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Chapter 1

BU457 Chapter 1: Creating New Businesses
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Department
Business
Course
BU457
Professor
Bixia Xu
Semester
Winter

Description
Creating New Businesses “the most effective way to cope with change is to create it” Cirque Du Soleil – “reinvented the circus” since it was qualitatively different, appealing to a different customer group – adults and corporate clients who would pay a significantly higher price. – It was so different that it made the traditional circus irrelevant and changed what the customers was buying Chrysler Mini Van – also reinvented the market and changed transportation The New Business – It’s natural to look for growth by energizing the current business but there is another strategic route: – To bypass established business arenas with their fixed boundaries and create a new business with no direct competitors (initially) o Creates new markets or submarkets - BLUE OCEAN o Challenge for “Blue Ocean” is to create demand where it did not exist and to make competition irrelevant vs. in RED OCEAN where the goal is to beat competitor and improve market share but… as the “red ocean” gets to crowded, over capacity, communization and low margins are often seen o Blue Oceans are usually formed by a new innovation ▪ CAN achieve both low cost and differentiation o Newess/innovation is black or white (or red or blue) degree to which it is new and innovative makes a big different The Innovator’s Advantage – Innovator’s can create a first movers advantage based on several factors: o Competitors cannot react in a timely matter o They may believe the new business will cannibalize their existing business ▪ Mini-van station-wagon example: the station wagon firms didn’t want to cannibalize on those sales since they had higher margins but Chrysler was so weak in the station-wagon business they didn’t care o Some competitors cannot respond (technology, patents) o Innovators can create customer loyalty based on exposure and experience with its product or service – create something authentic ▪ Switching costs o BUT sometimes true pioneers don’t survive because they enter before the technology is in place or get blown away by larger competitors – Successful early market leaders tended to share certain traits o Envisioning the mass market o Managerial persistence o Financial commitment o Relentless innovation o Asset leverage – Being a first mover and owning an emerging market or submarket does more than provide a competitive edge in that market, it also leads to a perception of being innovation o Perceived innovators: Pixar, Bluetooth, iPod, Imax, Microsoft, Blackberry, Google, ect. Managing Category Perceptions – When a new category/subcategory is formed the innovators need to be aware that their challenge is not only to create an offering and a brand but also to manage the perception of the new category/subcategory o A new business will change what people are buying – No longer a question of what brand to buy (preference question) but rather what product category or subcategory to buy (relevance question) o Focus on functional benefits and value proposition Creating New Business Arenas – Good ideas are more likely to happen if they are valued by the organization and if there is a process to stimulate them – Blue oceans are usually formed by new innovation, going from components to systems, unmet needs, niche submarkets, customer trends and creating a dramatically lower price point Technological Innovation – Can take many forms – Yoplait’s go-gourt, the yogurt in a tube created a new business with a different target market, value proposition, and competitors than conventional yogurt markets From Components to Systems – Delivering an entire system, usually has higher margins Unmet Needs – Products
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