Have you heard your colleagues reference “Blue Ocean Strategy?” First coined in the early 2000s, Blue Ocean Strategy is a marketing framework introduced by INSEAD professors W. Chan Kim and Renée Mauborgne. In 2004, Kim and Mauborgne published a book titled Blue Ocean Strategy which outlines the principles and applications of their theory. The book quickly became a New York Times and Wall Street Journal bestseller and is widely used in business school courses and programs. Learn more about this business strategy and how you can implement it in your organization to create new and profitable market space.
What Is a Blue Ocean Strategy?
In the context of business strategy, a blue ocean is a new market space that has little to no competition. A blue ocean offers untapped opportunities for an enterprise to innovate new services or products. Thus, a blue ocean strategy offers the potential for high profits and business growth.
The 4 Principles of a Blue Ocean Strategy
This business strategy is grounded in four key principles:
- Market creation: By expanding the boundaries of an existing space or industry, you can create a new market.
- Value innovation: To find a blue ocean, a company has to think outside the box of how value is typically generated in their industry.
- Demand creation: An enterprise has to reach beyond the existing industry demand to identify new customers.
- Approach: To get the strategic sequence right, a business must understand the basics of how to create and capture blue oceans. When you focus on these principles, you can align value, profit, and people.
What Is a Red Ocean Strategy?
A red ocean is any known market space. In a traditional approach, a business is trying to find ways to compete for market share in an existing space. They’re up against similar businesses with similar products or services in a well-defined industry. The cutthroat competition turns the water bloody, making it a red ocean.
The Difference Between Red and Blue Oceans
Think of a bloody red ocean as a conventional, known market universe. The industry operates by established rules, and all the players are competing for the same set of customers. Everyone is trying to get a greater share of the market. To get ahead in red oceans, businesses have to be more cut-throat and aggressive than their peers.
When you enter a blue ocean, you stop competing and start innovating. Instead, you’re looking for an untapped market space. And because you’re not up against other businesses, you have the potential for much higher profits. Finding a blue ocean renders your competition irrelevant – you’re providing a new product or service outside the existing market boundaries. To shift from a red to a blue ocean strategy, a company needs to have three key components in place:
Adopt a blue ocean perspective
It’s easy to get caught up in the existing norms and conventions of the industries in which we operate. Adopting a blue ocean perspective means opening up your mind to what possibilities could exist, instead of the current state of play. By changing the typical factors of competition, you can achieve cost savings and raise buyer value.
Apply the tools and methodology for market creation
Next, you need the resources for market creation. This is a matter of taking time to build your creative competence as a team and asking the right questions, including:
- How can you identify current non-customers to generate new demand?
- How can you redefine market boundaries to gain a competitive advantage?
- How can you provide a unique product or service while achieving lower costs?
These insights help you develop a methodology for moving to a blue ocean.
Implement a humanistic process
A third critical component is a humanistic process – keeping your people at the center of your transformation. It’s normal to want to stick with the status quo or be hesitant to try new things in business. A blue ocean shift is about instilling your employees with confidence, addressing concerns along the way, and making sure they feel valued. Instead of simply handing off a strategy to your team to execute, you need to inspire and build their confidence to own and implement the new strategy.
The Six Paths Framework of Blue Ocean Strategy
Kim and Mauborgne developed this framework to help leaders identify blue ocean opportunities across many typical market challenges. Based on their studies of dozens of companies that made strategic moves, they identified six key ways to move beyond conventional industry boundaries and practices. These paths include:
1. Look across alternative industries
In a red ocean, you know who your industry rivals are and you’re competing against them directly. But when you make a blue ocean shift, you look beyond your assumptions about the market in which you operate. Start by asking yourself which industries might offer different products or services, but have a similar purpose or goal. These are alternative industries.
2. Look across strategic groups
In this path, you look within your industry to groups of companies that pursue similar strategies. You can typically rank the players in your industry by their products on a spectrum of budget to premium offerings. Too often, companies focus on products that fall somewhere in the middle of the spectrum. By moving towards a more high-end or a more low-cost offering, you’re more likely to differentiate yourself from other retailers.
3. Redefine the buyer group
Most companies focus on the end-user when developing a product or service. But many industries have a chain of buyers, including:
- People who pay for the product
- People who use the product (who may not have purchased it)
- Intermediate buyers or traders
- People who are in a position to influence buying decisions
- Regulatory parties
By expanding your definition of the buyer, you may realize you are missing out on opportunities to market to other groups in the buyer chain.
4. Look at complementary product and service offerings
On this path, a company focuses on the context in which a customer uses their product. What happens before, during, and after the product is used? Walk through the user’s journey and identify their potential pain points. Then, you can develop a complementary product or service that solves this pain point and makes it more likely for new customers to choose your brand.
5. Rethink the functional-emotional orientation
In developing their marketing strategies, some businesses focus on the emotional utility – how their product or service makes the customer feel. Others focus on functional utility – what is the price and what purpose does the product serve? You may be able to create a blue ocean by shifting the appeal of your product from emotional to functional, or vice versa. In some cases, you can blend both.
6. Shape external trends over time
Every industry is affected by external factors and trends. But too often, companies take a reactive approach to these trends instead of a proactive one. That means taking an active role in shaping industry trends that are relevant and irreversible – positioning your business to be an industry leader.
The Four Actions Framework of Blue Ocean Strategy
This practical framework was developed by Kim and Mauborgne to help businesses challenge an industry’s existing strategy and break away from the traditional value-cost trade-off. This framework poses four key questions:
- Eliminate: What factors does the industry take for granted that should be eliminated?
- Reduce: Which factors could be reduced below the industry’s standard?
- Raise: Which factors could be raised above the industry’s standard?
- Create: Are there factors the industry has never offered that should be created?
Once you’ve examined these four questions, you can begin to create a new value curve.
Kim and Mauborgne present a case study of a wine company that successfully navigated a blue ocean shift. They eliminated factors like complicated enological terminology and reduced the focus on vineyard prestige. Instead, they offered a streamlined, accessible product, making it easier for retailers to recommend their wines to customers who might normally be intimidated by selecting a wine. By creating an uncomplicated, affordable product, they could seize new growth.
Best Practices for Blue Ocean Strategy
Making a blue ocean shift at your organization takes time, but it doesn’t have to be complicated – it’s simply about moving away from existing assumptions and norms. Use these tips to guide your company’s strategic shift:
Don’t separate strategy and execution
Too often, a leadership team will develop a new business strategy and then hand it off to managers and employees to execute. That approach won’t help you create a blue ocean. Instead, you need an iterative approach that gathers input from across your organization. With varied perspectives, you’re more likely to identify opportunities for market creation.
Create a strategy canvas
Kim and Mauborgne recommend creating a visual aid called a strategy canvas to better understand your business and your competitors. The strategy canvas maps out offerings and competing factors to depict the current environment and help you chart a course forward.
Focus on storytelling, not numbers
Getting stakeholder buy-in and motivating your team are common hurdles when it comes to a blue ocean shift. People are creatures of habit, and they may be risk-averse when it comes to implementing a new business strategy. While you can make a case for change with a financial report, a narrative is much more compelling.
To do this, make sure team members get firsthand reports of the biggest operational issues and areas for growth. For example, instead of relying on survey data, provide qualitative customer feedback that tells a story.
Once you have buy-in from your colleagues, you can begin to move towards blue ocean thinking across the organization. This mindset shift helps you successfully implement your strategy, but it also means you’ll be more likely to capture new opportunities in the future.
Real-World Examples of Blue Ocean Strategy
A classic example of a blue ocean shift that Kim and Mauborgne detail in their strategy book is the entertainment company Cirque du Soleil. By blurring the lines between the circus and the theater, Cirque du Soleil was able to redefine an art form and create a new market.
They looked across the buyer group – circuses are marketed to children, but adults purchase the tickets. Cirque du Soleil marketed itself as a unique performing arts experience, attracting high-end and corporate clients. Thus, they captured patrons who wouldn’t normally attend a circus but were willing to pay for a theater ticket. The company also eliminated some of the costly elements of a traditional circus, like animal acts. With intentional shifts, Cirque du Soleil achieved profitable growth without having to choose the typical tradeoff between value and cost.
Of course, there are many examples of blue ocean strategies across many different industries. Companies like Uber and Airbnb have both been able to identify and capture uncontested market space. Each offered an innovative product and changed up the traditional delivery model.
Chart Your Course and Embrace the Blue Ocean Strategy
If your organization is looking for a fresh approach, a blue ocean strategy might be the solution. A successful strategy plan can help you grow your business, achieve product differentiation, and create uncontested market space.
If you’re looking for a good starting point for blue ocean strategy beyond this article, there are some fantastic social media resources on Twitter and LinkedIn . We also recommend these two business books on Amazon:
- Blue Ocean Strategy, Expanded Edition : How to Create Uncontested Market Space and Make the Competition Irrelevant
- Blue Ocean Shift: Beyond Competing - Proven Steps to Inspire Confidence and Seize New Growth
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