Blue Ocean Shift

Blue Ocean Shift — released in early-October 2017 — is the continuation of the award-winning Blue Ocean
Strategy, a bestselling strategy book based on a study of 150 strategic moves spanning more than a hundred
years and thirty industries. In this series, a “red ocean” is defined as a saturated market in which companies must
compete to survive, and “blue ocean” as a market in which there is little or no competition.

Blue Ocean Shift focuses on how can corporations, bureaucratic organizations, non-profits, among other
organizations – shift their mindset and products towards a blue ocean. Specifically, this book addresses the
human barriers associated with innovation and change that can exist in large organizations.

SYNOPSIS

Any company can move out of a “red ocean” of intense competition and into a new value-cost market space – a
wide-open “blue ocean.” Doing so requires completing five steps, each of which yields valuable insights into the
structure of the industry and the company’s particular vulnerabilities. The shift of a company’s culture, product
portfolio, and strategy from a red ocean to a blue ocean is the transformation process introduced in “Blue Ocean
Shift.”

A shift starts with a Pioneer-Migrator-Settler map, to get a good view of your current offerings, followed by
creating a picture of the state-of-play in the industry with a Strategy Map. Next, delve into the actual experience
of your customers and what they really want with a Buyer Utility Map, and identify how the total demand
landscape for your offering could be expanded. With this information, the team can dive into systematic field
research, using six paths that will enable them to decide what to eliminate, reduce, raise or create and so
reconstruct the boundaries of the industry. Finally, after holding a Blue Ocean Fair and drawing up a new
business model, the company will be ready to roll out its Blue Ocean Shift. Established bureaucratic companies,
companies in regulated industries, or even government agencies surrounded in red-tape, can open up and create
new blue oceans.

Blue Ocean Shift not only provides a recipe to identify and transition companies into blue oceans, but also
focuses on the human-side (or “humanness”) of a transition. It does this by introducing many strategies and
tactics that help shift the culture of an organization from its current state to one will allow any organization to
welcome a shift.

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SUMMARY

What is a Blue Ocean Shift?

In 2005, the book Blue Ocean Strategy described how some organizations across many industries have
successfully made the leap from a “red ocean,” where competitors are trapped in a blood-red fight for
customers, into a wide-open “blue ocean” of uncontested market space. Building on that work, a Blue Ocean
Shift is a five-step process that allows any organization to make the transition from an existing, crowded market
into a clear new market space. In other words, Blue Ocean Shift is the recipe book to help organizations shift
from red oceans to blue oceans.

Whether the head of a large bureaucratic corporation, a small non-profit, or a government department,
organization leaders tend to assume that the conditions of their industry are a given, a set of constraints that
form the boundaries of the red ocean in which they must compete. Focused on competing over customers,
leaders assume that there is always a trade-off between value and differentiation. But that assumption is wrong.
Organizations can break out of red oceans and move into a blue ocean with a Blue Ocean Shift. Breaking out of
the red ocean starts by swapping market-competing moves in favor of market-creating moves. There are three
overall components to a successful Blue Ocean Shift.

1. Adopting a blue ocean perspective: looking to the far horizon, recognizing that different questions have
to be asked, and pondering what could be;
2. Having practical tools that guide the process: these will translate a blue ocean perspective into a whole
new offering;
3. Embracing the concept of humanness: inspire people and build their confidence, so that they drive the
process forward and can successfully implement the shift to a blue ocean.

Based on the three components above, we will look at three key notions that underpin a successful Blue Ocean
Shift: (1) understanding the concept of market creation, (2) developing a Blue Ocean mindset, and (3)
developing “humanness.”

Setting the Stage

1. UNDERSTANDING MARKET CREATION

Many people assume that market creation must involve some form of destruction or disruption. It is true that in
some cases a new technology can destroy a market and create others – think Uber vs. taxis, or e-mail vs. snail-
mail. However, focusing only on disruption gives a misleadingly incomplete picture of market creation.

For example, the children’s show Sesame Street created a new market for preschool edutainment, without
destroying or disrupting any other aspect of early childhood education. This is an example of non-disruptive
creation. In reality, market-creating strategies take one of three forms:

 A breakthrough answer to an existing problem, which usually takes the form of disruptive creation. For
example, boats and airplanes allowed for a new marketplace of transportation that did not exist
beforehand.
 Identifying an entirely new opportunity or solving a new problem, a wholly non-disruptive form of
growth and creation. For example, Cirque Du Soleil created a new form of circus for both adults and
children; they extended the market for circus goers.
 Redefining the problem and offering a new solution, which has elements of both disruptive and non-
disruptive market creation. For example the smartphone disrupted less sophisticated cellular phones, but
also expanded the market by enabling new mobile experiences.

Many also assume that the key to unlocking a new market is innovation, or that entrepreneurship automatically
leads to market creation. The creators of new technologies do create extraordinary things, but they are rarely the
ones who convert the new technology into something that creates new value. And, a business rarely succeeds or
fails purely on the quality of its technology. It is important to understand that a Blue Ocean Shift does not
merely mean “innovation.” A blue ocean is created when a new value-cost frontier is opened, and a Blue Ocean
Shift occurs when an organization successfully “shifts” into the newly created frontier.
2. THE BLUE OCEAN MINDSET

Seeing new opportunities instead of nothing but competitive red oceans requires adopting a different mindset,
one based on four fundamental principles.

 Do not take the conditions and boundaries in your industry as a given: instead, think in terms of
changing those boundaries to work in your favor. Unleash your imagination.
 Make the competition irrelevant: do not focus on gaining an advantage over the competition; that is
backward looking and keeps you focused on what the organization has achieved to date. Instead, unleash
your forward-looking creativity.
 Rather than fighting over existing customers, focus on how to create and capture new ones: in most
industries, existing customers are just a tiny sliver of the world of non-customers waiting out there. Create
new demand by finding these non-customers.
 Go beyond the value-cost trade-off: instead of choosing between differentiation and low cost, actively
pursue both at the same time.

3. HUMANNESS

Adopting a blue ocean mindset also includes embracing the concept of “humanness.” Building this concept into
the process of a blue ocean shift inspires your people, gives them confidence, and allows them to drive the
process of change. Humanness brings out people’s emotional engagement so that they have the confidence to
act. Once they have that confidence, they can then start to use the tools and processes that will unleash a blue
ocean shift. There are three elements to the blue ocean process that build the attitude of humanness.

ATOMIZATION

The whole process of a blue ocean shift is daunting to contemplate. Instead, break the challenge into small,
concrete steps that can be easily grasped, acted on, and ‘won.’

FIRSTHAND DISCOVERY

When people are told that change must happen, they do not commit to the process and will be resistant and even
resentful. Instead, create the conditions that allow people to make discoveries for themselves. Not only will this
prevent people from feeling manipulated, the very act of discovery helps people to develop a more open and
forward-looking mindset. They will see things they had never thought of before.

FAIR PROCESS

This requires three fundamentals: engagement, so that people are actively involved in driving the
process; explanation, so that people are reassured that they understand the thinking behind each stage; and clear
expectations, so that no-one is surprised. This contributes to an atmosphere of trust, helping to ensure
everyone’s voluntary cooperation.

Taken together, these three elements make it possible for people not only to buy into the whole process of a
Blue Ocean Shift, but also to be willing to actually implement the changes required to make it happen. For
example, in many industries innovation creates added risk, which might not be welcomed by some individuals if
their objectives or Key Performance Indicators are aligned only with lowering risks. This is typical of regulated
industries. During the Fair Process implementation, objectives and KPIs might need to be re-written such that
the organizational culture can shift.

The Five Steps of a Blue Ocean Shift

Not all organizations are willing or able to execute a complete Blue Ocean Shift right now; but this is not an all-
or-nothing process. Each of the five steps and its related tools has value in and of itself. Perhaps the organization
just needs a wake-up call in the form of a systematic review of the industry as it stands (Step Two), or perhaps it
could benefit from some insights into where to find new customers (Step Three). The only mistake is to do
nothing and hope that things will change.

STEP ONE: GETTING STARTED

The first step is to map out exactly what industry or product offering you are going to tackle. The best way to do
this is to start with the Pioneer-Migrator-Settler Map. Traditional organizational assessments focus on market
share and industry attractiveness; but, market share is a lagging indicator that shows where the industry has
been, and attractiveness only gives a snapshot of where the industry stands right now. Instead, the first step
should be based around the concepts of value and innovation. This lets you look beyond today’s performance
data and gives you an aerial view of the landscape.

To see how vulnerable or healthy your portfolio really is, use the concepts of Pioneer, Settler, and Migrator to
assess how much value the product or service offers.

 Pioneers: products that break away from the competition. Pioneers are value innovations, the key to
renewing the portfolio and opening up new frontiers.
 Settlers: the other end of the spectrum, Settlers offer only value imitation, converging with the rest of
the industry and offering little prospect of growth. Think of Microsoft’s two main products, Office and
Windows; they are the source of most of the company’s profits, but they are decades-old Settlers. This fact
is reflected in the company’s stalled stock price.
  Migrators: somewhere between the two, migrators offer some improvement over the competition, but
they do not represent innovative value.

To plot the Pioneer-Settler-Migrator map, first identify your key businesses, products or services. Choose the
heads of each of your organization’s main units to participate and have each manager identify where the
products fall on the map. It is important to have individuals complete this first, to ensure they feel invested in
the whole process – see “Humanness.” Then, bring the whole group together to plot their collective assessment.
Working as a group both ensures a sense of fair process and gives everyone a perspective on what others in the
company are thinking. The “whole group” includes all decision makers. For example, in a regulated industry not
only invite the product owners, but the legal team, finance team, and compliance officers – among others –
responsible for the portfolio of products.

With the map completed everyone can see where the organization is vulnerable. If there is a healthy balance
between Settlers, Migrators, and Pioneers -- congratulations! The organization is on a great path and can hold
off on launching a full Blue Ocean Shift. If, however, there are a lot of Settlers, a few Migrators, and at best one
or two Pioneers, then everyone can now see that a shift is needed.

To define the scope of your Blue Ocean Shift, look for a business, product or offering that has most or all of the
following characteristics:

 a Settler or low Migrator;

 is headed by a manager who is eager to break into a blue ocean;
 has no other major initiatives underway;
 clearly has very limited options for growth.

The final part of Step One is constructing the right team to drive the Blue Ocean Shift. With a total of 10-15
people, the team should include the functions and organizational levels that will bring forth a new offering. This
probably means senior representatives of human resources, IT, marketing, finances, manufacturing, research and
development, sales, and the front line. Job title is less important that character; look for people who are well
respected, with a reputation for listening, asking questions, and getting things done. They should also know their
areas intimately and be willing to spend about 10% of their time on the project.

STEP TWO: THE STATE OF PLAY

The next step is to build a clear, shared picture of the current strategic landscape by creating a Strategy Canvas.
This not only helps to build your strategy, it also makes sure that everyone is working from the same overall
picture.

The Strategy Canvas is a one-page visual that tells a story in the form of a graph. The horizontal axis shows the
key factors that the industry competes on, while the vertical shows the offering level that buyers receive or
experience for each of these factors. The blue ocean team first identifies between five and twelve key competing
factors for the “as-is” Strategy Canvas. Factors can relate to an offering’s product, service, or delivery
platforms, but all should describe a key aspect of the offering from the buyer’s point of view. For example, a
charity’s list of factors for the fund-raising industry might include pity pleas, soliciting grants, year-round
events, recognition of donors, and so on.

Once again, start with the individual team members drawing up their own lists, then reconvene as a group and
decide together on the key factors list.

Once the team has decided on the key factors list, pick a best player against which to plot the offering as a
reference; either the industry leader or your strongest competitor. Then, using a five-point scale from very low
to average to very high, have the team rate the offering level of each factor for your product and then for the
reference company.
This step will yield a visual map of the current state of play, showing where the shape of your current offering
diverges with the industry leader, if at all; the assumptions that the industry tends to act upon; and the extent to
which competition in the industry is converging.

STEP THREE: WHAT COULD BE

Now that the team has a strategic overview of the current state of play, the next step is to help them envisage
how they might shift from the current red ocean into a new blue ocean. This means charting the hidden
constraints in the industry and identifying the new demand that could be unlocked.

1. DRAW UP A BUYER UTILITY MAP

Develop an overview of all the underlying assumptions and boundaries that make up the ‘pain points’ that limit
the industry. These are not just constraints, they are opportunities to change the picture. The Buyer Utility Map
will help the team members to see not only that every industry has pain points, but also that these are problems
that can be solved. The Map lists the six stages of the buyer experience, and the six utility levers that the
organization can ‘pull’ to affect that experience.
Starting with the buyer experience cycle, the team members should put themselves in the place of a buyer and
imagine the total experience offering, from purchase through to disposal, identifying the specific activities that
fall within each stage of the cycle. Next, add the six utility levers: productivity, simplicity, convenience, risk
reduction, fun and image, and environmental friendliness. The team now has a chart with 36 spaces.

To fill in these spaces, the team works its way methodically through each of the stages of the buyer cycle, and
for each level asks, “what is the biggest block to this lever at this stage” and “what are the reasons for this
block?” Each time a pain point is revealed, put an X in that space in the chart. And, for each point that the
industry tends to focus upon, put an O. A retail furniture seller, for example, may think only in terms of
delivering to a buyer’s apartment building. After working through the Buyer Utility Map, however, the company
may discover that a key pain point for buyers is figuring out how to get a bulky furniture delivery from the
building lobby up to their actual apartment.

To really garner good insights into the buyer experience, it may be necessary at this stage to send the team into
the field to really experience first hand what an ordinary buyer or user of the service encounters across the full
product cycle, not just at the point of sale.

2. IDENTIFY THE TOTAL DEMAND LANDSCAPE

A Blue Ocean Shift means creating new demand and growing the industry. To do that, the team has to
understand who the non-customers are and why they are not buying your product or service.
There are three tiers of non-customers. In the First Tier are those who patronize the industry because they have
to, not because they want to; if they find a better alternative they will quickly move to it. The Second Tier are
the refusing non-customers, people who have consciously rejected the industry offering perhaps in favor of an
alternative or because it is too expensive. The Third Tier are all those who could benefit from your offering, but
have never considered themselves as potential customers. For example, in 2009 Square Inc. realized that there
was an ocean of non-customers of the credit and debit card industry, small businesses like food trucks and
farmers’ market vendors, and people who could not use a credit card to pay the plumber or the ice cream vendor
at the beach. By shrinking the credit card reader and using a smart phone’s compute power and networking
capabilities, Square created a blue ocean of point of sale devices.

To identify the various tiers of non-customers, the team should start by considering who typically buys or uses
the industry’s offering, thinking in big picture terms. Then, have each team member think about who might be in
the three tiers of non-customers, and share their thoughts with the group. As these ideas are debated, the team
will develop an understanding of the untapped demand that is out there. Next, break the team into subgroups to
do some quick research on the parameters of each of these non-customer segments, to get a rough idea of the
potential that each represents. By the end of this step, the team will have a strong sense of the possibilities that
could result from a Blue Ocean Shift, and will have developed the confidence to tackle the final two steps.

STEP FOUR: A STRUCTURE FOR BLUE OCEAN CREATION

The next step in a Blue Ocean Shift involves systematically reconstructing market boundaries. This requires
team members to really delve into on-the-ground research, so that they can generate insights that can be acted
upon. In order to identify new opportunities where others see only red oceans, the team will systematically work
through the Six Paths Framework, with each Path revealing key insights into the existing constraints and hidden
opportunities in the industry. This is the most time-consuming step in the Blue Ocean Shift, but ultimately is the
most rewarding.

Start by dividing the team into two sub-teams, each of which will work on three of the Paths. Make sure the sub-
teams thoroughly understand the process they will work through and the questions they will ask, with clear work
plans for each stage. For each Path, the individual team members will interview 10-12 people, a mix of both
customers and non-customers, seeking answers to a set of questions. They will get out into the field, ask
questions, and take pictures and video. Members will record all of the key insights they gained for each Path.
The individual members will then re-group as a team to share their insights and schedule any follow-up
interviews.
PATH ONE: THE INDUSTRY

A red ocean lens focuses on rivals within the industry. A blue ocean lens looks across alternative industries.

What major problem or need does your industry’s offering solve or address? What alternative industries solve
the same need, or a similar one? Among these alternatives, which captures the greatest proportion of customers?

In the field, ask buyers why they traded across your industry, what they saw as the negatives in the industry they
rejected, and what they saw as the positives in the alternative industry that they chose. For example, why did
they choose to take a train instead of an airplane to get to their destination, what were the negatives that caused
them to reject the airline industry, and what were the positives that attracted them to the rail industry.

PATH TWO: THE STRATEGIC GROUP

A red ocean lens focuses on competitive position with a strategic group. A blue ocean lens looks across
strategic groups within the industry.

A “strategic group” is a set of companies with similar business models or service offerings across an industry.
For example, in the restaurant services industry: fast food, fine dining, to-go meal replacements, among others,
all fit in the same strategic group. The members of these sub-groups have different competitive qualities in:
preparation time, price, freshness, presentation, flavor, etc. These differing qualities cause the industry to have
more rapid innovation and competition.

Choose the two largest strategic groups within your industry, preferably the one that captures the largest share of
customers and the one that has the greatest profitable growth.

In the field, ask buyers from each group why they traded up (or down) for one group over the other. Ask them to
focus on the major factors that led to their choice. A company in the health management industry, for example,
may ask customers why they decided to use a telephone counseling service to make non-urgent health decisions,
rather than a web-based service.

PATH THREE: THE BUYER GROUP

A red ocean lens focuses on providing better service to an existing buyer group within the industry. A blue
ocean lens looks across the chain of buyers and redefines the group.

A purchasing decision usually involves a chain of buyers, not just one target customer. There are the users of the
product; the purchasers who pay for it; and sometimes the influencers whose opinions can make a difference.
Looking beyond the traditional target customer to this longer chain of buyers can open up new market space.

Identify the chain of buyers for the product or service, then focus on those parts of the chain that the industry
usually ignores. For example, a maker of fluorescent light bulbs may look beyond the usual target customer, a
corporate purchaser, and instead target the financial officers who are aware that there are additional (disposal)
costs associated with fluorescent lighting. In the field, ask these untargeted groups about their definition of
value, the blocks they face, and the burdens the current industry focus places on them.

PATH FOUR: THE SCOPE OF THE OFFERING

A red ocean lens focuses on maximizing the value of the product as defined by the industry. A blue ocean lens
looks across complementary offerings to understand the full picture that enhances or detracts from the offering.

Look at the total context in which your product or service is offered, paying attention to what happens before,
during, and after its use.
In the field, watch buyers as they actually use your offering, noting where there are blocks. In this way, a
manufacturer of teakettles may discover that a key problem for kettle users is having to clean out the lime scale
that builds up after extended use.

PATH FIVE: THE OFFERING’S APPEAL

A red ocean lens focuses on improving performance within the industry’s orientation along the emotional-
functional axis. A blue ocean lens rethinks the industry’s orientation.

Some industries compete largely on functional factors such as price and usage. Others are based more on an
appeal to emotion. Shifting the offering from one basis to the other can open up a new ocean of value.

In the field, listen to your customers and non-customers, and determine whether they characterize your industry
more by function or by emotion. Explore what the offering might look like if you flipped that orientation. For
example, legal services are usually seen in functional terms; what could happen if a legal service focused instead
on providing a positive emotional experience?

PATH SIX: TRENDS OVER TIME

The red ocean lens focuses on adapting to outside trends as they happen. The blue ocean lens actively shapes
the trends that impact the industry.

Projecting trends rarely gives any insight into opening up new frontiers. More important is looking across time
to see how a developing trend might change what customers value and how this might impact the business
model.

Start by identifying three to five trends that are believed will have a decisive impact on the industry over a three-
to five-year horizon. These should be trends that are irreversible and that have a clear trajectory. Then consider
what would happen if each trend were taken to its logical conclusion; list what the implications would be for
buyers, for the industry, and for the organization. Netflix is a great example of a company anticipating a new
trend – the rise of broadband internet – and creating the new blue ocean of on-demand viewing.

FOUR ACTIONS FRAMEWORK

With all of this field work in hand, the team now has an abundance of new insights into the offering and how it
could be unlocked in innovative ways. To complete Step Four of the Blue Ocean Shift, these field insights must
be turned into opportunities that achieve both differentiation and low cost. The tool to do this is the Four
Actions Framework.

The Framework considers the factors that the industry currently takes for granted, and asks:

 which can be Eliminated?

 which should be significantly Reduced?
 which should be Raised up?
 which should be Created?

The first two questions will give insights into ways to reduce your cost structure compared with competitors; the
second two give insights into new offerings. Taken together, the four factors will allow the team to consider
how to open up a new value-cost frontier.

For each of the six Paths investigated earlier, the team now identifies the common factors that were revealed.
These need to be precise and concrete factors, not vague concepts; something specific that can be acted upon.
Each factor is then listed under one of the four actions: Eliminate, Reduce, Raise, or Create.

The team now uses the Four Actions Framework to fill in a “to-be” Strategy Canvas, based on the Strategy
Canvas created in Step Two. As in the earlier Canvas, each of the factors will be scored, with a 0 for anything
that should be eliminated, and a one-to-five point score for the remaining factors. Overlay the result on the
earlier state-of-play canvas, and you have a visual strategy profile.

At this point it is likely that two or three of the six Paths have yielded compelling cases for a new value-cost
frontier. The other Paths may not have yielded enough for a new offering, but likely will still have provided
some key insights. Develop a tagline that succinctly describes how each proposed offering creates a leap in
value for customers. Finally, the team should outline the preliminary economics of each proposed blue ocean
offering, preparatory to moving onto Step Five.

STEP FIVE: MAKING THE MOVE

The final step in launching the Blue Ocean Shift involves holding a Blue Ocean Fair and creating the Business
Model.

THE BLUE OCEAN FAIR

To decide which strategic offering to pursue, hold a Blue Ocean Fair that brings all of the team members
together with the organization’s key decision makers, along with some customers and non-customers, over the
course of a few hours.

The Fair should be structured as follows:

 Give an overview of the current red ocean reality in the industry and make the case for a Blue Ocean
Shift.
 The team presents each of the strategic options they created, summarizing the benefits for buyers or
users and outlining the economic benefits to the organization.
 Attendees move around the room, visiting a display station for each option with poster-sized versions
of the to-be Canvas from Step Four and the Eliminate-Reduce-Raise-Create grid.
 The attendees vote for the options they consider most compelling. One this is complete, ask attendees
for the rationale behind their votes.
 The executive team decides which Blue Ocean option to pursue.

FORMALIZE THE BUSINESS MODEL

Once the decision has been made, the team should quickly market-test a prototype of the new offering, in order
to capitalize on the momentum that has built up with the Blue Ocean Fair. With any last-minute problems ironed
out in the wake of the testing, the team can now move on to formalizing the Business Model. This is a big
picture that shows how the value and the cost sides of the business can join together to generate profitable
growth at the set strategic price.

At this stage, the team will need to be expanded to bring in people with expertise in operations and team
members will shift to working full time on executing the launch. Most of the legwork for the Business Model
has already been done. The key focus now is determining the target profit margin for the offering. The more
aggressive the target profit margin is, the more aggressive the target costing will be. Setting aggressive targets
challenges people to think in innovate ways across the whole operation.

One way to meet an aggressive cost target is to figure out who the organization can partner with. Another is to
consider ways to streamline and innovate operations. Boosting people’s positive energy and contributions is
another important possibility; empowering and trusting customer-facing staff boosts productivity.

Finally, it is time to roll out your Blue Ocean Shift. For the smartest Rollout Strategy, start small – to iron out
any last-minute bugs and hiccups – then go fast and wide.

Case Studies
GROUPE SEB

A French multinational founded in 1857, Group SEB was a large and well-established company facing
increasing competitive pressure. Its electronic french fry makers were particularly vulnerable, struggling to
stand out in a shrinking market – a classic red ocean dilemma.

After delving into the details of a Buyer Utility Map and considering the total demand landscape, the company
team realized that two facts that the industry considered a given were actually significant pain points for
customers: that the best tasting fries had to be fried, and that this had to entail lots of oil. Field work with
customers revealed significant concerns: the process of frying is inherently risky; lots of oil is expensive to buy
and store; cleaning the machines is aggravating; and disposing of the used oil is a problem.

This led the team to create ActiFry. First launched in 2006, it requires no frying and has no safety issues, uses
only a tablespoon of oil, is easy to clean, and has no oil disposal problem. By creating a tasty, healthier french
fry Groupe E captured a new segment of customers, people who had never before considered using a home
french fry maker because of all the pain points. The company redefined the problem from how to make the best
electric french fry maker, to how to make tasty and healthy fries without traditional frying. This opened up a
new value-cost frontier for the company, creating a new market space in what had been a vulnerable commodity
industry.

CITIZENM HOTELS

The hotel industry is also a quintessentially red ocean with everyone competing on providing more or less of the
same factors. In 2007 a new company, citizenM, set out to create a new hotel chain for frequent travelers. They
focused on the two strategic groups of three star and luxury hotels, and asked travelers why they traded up (or
down) for one offering over the other. They discovered that travelers valued location, a luxurious feeling room,
and free Wi-Fi in choosing a luxury hotel; and they favored price and a more casual atmosphere in choosing a
three-star.

The team realized that frequent travelers don’t need a formal lobby with a front desk and concierge, so they
could eliminate these and replace them with self-check-in kiosks and a communal living space. Room size is not
as important as details such as high-quality sheets and strong water pressure in the shower. Room service was
also not a high priority, allowing the team to replace the high overhead of a full kitchen with partnerships with
boutique caterers located near the hotels. The team came up with an Eliminate-Reduce-Raise-Create grid that
laid out these choices.

By reducing or eliminating costly factors that travelers do not really value, and raising or creating other factors,
CitizenM significantly lowered its cost structure and enhanced buyer value, creating a new market space of
affordable luxury hotels in prime locations. The company also recognized the importance of empowering their
staff, giving all customer-facing positions the title of ambassador. The company hires people based on their
attitudes and values, and trains for competence.

The first hotel was rolled out in 2008 at Amsterdam’s Schiphol Airport, before expanding across the country
and the globe. CitizenM now enjoys one of the highest customer satisfaction ratings in the hospitality industry
along with the lowest costs.