value innovation is the cornerstone of blue ocean strategy. We call it value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.
   Value innovation places equal emphasis on value and innovation. Value without innovation tends to focus on value creation on an incremental scale, something that improves value but is not sufficient to make you stand out in the marketplace. Innovation without value tends to be technology-driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for. In this sense, it is important to distinguish between value innovation as opposed to technology innovation and market pioneering. Our study shows that what separates winners from losers in creating blue oceans is neither bleeding-edge technology nor “timing for market entry.” Sometimes these exist; more often, however, they do not. Value innovation occurs only when companies align innovation with utility, price, and cost positions. If they fail to anchor innovation with value in this way, technology innovators and market pioneers often lay the eggs that other companies hatch.
   Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean and a break from the competition. Importantly, value innovation defies one of the most commonly accepted dogmas of competition-based strategy: the value-cost trade-off. It is conventionally believed that companies can either create greater value to customers at a higher cost or create reasonable value at a lower cost. Here strategy is seen as making a choice between differentiation and low cost. In contrast, those that seek to create blue oceans pursue differentiation and low cost simultaneously.
   Let’s return to the example of Cirque du Soleil. Pursuing differentiation and low cost simultaneously lies at the heart of the entertainment experience it created. At the time of its debut, other circuses focused on benchmarking one another and maximizing their share of already shrinking demand by tweaking traditional circus acts. This included trying to secure more famous clowns and lion tamers, a strategy that raised circuses’ cost structure without substantially altering the circus experience. The result was rising costs without rising revenues, and a downward spiral of overall circus demand.
   These efforts were made irrelevant when Cirque du Soleil appeared. Neither an ordinary circus nor a classic theater production, Cirque du Soleil paid no heed to what the competition did. Instead of following the conventional logic of outpacing the competition by offering a better solution to the given problem—creating a circus with even greater fun and thrills—it sought to offer people the fun and thrill of the circus and the intellectual sophistication and artistic richness of the theater at the same time; hence, it redefined the problem itself. By breaking the market boundaries of theater and circus, Cirque du Soleil gained a new understanding not only of circus customers but also of circus noncustomers: adult theater customers.
   This led to a whole new circus concept that broke the value-cost trade-off and created a blue ocean of new market space. Consider the differences. Whereas other circuses focused on offering animal shows, hiring star performers, presenting multiple show arenas in the form of three rings, and pushing aisle concession sales, Cirque du Soleil did away with all these factors. These factors had long been taken for granted in the traditional circus industry, which never questioned their ongoing relevance. However, there was increasing public discomfort with the use of animals. Moreover, animal acts were one of the most expensive elements, including not only the cost of the animals but also their training, medical care, housing, insurance, and transportation.
   Similarly, while the circus industry focused on featuring stars, in the mind of the public the so-called stars of the circus were trivial next to movie stars or famous singers. Again, they were a high-cost component carrying little sway with spectators. Gone, too, are three-ring venues. Not only did this arrangement create angst among spectators as they rapidly switched their gaze from one ring to the other, but it also increased the number of performers needed, with obvious cost implications. And although aisle concession sales appeared to be a good way to generate revenue, in practice the high prices discouraged audiences from making purchases and made them feel they were being taken for a ride.
   The lasting allure of the traditional circus came down to only three key factors: the tent, the clowns, and the classic acrobatic acts such as the wheelman and short stunts. So Cirque du Soleil kept the clowns but shifted their humor from slapstick to a more enchanting, sophisticated style. It glamorized the tent, an element that, ironically, many circuses had begun to forfeit in favor of rented venues. Seeing that this unique venue symbolically captured the magic of the circus, Cirque du Soleil designed the classic symbol of the circus with a glorious external finish and a higher level of comfort, making its tents reminiscent of the grand epic circuses. Gone were the sawdust and hard benches. Acrobats and other thrilling acts are retained, but their roles were reduced and made more elegant by the addition of artistic flair and intellectual wonder to the acts.
   By looking across the market boundary of theater, Cirque du Soleil also offered new noncircus factors, such as a story line and, with it, intellectual richness, artistic music and dance, and multiple productions. These factors, entirely new creations for the circus industry, are drawn from the alternative live entertainment industry of theater.
   Unlike traditional circus shows having a series of unrelated acts, for example, Cirque du Soleil creations have a theme and story line, somewhat resembling a theater performance. Although the theme is vague (and intentionally so), it brings harmony and an intellectual element to the show—without limiting the potential for acts. Cirque also borrows ideas from Broadway shows. For example, it features multiple productions rather than the traditional “one for all” shows. As with Broadway shows, too, each Cirque du Soleil show has an original score and assorted music, which drives the visual performance, lighting, and timing of the acts rather than the other way around. The shows feature abstract and spiritual dance, an idea derived from theater and ballet. By introducing these new factors into its offering, Cirque du Soleil has created more sophisticated shows.
   Moreover, by injecting the concept of multiple productions and by giving people a reason to come to the circus more frequently, Cirque du Soleil dramatically increased demand.
   In short, Cirque du Soleil offers the best of both circus and theater, and it has eliminated or reduced everything else. By offering unprecedented utility, Cirque du Soleil created a blue ocean and invented a new form of live entertainment, one that is markedly different from both traditional circus and theater. At the same time, by eliminating many of the most costly elements of the circus, it dramatically reduced its cost structure, achieving both differentiation and low cost. Cirque strategically priced its tickets against those of the theater, lifting the price point of the circus industry by several multiples while still pricing its productions to capture the mass of adult customers, who were used to theater prices.
3. Consider NetJets, which created the blue ocean of fractional jet ownership. In less than twenty years since its inception, NetJets grew larger than many airlines, with more than five hundred aircraft, operating more than two hundred fifty thousand flights to more than one hundred forty countries. Today those numbers are even higher, with a fleet of over seven hundred aircraft, flying to over one hundred seventy countries. Purchased by Berkshire Hathaway in 1998, NetJets is a multibillion-dollar business with the largest private jet fleet in the world. NetJets’ success has been attributed to its flexibility, shortened travel time, hassle-free travel experience, increased reliability, and strategic pricing. The reality is that NetJets reconstructed market boundaries to create this blue ocean by looking across alternative industries.
   The most lucrative mass of customers in the aviation industry is corporate travelers. NetJets looked at the existing alternatives and found that when business travelers want to fly, they have two principal choices. On the one hand, a company’s executives can fly business class or first class on a commercial airline. On the other hand, a company can purchase its own aircraft to serve its corporate travel needs. The strategic question is, Why would corporations choose one alternative industry over another? By focusing on the key factors that lead corporations to trade across alternatives and eliminating or reducing everything else, NetJets created its blue ocean strategy.
   Consider this: Why do corporations choose to use commercial airlines for their corporate travel? Surely it’s not because of the long check-in and security lines, hectic flight transfers, overnight stays, or congested airports. Rather, they choose commercial airlines for only one reason: costs. On the one hand, commercial travel avoids the high up-front, fixed-cost investment of a multimillion-dollar jet aircraft. On the other hand, a company purchases only the number of corporate airline tickets needed per year, lowering variable costs and reducing the possibility of unused aviation travel time that often accompanies the ownership of corporate jets.
   So NetJets created the concept of selling fractions of jets, which can be as small as one-sixteenth ownership of an aircraft in the United States, entitling customers to fifty flight hours per year. Starting at just over $400,000 (plus pilot, maintenance, and other monthly costs), owners can purchase a share in a $7 million aircraft. Customers get the convenience of a private jet at the price of first-and business-class air travel. Comparing first-class travel with private aircraft, the National Business Aviation Association found that when direct and indirect costs—hotel, meals, travel time, expenses—were factored in, the cost of first-class commercial travel was higher. As for NetJets, it avoids the fixed costs that commercial airlines attempt to cover by filling larger and larger aircraft. NetJets’ smaller airplanes, the use of smaller regional airports, and limited staff help to keep costs low.
   To understand the rest of the NetJets formula, consider the flip side: Why do people choose corporate jets over commercial travel? Certainly it is not to pay the multimillion-dollar price to purchase planes. Nor is it to set up a dedicated flight department to take care of scheduling and other administrative matters. Nor is it to pay so-called deadhead costs—the costs of flying the aircraft from its home base to where it is needed. Rather, corporations and wealthy individuals buy private jets to dramatically cut total travel time, to reduce the hassle of congested airports, to allow for point-to-point travel, and to gain the benefit of being more productive and arriving energized, ready to hit the ground running. So NetJets built on these distinctive strengths. Whereas 70 percent of commercial flights go to only thirty airports across the United States, NetJets offers access to more than two thousand airports in the US and five thousand airports around the world with convenient locations near business centers and popular destinations. On international flights, your plane pulls directly up to the customs office.
   With point-to-point service and the exponential increase in the number of airports to land in, there are no flight transfers; trips that would otherwise require overnight stays can be completed in a single day. The time from your car to takeoff is measured in minutes instead of hours. For example, whereas a flight from Washington, DC, to Sacramento would take on average 10.5 hours using commercial airlines, it is only 5.2 hours on a NetJets aircraft; from Palm Springs to Cabo San Lucas takes on average 6 hours commercial, and only 2.1 hours via NetJets. NetJets offers substantial cost savings in total travel time.
   Perhaps most appealing, your jet is always available with only four hours’ notice. If a jet is not available, NetJets will charter one for you. Last but not least, NetJets dramatically reduces issues related to security threats and offers clients customized in-flight service, such as having your favorite food and beverages ready for you when you board.
   By offering the best of commercial travel and private jets and eliminating and reducing everything else, NetJets opened up a multibillion-dollar blue ocean wherein customers get the convenience and speed of a private jet with a low fixed cost and the lower variable cost of first-and business-class commercial airline travel. And the competition? Now, nearly thirty years later, NetJets’ share of the blue ocean it unlocked still stands a staggering five times greater than that of its nearest competitor.
4. The biggest telecommunications success in Japan since the 1980s also has its roots in path 1. Here we are speaking of NTT DoCoMo’s i-mode, which was launched in 1999. The i-mode service changed the way people communicate and access information in Japan. NTT DoCoMo’s insight into creating a blue ocean came by thinking about why people trade across the alternatives of mobile phones and the internet. With deregulation of the Japanese telecommunications industry, new competitors were entering the market and price competition and technological races were the norm. The result was that costs were rising while the average revenue per user fell. NTT DoCoMo broke out of this red ocean of bloody competition by creating a blue ocean of wireless transmission that reconstructed the mobile phone industry and the internet.
   NTT DoCoMo asked, What are the distinctive strengths of the internet over cell phones, and vice versa? Although the internet offered endless information and services, the killer apps were e-mail, simple information (such as news, weather forecasts, and a telephone directory), and entertainment (including games, events, and music entertainment). The key downside of the internet was the far higher price of computer hardware needed to access the internet at the time, an overload of information, the nuisance of logging on to go online, and the fear of giving credit card information over the internet. On the other hand, the distinctive strengths of mobile phones were their mobility, voice transmission, and ease of use.
   NTT DoCoMo broke the trade-off that existed at the time between these two alternatives, not by creating new technology but by focusing on the decisive advantages that the internet has over the cell phone and vice versa. The company eliminated or reduced everything else. Its user-friendly interface has one simple button, the i-mode button (i standing for interactive, internet, information, and the English pronoun I), which users press to give them immediate access to the few killer apps of the internet. Instead of barraging you with infinite information as on the internet, however, the i-mode button acts as a hotel concierge service, connecting only to preselected and preapproved sites for the most popular internet applications. That makes navigation fast and easy. At the same time, even though the i-mode phone was priced 25 percent higher than a regular cell phone, the price of the i-mode phone was dramatically less than that of a PC or laptop, which were the dominant means to access the internet at the time, and its mobility was high.
   Moreover, beyond adding voice, the i-mode used a simple billing service whereby all the services used on the web via the i-mode got billed to the user on the same monthly bill. This dramatically reduced the number of bills users received and eliminated the need to give credit card details on the internet. And because the i-mode service was automatically turned on whenever the phone was on, users were always connected and had no need to go through the hassle of logging on.
   Neither the standard cell phone nor the PC or laptop could compete with i-mode’s divergent value curve. By 2009, ten years after its launch, i-mode subscribers had climbed to just shy of 50 million and its revenue from the transmission of data, pictures, and text increased from 295 million yen ($2.6 million) in 1999 to 1,589 billion yen ($17 billion). The i-mode service did not simply win customers from competitors. It dramatically grew the market, drawing in youth and senior citizens and converting voice-only customers to voice and data transmission customers. The i-mode was the world’s first smart phone to achieve mass adoption by a country. It wasn’t until 2007 that the iPhone was launched, which seriously challenged the i-mode and created a new and even larger blue ocean space with the introduction of apps (see path 4).
5. Think of Novo Nordisk, the Danish insulin producer that created a blue ocean in the insulin industry. Insulin is used by diabetics to regulate the level of sugar in their blood. Historically, the insulin industry, like most of the pharmaceutical industry, focused its attention on the key influencers: doctors. The importance of doctors in affecting the insulin purchasing decision of diabetics made doctors the target buyer group of the industry. Accordingly, the industry geared its attention and efforts to produce purer insulin in response to doctors’ quest for better medication. The issue was that innovations in purification technology had improved dramatically by the early 1980s. As long as the purity of insulin was the major parameter upon which companies competed, little progress could be made further in that direction. Novo itself had already created the first “human monocomponent” insulin that was a chemically exact copy of human insulin. Competitive convergence among the major players was rapidly occurring.
   Novo Nordisk, however, saw that it could break away from the competition and create a blue ocean by shifting the industry’s long-standing focus on doctors to the users—patients themselves. In focusing on patients, Novo Nordisk found that insulin, which was supplied to diabetes patients in vials, presented significant challenges in administering. Vials left the patient with the complex and unpleasant task of handling syringes, needles, and insulin, and of administering doses according to his or her needs. Needles and syringes also evoked unpleasant feelings of social stigmatism for patients. And patients did not want to fiddle with syringes and needles outside their homes, a frequent occurrence because many patients must inject insulin several times a day.
   This led Novo Nordisk to the blue ocean opportunity of NovoPen. NovoPen, the first user-friendly insulin delivery solution, was designed to remove the hassle and embarrassment of administering insulin. The NovoPen resembled a fountain pen; it contained an insulin cartridge that allowed the patient to easily carry, in one self-contained unit, roughly a week’s worth of insulin. The pen had an integrated click mechanism, making it possible for even blind patients to control the dosing and administer insulin. Patients could take the pen with them and inject insulin with ease and convenience without the embarrassing complexity of syringes and needles.
   To dominate the blue ocean it had unlocked, Novo Nordisk followed this up by introducing NovoLet, a prefilled disposable insulin injection pen with a dosing system that provided users with even greater convenience and ease of use. And it later brought out the Innovo, an integrated electronic memory and cartridge-based delivery system. Innovo was designed to manage the delivery of insulin through built-in memory and to display the dose, the last dose, and the elapsed time—information that is critical for reducing risk and eliminating worries about missing a dose.
6. Few products and services are used in a vacuum. In most cases, other products and services affect their value. But in most industries, rivals converge within the bounds of their industry’s product and service offerings. Take movie theaters. The ease and cost of getting a babysitter and parking the car affect the perceived value of going to the movies. Yet these complementary services are beyond the bounds of the movie theater industry as it has been traditionally defined. Few cinema operators worry about how hard or costly it is for people to get babysitters. But they should, because it affects demand for their business. Imagine a movie theater with a babysitting service.
7. At the heart of QB House’s blue ocean strategy is a shift in the Asian barbershop industry from an emotional industry to a highly functional one. In Japan the time it takes to get a man’s haircut hovers around one hour. Why? A long process of activities is undertaken to make the haircutting experience a ritual. Numerous hot towels are applied, shoulders are rubbed and massaged, customers are served tea and coffee, and the barber follows a ritual in cutting hair, including special hair and skin treatments such as blow drying and shaving. The result is that the actual time spent cutting hair is a fraction of the total time. Moreover, these actions create a long queue for other potential customers. The price of this haircutting process is 3,000 to 5,000 yen ($27 to $45).
   QB House changed all that. It recognized that many people, especially working professionals, do not wish to waste an hour on a haircut. So QB House stripped away the emotional service elements of hot towels, shoulder rubs, and tea and coffee. It also dramatically reduced special hair treatments and focused mainly on basic cuts. QB House then went one step further, eliminating the traditional time-consuming wash-and-dry practice by creating the “air wash” system—an overhead hose that is pulled down to “vacuum” every cut-off hair. This new system works much better and faster, without getting the customer’s head wet. These changes reduced the haircutting time from one hour to ten minutes. Moreover, outside each shop is a traffic light system that indicates when a haircut slot is available. This removes waiting time uncertainty and eliminates the reservation desk.
8. Cemex, one of the world’s largest cement producers, is another company that created a blue ocean by shifting the orientation of its industry—this time in the reverse direction, from functional to emotional. In Mexico, cement sold in retail bags to the average do-it-yourselfer represents some 85 percent of the total cement market.7 As it stood, however, the market was unattractive. There were far more noncustomers than customers. Even though most poor families owned their own land and cement was sold as a relatively inexpensive functional input material, the Mexican population lived in chronic overcrowding. Few families built additions, and those that did took on average four to seven years to build only one additional room. Why? Most of families’ extra money was spent on village festivals, quinceañeras (girls’ fifteen-year birthday parties), baptisms, and weddings. Contributing to these important milestone events was a chance to distinguish oneself in the community, whereas not contributing would be a sign of arrogance and disrespect.
   As a result, most of Mexico’s poor had insufficient and inconsistent savings to purchase building materials, even though having a cement house was the stuff of dreams in Mexico. Cemex conservatively estimated that this market could grow to be worth $500 million to $600 million annually if it could unlock this latent demand.
   Cemex’s answer to this dilemma came with its launch of the Patrimonio Hoy program, which shifted the orientation of cement from a functional product to the gift of dreams. When people bought cement they were on the path to building rooms of love, where laughter and happiness could be shared—what better gift could there be? At the foundation of Patrimonio Hoy was the traditional Mexican system of tandas, a traditional community savings scheme. In a tanda, ten individuals (for example) contribute 100 pesos per week for ten weeks. In the first week, lots are drawn to see who “wins” the 1,000 pesos ($93) in each of the ten weeks. All participants win the 1,000 pesos one time only, but when they win, they receive a large amount to make a large purchase.
   In traditional tandas, the “winning” family would spend the windfall on an important festive or religious event such as a baptism or marriage. In the Patrimonio Hoy, however, the supertanda is directed toward building room additions with cement. Think of it as a form of wedding registry, except that instead of giving, for example, silverware, Cemex positioned cement as a loving gift.
   At its debut, the Patrimonio Hoy building materials club that Cemex set up consisted of a group of roughly seventy people contributing on average 120 pesos each week for seventy weeks. The winner of the supertanda each week, however, did not receive the total sum in pesos but rather received the equivalent building materials to complete an entire new room. Cemex complemented the winnings with the delivery of the cement to the winner’s home, construction classes on how to effectively build rooms, and a technical adviser who maintained a relationship with the participants during their project. The result: Patrimonio Hoy participants build their homes or additions three times faster at a lower cost than the norm in Mexico.
9. Think of Callaway Golf. It aggregated new demand for its offering by looking to noncustomers. While the US golf industry fought to win a greater share of existing customers, Callaway created a blue ocean of new demand by asking why sports enthusiasts and people in the country club set had not taken up golf as a sport. By looking to why people shied away from golf, it found one key commonality uniting the mass of noncustomers: hitting the golf ball was perceived as too difficult. The small size of the golf club head demanded enormous hand-eye coordination, took time to master, and required concentration. As a result, fun was sapped for novices, and it took too long to get good at the sport.
   This understanding gave Callaway insight into how to aggregate new demand for its offering. The answer was Big Bertha, a golf club with a large head that made it far easier to hit the golf ball. Big Bertha not only converted noncustomers of the industry into customers, but it also pleased existing golf customers, making it a runaway bestseller across the board. With the exception of pros, it turned out that the mass of existing customers also had been frustrated with the difficulty of advancing their game by mastering the skills needed to hit the ball consistently. The club’s large head also lessened this difficulty.
   Interestingly, however, existing customers, unlike noncustomers, had implicitly accepted the difficulty of the game. Although the mass of existing customers didn’t like it, they had taken for granted that that was the way the game was played. Instead of registering their dissatisfaction with golf club makers, they themselves accepted the responsibility to improve. By looking to noncustomers and focusing on their key commonalities—not differences—Callaway saw how to aggregate new demand and offer the mass of customers and noncustomers a leap in value. The result: Callaway sailed in a lucrative blue ocean that lasted nearly a decade.
10. Consider how Pret A Manger, a British fast-food chain that opened in 1986, has expanded its blue ocean by tapping into the huge latent demand of first-tier noncustomers. Before Pret, professionals in European city centers principally frequented restaurants for lunch. Sit-down restaurants offered a nice meal and setting. However, the number of first-tier noncustomers was high and rising. Growing concerns over the need for healthy eating gave people second thoughts about eating out in restaurants. And professionals increasingly found they did not always have time for a sit-down meal. Some restaurants were also too expensive for lunch on a daily basis. So professionals were increasingly grabbing something on the run, bringing a brown bag from home, or even skipping lunch.
    These first-tier noncustomers were in search of better solutions. Although there were numerous differences across them, they shared three key commonalities: they wanted lunch fast, they wanted it fresh and healthy, and they wanted it at a reasonable price.
    The insight gained from the commonalities across these first-tier noncustomers shed light on how Pret could unlock and aggregate untapped demand. The Pret formula is simple. It offers restaurant-quality sandwiches made fresh every day from only the finest ingredients, and it makes the food available at a speed that is faster than that of restaurants and even fast food. It also delivers this in a sleek setting at reasonable prices.
    Consider what Pret is like. Walking into a Pret A Manger is like walking into a bright Art Deco studio. Along the walls are clean refrigerated shelves stocked with more than thirty types of sandwiches, baguettes, or wraps made fresh that day, in that shop, from fresh ingredients delivered earlier that morning. People can also choose from other freshly made items, such as salads, yogurt, parfaits, and blended juices. Each store has its own kitchen, and non-fresh items are made by high-quality producers. Even in its New York stores, Pret’s baguettes are from France and its croissants are from Belgium. And nothing is kept over to the next day. Leftover food is given to homeless shelters.
    In addition to offering fresh healthy sandwiches and other fresh food items, Pret speeds up the customer ordering experience from fast food’s queue-order-pay-wait-receive-sit down purchasing cycle to a much faster browse-pick up-pay-leave cycle. On average, customers spend just ninety seconds from the time they get in line to the time they leave the shop. This is made possible because Pret produces ready-made sandwiches and other things at high volume with a high standardization of assembly, does not make to order, and does not serve its customers. They serve themselves as in a supermarket.
11. Consider how JCDecaux, a vendor of French outdoor advertising space, pulled the mass of refusing noncustomers into its market. Before JCDecaux created a new concept in outdoor advertising called “street furniture” in 1964, the outdoor advertising industry included billboards and transport advertisement. Billboards typically were located on city outskirts and along roads where traffic quickly passed by; transport advertisement comprised panels on buses and taxies, which again people caught sight of only as they whizzed by.
    Outdoor advertising was not a popular campaign medium for many companies because it was viewed only in a transitory way. Outdoor ads were exposed to people for a very short time while they were in transit, and the rate of repeat visits was low. Especially for lesser-known companies, such advertising media were ineffective because they could not carry the comprehensive messages needed to introduce new names and products. Hence, many such companies refused to use such low-value-added outdoor advertising because it was either unacceptable or a luxury they could not afford.
    Having thought through the key commonalities that cut across refusing noncustomers of the industry, JCDecaux realized that the lack of stationary downtown locations was the key reason the industry remained unpopular and small. In searching for a solution, JCDecaux found that municipalities could offer stationary downtown locations, such as bus stops, where people tended to wait a few minutes and hence had time to read and be influenced by advertisements. JCDecaux reasoned that if it could secure these locations to use for outdoor advertising, it could convert second-tier noncustomers into customers.
    This gave it the idea to provide street furniture, including maintenance and upkeep, free to municipalities. JCDecaux figured that as long as the revenue generated from selling ad space exceeded the costs of providing and maintaining the furniture at an attractive profit margin, the company would be on a trajectory of strong, profitable growth. Accordingly, street furniture was created that would integrate advertising panels.
    In this way, JCDecaux created a breakthrough in value for second-tier noncustomers, the municipalities, and itself. The strategy eliminated cities’ traditional costs associated with urban furniture. In return for free products and services, JCDecaux gained the exclusive right to display advertisements on the street furniture located in downtown areas. By making ads available in city centers, the company significantly increased the average exposure time, improving the recall capabilities of this advertising medium. The increase in exposure time also permitted richer contents and more complex messages. Moreover, as the maintainer of the urban furniture, JCDecaux could help advertisers roll out their campaigns in two to three days, as opposed to fifteen days of rollout time for traditional billboard campaigns. In response to JCDecaux’s exceptional value offering, the mass of refusing noncustomers flocked to the industry, and street furniture took off as a medium of advertisement. By signing contracts of ten to twenty-five years with municipalities, JCDecaux gained long-term exclusive rights for displaying ads with street furniture. After an initial capital investment, the only expenditure for JCDecaux in the subsequent years was the maintenance and renewal of the furniture. The operating margin of street furniture was as high as 40 percent, compared with 14 percent for billboards and 18 percent for transport advertisements. The exclusive contracts and relatively high operating margins created a steady source of long-term revenue and profits. With this business model, JCDecaux was able to capture a leap in value for itself in return for a leap in value created for its buyers.
12. Traditional fund-raising charities in the UK use sad or shocking images in their campaigns, stimulating negative feelings of guilt and pity to trigger donations. Their focus is on securing and recognizing large gifts mainly from high-income, educated, older donors through year-round campaigns and solicitations of funds.
    Comic Relief, in contrast, has eliminated pity and guilt. It uses a breakthrough new fund-raising approach, Red Nose Day, a double-whammy combination of a national day of whacky, community “fun” draising when people volunteer to perform zany antics to raise money, and a star-studded comedy telethon, Red Nose Night. Forget pity. It’s all about doing something funny for money to change the world.
    With Comic Relief, donors don’t need to write a big check. Taking part is cheap, easy, and fun. People can contribute by buying a little plastic red nose that costs a £1, is sold everywhere, and can’t help but make you smile. Over 66 million have been purchased so far; everyone wears them. Or you can donate by sponsoring the silly antics of friends, family, neighbors, or colleagues, thereby giving money while having a great laugh. For example, friends and colleagues sponsored a London travel agent with a reputation as a chatterbox to stay silent for twenty-four hours; they collectively donated over £500 in sponsorship while having a blast watching the chatterbox struggle to stay silent.
    Comic Relief’s unique use of community fund-raising not only leverages people’s fondness to have fun. It’s also personal. It is not some unknown person asking for donations as at most other charities. Rather it’s a friend, loved one, or colleague who you care about and want to support.
    Unlike traditional charities, Comic Relief values and recognizes even the tiniest donation, for example, when Red Nose Night explains that the generous donation of one little girl, who gave “all her pocket money” of £1.90, will feed seven children in Africa. People know their every cent counts and makes a difference. This opens the door for even the poorest and youngest person to realize that even he can make a major contribution and become part of a greater cause of personally contributing to “changing the world.”
    While traditional charities solicit funds from a regular base of supporters year-round and every year, Comic Relief focuses on creating this unique experience once every two years to avoid boredom and nagging. Instead of feeling donor fatigue, as with other charities’ continuous solicitations, people actually look forward to the excitement of the next Red Nose Day, which has nearly become a national holiday in the UK.
    Lastly, Comic Relief donates 100 percent of all funds raised with its golden pound promise that it spends none of the funds on its own overhead or operating costs, as the average UK charity does. This transparency is reassuring to people who often wonder what percent of funds actually makes its way to charity. The result is a value proposition that not only is fun, exciting, and clear but also allows donors to make a huge difference with a small donation. In other words, it is differentiated and low cost, affordable to everyone from the very young to the very old and from low to high income.
13. Let’s turn to the movie theater industry, which offers a way for many of us to relax after work or on weekends. The US movie theater industry can be traced back to 1893, when Thomas Edison unveiled the Kinetoscope, a wooden cabinet inside which light was projected through a reel of film. Viewers saw the action through a peephole one at a time, and the performance was called a “peep show.”
    Two years later, Edison’s staff developed a projecting kinetoscope, which showed motion pictures on a screen. The projecting kinetoscope, however, did not take off in any meaningful way. The clips, each several minutes long, were introduced between vaudeville acts and at theaters. The aim was to lift the value of live entertainment performances, the focus of the theater industry, rather than to provide a discrete entertainment form. The technology was there for the movie theater industry to ignite, but the idea to create a blue ocean had not yet been planted.
    Harry Davis changed all that by opening his first nickelodeon theater in Pittsburgh, Pennsylvania, in 1905. The nickelodeon is widely credited with launching the movie theater industry in the United States, creating a huge blue ocean. Consider the differences. Although most Americans belonged to the working class at the beginning of the twentieth century, the theater industry until then concentrated on offering live entertainment, such as theater, operas, and vaudeville, to the social elite.
    With the average family earning only $12 a week, live entertainment simply wasn’t an option. It was too expensive. Average ticket prices for an opera were $2, and vaudeville was 50 cents. For the majority, theater was too serious. With little education, the theater or opera just wasn’t appealing to the working class. It was also inconvenient. Productions played only a few times a week, and with most theaters located in the well-heeled parts of the city, they were difficult to get to for the mass of working-class people. When it came to entertainment, most Americans were left in the dark.
    In contrast, the price of admission to Davis’s nickelodeon theater was 5 cents (thus explaining the name). Davis kept the price at a nickel by stripping the theater venue to its bare essentials—benches and the screen—and placing his theaters in lower-rent, working-class neighborhoods. Next he focused on volume and convenience, opening his theaters at eight in the morning and playing reels continuously until midnight. The nickelodeons were fun, playing slapstick comedies accessible to most people regardless of their education, language, or age.
    Working-class people flocked to nickelodeons, which entertained some seven thousand customers per day. In 1907 the Saturday Evening Post reported that daily attendance at nickelodeons exceeded two million.24 Soon nickelodeons set up shop across the country. By 1914 the United States had eighteen thousand nickelodeons, with seven million daily admissions.25 The blue ocean had grown into a $3 billion industry in today’s dollar terms.

If you liked the above content, I’d definitely recommend reading the whole book. 💯

Until We Meet Again…
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