“Blue Ocean Strategy” is a business theory that suggests companies are better off searching for ways to gain “uncontested market space” rather than competing with similar companies. The term is derived from the book “Blue Ocean Strategy,” written by W. Chan Kim and Renée Mauborgne and first published in 2005.
The core concept behind the Blue Ocean Strategy includes:
- Creating New Market Space: The strategy emphasizes the importance of creating new market spaces (or “blue oceans”) rather than competing in existing industries (referred to as “red oceans”). Market boundaries are defined and known in red oceans, and companies try to outperform their rivals to grab a more significant share of the existing market. By contrast, blue oceans are characterized by untapped market space, demand creation, and highly profitable growth opportunities.
- Value Innovation: This is the cornerstone of the blue ocean strategy. It focuses on making the competition irrelevant by creating a leap in value for the company and its customers. Value innovation is achieved when a company aligns innovation with utility, price, and cost positions.
- Elimination-Reduction-Raise-Create Grid (ERRC Grid): This tool is used to help create a new value curve by looking at four different aspects:
- Eliminate: What factors that the industry takes for granted should be eliminated?
- Reduce: Which factors should be reduced well below the industry’s standard
- Raise: Which factors should be raised well above the industry’s standard?
- Create: Which factors should be created that the industry has never offered?
- Non-Customer Focus: The strategy also involves focusing on the needs and wants of non-customers to draw them into the market and create new demand.
- Overcoming Key Organizational Hurdles: The strategy addresses the challenges companies face when implementing these strategies and suggests ways to overcome them.
The blue ocean strategy is particularly notable for shifting the focus from competitive rivalry and market share battles to ‘value innovation’ and exploring new opportunities. Companies across different industries have applied this strategy for substantial profit and growth.
Red Ocean Strategy: Meaning | Types | Examples | Challenges
Types of Blue Ocean Strategy
The Blue Ocean Strategy, as conceptualized by W. Chan Kim and Renée Mauborgne, is not explicitly categorized into different “types.” Instead, it is applied through various principles and frameworks. However, the strategy can be interpreted and implemented in several ways depending on the context and objectives of a business. Here are some common approaches or interpretations that could be considered as “types” of Blue Ocean Strategy:
- Market Creation Strategy: This involves creating an entirely new market space or category. Companies following this approach are looking to serve existing customers better and create new demand by introducing innovative products or services that the market has not seen before. Market Creation Strategy: Meaning | Types | Examples
- Value Innovation Strategy: This is the core of the Blue Ocean Strategy and involves simultaneously pursuing differentiation and low cost. The goal is to create high value for both the company and its customers, making the competition irrelevant. Value Innovation Strategy: Meaning | Framework | Examples
- Diversification Strategy: This type involves expanding into new areas or industries the company does not serve. A company can create new blue oceans in unrelated or loosely related markets by leveraging existing capabilities or developing new ones. What is a diversification strategy | Explained with Types
- Niche Market Strategy: While this might seem counterintuitive to the Blue Ocean philosophy of targeting mass markets, some companies successfully create blue oceans by targeting underserved or niche segments, offering highly specialized and innovative solutions. Niche marketing strategy: Explained with examples
- Strategic Pricing Strategy: This involves innovating not just the product or service but also the pricing model. Companies might find blue oceans by changing how they charge for their products, such as through subscription models, pay-per-use, or other novel pricing strategies.
- Technology Innovation Strategy: Leveraging cutting-edge technology to create products or services that redefine the market, often creating a new industry or sub-industry.
- Service Innovation Strategy: Focusing on creating blue oceans by providing exceptional service experiences that set a company apart. Service strategy: Explained with Examples
- Process Innovation Strategy: Innovating in how products or services are created and delivered can lead to new market spaces and operational efficiencies.
Each approach requires a deep understanding of the market, customer needs, and the company’s capabilities. The essence of the Blue Ocean Strategy is to break away from traditional competitive strategies and find new uncontested market space where competition is irrelevant.
Examples of Blue Ocean Strategy
The Blue Ocean Strategy has been employed by various companies across different industries to create new market spaces and achieve high growth and profits. Here are some notable examples:
- Cirque du Soleil: Cirque du Soleil successfully blended opera, ballet, and traditional circus to create an entirely new form of entertainment. They eliminated costly elements like animal shows and star performers and focused on a unique combination of music, dance, and acrobatics. This innovative approach helped them create a new market space distinct from traditional circuses and theater productions.
- Apple’s iTunes and iPod: Apple created a blue ocean by combining the iPod with iTunes, revolutionizing how people bought and listened to music. They made legal music downloading easy and convenient, creating a new market and making illegal downloading less attractive.
- Southwest Airlines: Southwest Airlines redefined air travel by positioning itself as a low-cost, no-frills airline focusing on short hauls. They eliminated traditional services like assigned seating and in-flight meals to offer low prices and convenient, frequent flights, thus creating a new market space.
- Nintendo Wii: Unlike its competitors, who focused on enhancing the gaming experience for hard-core gamers, Nintendo Wii opened up a whole new market by targeting casual gamers. They introduced motion-sensing controllers, creating a new form of family entertainment that appealed to a broader demographic, including those who had never been interested in video games.
- Dyson: Dyson transformed the vacuum cleaner market by introducing bagless vacuum cleaners. They focused on powerful suction technology and a unique design, creating a premium segment in a previously considered mature and low-innovation market.
- Uber: Uber created a blue ocean in the personal transportation industry by introducing a ride-sharing app that connected drivers with passengers. They eliminated the need for traditional taxi-hailing and centralized dispatch systems, offering convenience, competitive pricing, and an easy-to-use platform.
- Warby Parker: Warby Parker redefined the eyewear industry by offering designer eyeglasses online at a fraction of the cost of traditional retail outlets. They bypassed intermediaries, offered free home try-on, and focused on a customer-friendly return policy, creating a new space in the eyewear market.
- Netflix: Netflix first transformed the home entertainment industry by offering DVD rentals by mail with a no-late-fee model and then by pioneering the streaming of movies and TV shows. They created a new market space by providing an extensive library of films and shows available on-demand, fundamentally changing how people accessed and watched content.
Each of these examples demonstrates how companies can achieve success by competing within existing markets, creating new market spaces, and making the competition irrelevant.
Challenges with Blue Ocean Strategy
While the Blue Ocean Strategy offers a compelling approach to market innovation and business growth, it also presents several challenges and potential pitfalls. Here are some of the critical challenges associated with implementing a Blue Ocean Strategy:
- Identification of New Market Spaces: One of the biggest challenges is identifying unexplored market spaces that can be turned into blue oceans. This requires deep insight, innovative thinking, and a thorough understanding of customer needs, often beyond what current market research can reveal.
- Execution Risk: Implementing a blue ocean strategy often involves venturing into uncharted territory. This can carry higher risks than operating in a well-understood and established market. There’s always uncertainty about customer acceptance, market dynamics, and the economic viability of the new space.
- Organizational Resistance: Changing a company’s strategic direction towards a blue ocean can meet with significant internal resistance. Employees and management may hesitate to embrace radical changes, especially if it means moving away from established practices and norms.
- Resource Allocation: Developing a blue ocean requires significant time, capital, and resources investment. Companies face challenges allocating these resources effectively, especially if they still manage their operations in existing markets.
- Sustainability of Competitive Advantage: Once a blue ocean is created, it can attract competitors, turning it into a red ocean over time. Sustaining a competitive advantage in the newly created market space requires continuous innovation and staying ahead of imitators.
- Balancing Differentiation and Cost: Achieving the right balance between differentiation and low cost can be challenging. There’s a risk of over-innovating and creating products or services that are too sophisticated or expensive for the target market.
- Market Understanding and Customer Acceptance: There’s a risk that the new market created may not be accepted by customers. Misjudging customer needs or failing to educate the market about the value of the new offering can lead to failure.
- Regulatory and Legal Hurdles: New market spaces can often face unforeseen regulatory challenges. Innovations might not fit into existing legal frameworks, leading to regulatory hurdles that can be time-consuming and costly.
- Scalability and Growth Management: Even if a blue ocean strategy is initially successful, scaling the business and managing growth in the new market space can present significant challenges, particularly if the market dynamics are not fully understood.
- Cultural Fit and Adaptation: The strategy must align with the organization’s culture. Misalignment can lead to difficulties in adoption and execution, as the organizational ethos plays a crucial role in implementing and embracing strategies.
Successfully navigating these challenges requires a robust strategy, a clear vision, strong leadership, and an organizational culture that embraces innovation and change.
