You’re probably familiar with many successful brands and entrepreneurs that have created new frontiers of opportunity, growth, and jobs within their fields. Tesla, Apple, Netflix, Uber, and Google are all well-known examples of “blue ocean” companies, or those built by innovators who took advantage of markets with little to no competition.
For example, look at Google. Rather than competing in a crowded marketplace, Google utilized innovation strategies to create a new way to use the internet without compromising on value or charging more than their competitors. They focused on delivering an incredible customer experience for people browsing the web. To do this, the business created cutting-edge algorithms that helped people quickly sort through online content. Additionally, they charged customers nothing to get started, meaning their product was both different and approachable. Today, Google dominates the search engine market share, owning 86%–96% of the market share worldwide.
Steve Dennings for Forbes explains that blue oceans “are not about fighting for a bigger slice of an existing, often shrinking pie, but about creating a larger economic pie for all.”
In this article, learn how to implement the necessary steps to creating a blue ocean strategy, plus how to overcome common red ocean obstacles standing in your way.
- Seizing blue ocean opportunities benefits companies because it poses fewer risks and often increases profits.
- Products or business ideas often flop in “red oceans” because there’s too much competition and not enough unique value that drives consumer demand.
- According to a McKinsey survey, 84% of executives consider their future success to be very or extremely dependent on innovation.
- Blue ocean strategy is particularly needed when supply exceeds demand in a market.
- When a blue ocean company satisfies customers, praise and word-of-mouth advertising help increase demand.
What Is Blue Ocean Strategy?
A “blue ocean” is an untapped and uncontested market that is similar to a vast, empty ocean full of potential. When a company adopts a blue ocean strategy, they pursue differentiation and low cost to open up a new market space and create demand. All types of organizations can use a blue ocean strategy, including small and big businesses, nonprofits, and even governments.
The New York Times and Wall Street Journal bestseller Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant was written in 2004 by business school professors W. Chan Kim and Rénee Mauborgne. It was then followed up in 2017 with Blue Ocean Shift: Beyond Competing: Proven Steps to Inspire Confidence and Seize New Growth. The original Blue Ocean Strategy book has since sold more than 4 million copies and has been translated into 40 languages. Within the book, Kim and Mauborgne describe over 100 examples of blue ocean strategies executed by dozens of companies.
The eight principles of blue ocean strategies, which are explored below, include:
- Reconstruct market boundaries.
- Focus on the big picture, less on the numbers.
- Reach beyond existing demand.
- Get the strategic sequence right.
- Overcome key organizational hurdles.
- Build execution into strategy.
- Align the value, profit, and people propositions.
- Renew blue oceans.
Understanding Value Innovation
The cornerstone of blue ocean strategy is value innovation, which describes how a company makes its competition irrelevant by offering a high level of unique value for buyers at a low cost.
Value innovation puts equal emphasis on value and innovation, simultaneously seeking differentiation and low cost. Ultimately, value innovation is what separates blue oceans from red oceans.
Blue Oceans vs. Red Oceans
“Stop looking to the competition. Value-innovate and let the competition worry about you.”W. Chan Kim
In the words of Clear Point Strategy, “Taking a Blue Ocean approach means your goal isn’t to outperform the competition or be the best in the industry. Instead, your aim is to redraw industry boundaries and operate within that new space, making the competition immaterial.”
Characteristics of Blue Oceans
- Includes the unknown marketplace and all industries not already in existence.
- Wide open with opportunities for growth and profits.
- Has little competition; one of the main goals is to “make the competition irrelevant.”
- Often created from within red oceans by expanding existing industry boundaries.
- Seeks to break the value-cost tradeoff and to pursue differentiation with low-cost.
Characteristics of Red Oceans
- Includes all industries that exist today in the known market space.
- Have boundaries that are already defined and accepted (the rules of the game are known).
- Can be challenging to enter due to cutthroat competition; companies try to outperform their rivals to grab greater market share.
- Have less room for new brands to shine.
- Have fewer opportunities for profits and growth.
- Usually requires sacrificing value for a cost-tradeoff.
Examples of Blue Ocean Strategy
1. Cirque du Soleil
Cirque du Soleil (CDS) wasn’t the first company to offer circus entertainment. Yet, they differed from companies such as Ringling Bros. and Barnum & Bailey because they essentially reinvented the circus experience. CDS successfully combined circus with theatre performance by removing aspects of shows that customers didn’t love and adding new thrills. They took the best of these two forms of entertainment and eliminated everything else.
2. Yellow Tail
Created by the wine company Casella Wines, Yellow Tail focuses on simple, fruity, approachable wines that are affordable. Knowing their customers most valued sweetness, ease of selection, and low price point, Yellow Tail eliminated factors that have traditionally taken center stage in the wine industry such as taste complexity and aging. Yellow Tail wines are now appreciated as fun and simple wines to be enjoyed every day. While Yellow Tail only expected to sell about 25,000 cases in their first year, they sold nine times that amount.
3. Callaway Golf
Callaway created a blue ocean by focusing on noncustomers: people who were not playing golf despite having the time and money for the sport. They asked why sports enthusiasts and people in the country club didn’t take up golf. They found that hitting the golf ball was perceived as being too difficult due to the small size of the golf ball head. Callaway then created a larger ball that was easier for beginners to hit, drawing in an audience that continues to grow.
Answers to Top Questions About Creating a Blue Ocean
What are the chances of success for a blue ocean strategy?
Just because you have a blue ocean idea, doesn’t mean it’ll necessarily be successful. However, your business is much more likely to thrive if it’s a blue ocean opportunity. This will allow you to capture uncontested market space.
A BCG Global Innovation Survey found that these obstacles tend to stand in the way of success for innovative companies:
- Lacking great ideas for products
- Long development times
- Being risk-averse
- Not marketing products well
- Lacking company coordination
What are the top mistakes to avoid when implementing blue ocean strategies?
- Overly focusing on innovation: Remember that blue oceans are all about pursuing innovation and value simultaneously. In other words, differentiation and low cost should be prioritized together.
- Not focusing enough on noncustomers: Noncustomers hold the greatest insight into an industry’s pain points and opportunities. Only reaching existing customers in the industry slows growth and profits.
- Not choosing a product or service with a wide enough customer base: There needs to be enough demand, plus the product needs to satisfy the customer’s needs.
- Not living up to customers’ expectations: Research published by Innovolo shows that one in five products fail to meet customer needs or expectations. This interferes with customer referrals and building a network.
- Skipping the testing phase: Testing is necessary to help a company correct course and improve products or services.
- Failing to adapt to changing markets and demands: To stay relevant, businesses can’t let go of continuous innovation. Otherwise, over time, a blue ocean company can turn into a red ocean company.
- Not learning from past mistakes: An Accenture U.S. Innovation Survey found that 49% of respondents said their organization struggled to learn from past mistakes.
What do you need for a successful blue ocean strategy?
A blue ocean opportunity has the greatest chance of becoming a success when the company uses opportunity-based thinking and adopts a “blue ocean mindset.” This is referred to as making a blue ocean shift, which involves “expanding mental horizons and shifting understanding of where the opportunity lies.”
A key component of having a blue ocean mindset is spotting and understanding false, long-held assumptions and boundaries within an industry. Once boundaries are known, they can be broken to create better products and services.
To become a success, a blue ocean strategy should satisfy this criterion:
- Focus: The business idea is simple and not only complicated.
- Divergence: The business creates an uncontested market space that is unique and has a big enough consumer base and demand.
- Compelling tagline: The business has a mission and tagline that clearly speaks to the market and customers.
How do you develop an innovative blue ocean idea for a product or service?
To determine how well a company is value-innovating, a value curve can be created which compares the company to its competitors. A value curve, the foundation of a blue ocean strategy, is based on factors that a company decides to either eliminate, reduce, raise, or create. If a company’s value curve looks like its competitors, then this places the company in a red ocean rather than a blue ocean.
To create a new value curve, a business should follow the “4 Actions Framework”:
- Eliminate: Identity which factors should be eliminated (often that no longer have value).
- Reduce: Cut out factors that are well below the industry standards.
- Raise: Identify what needs to be raised well above the industry average.
- Create: Offer what’s never been offered before and provide a new source of value for current customers and noncustomers.
When a company’s value curve has focus, divergence, and a compelling tagline, it should resist the temptation to value-innovate. Instead, it should focus on lengthening, widening, and deepening its current strategy.
What is the 5-step process for implementing a blue ocean strategy?
When making a “blue ocean shift,” one of the primary goals should be minimizing the trial and error involved in creating a new market. Following the five systematic steps below can help a business limit risk and implement a blue ocean strategy:
1. Get started: Pick the right type of business to create and the best market for your service or product. Hire innovative and motivated employees who can help get the job done.
2. Understand where you are now: Pinpoint where the company currently stands in the market landscape. Compare your business to competitors to understand how the two differ and are similar. Use the value curve model above for this step.
3. Imagine where you could be: Identify needs that aren’t currently being met in the marketplace and “hidden pain points” that could be improved upon. These pain points are the main opportunities that your business can take advantage of. Determine how your customers can be pleased more with products or services that are “excellent,” meaning they’re entertaining, unique, educational, engaging, and affordable.
4. Find out how to get there: Reconstruct market boundaries in order to create a new market space. Pursue both differentiation and low cost. This is the step where you utilize the Four Actions Framework (see above) and construct six blue ocean strategic moves (see below). Ultimately, your company wants to pioneer products and services that offer unprecedented value. These are your blue ocean offerings and the most powerful source of profitable growth.
5. Make your move: Create a big-picture business model and test the blue ocean idea. Then, refine the business strategy based on feedback. Blue ocean strategy should also be institutionalized as a repeatable process in an organization.
What is the 6 Path Framework for a Blue Ocean Strategy?
When reconstructing market boundaries (see point #4 above), a company needs to ask themselves key questions related to these six paths:
1. Alternative industries: Act as if you’re the customer who is constantly weighing the pros and cons of different options. For example, when people travel, they can take a flight or train. Ask yourself why customers choose one over the other. How can your company create demand for your offerings over the competitors? What are the key reasons your current noncustomers may want to jump ship and leave your industry?
2. Strategic groups within industries: How do price and performance compare within your industry? Why do customers trade up and pay more for the higher group, and why do they trade down for the lower one?
3. Chain of buyers: Do the people who pay for the product or service differ from the actual users (for example, doctors who use pharmaceuticals instead of patients)? Are there important influencers in this industry? If you shifted the buyer group, how could you unlock new value?
4. Complementary products and services: What happens before, during, and after the time when your product is used? Can you identify the pain points and eliminate them to make using your product or service easier?
5. Functional or emotional appeal: Is your brand more functional or emotional? Can you focus on both of these aspects when creating blue ocean marketing strategies for greater differentiation in your space?
6. Time: Working backward, what do you need to start doing strategically to unlock the future blue ocean? For example, Apple observed the flood of illegal music files shared by Napster and predicted that the future of music buying was online. Apple then created iTunes to help customers legally buy downloadable, high-quality songs.
How do you attract people to your blue ocean?
In order to create new value for people who are not already your customers, your company must act like a pioneer in marketing-creating innovation. In other words, your aim is to find new customers instead of creating something appealing for existing customers.
Three groups of customers to focus on include:
- Soon-to-be noncustomers: Those on the edge of becoming a customer.
- Refusing noncustomers: Those actively not choosing to be involved in your industry
- Unexplored noncustomers: Those too busy purchasing from another industry.
As mentioned above, you gain customers by pursuing both innovation and low cost, which together create an outstanding customer experience. Think of a blue ocean strategy as one component of your company’s marketing flywheel, the type of business model utilized by major companies, including Starbucks and Southwest Airlines.
A marketing flywheel supports a business’s success by creating lifelong customers who provide referrals and grow your brand’s network. By giving your customers the best possible products and experiences, you minimize the cost of customer acquisition because your current customers pull in new ones.
Blue Ocean Companies Require Top-Tier Leadership
“If you can move people by inspiring and building their confidence to own and drive your new strategy, they will be committed to seeing change through and overcoming the organizational constraints you confront.”― W. Chan Kim
Companies that hope to benefit from a blue ocean strategy require effective leadership at every level, specifically one that values transparency, innovators, and world-changers.
For a blue ocean opportunity to take off, executives need to maintain an infinite mindset, considering their company is not playing a finite game. In the business world, playing an “infinite game” means resisting the urge to only focus on short-term gains and beating competitors. Instead, it’s important to prioritize long-term growth and your company’s legacy.
A blue ocean company also relies upon the attitudes and behaviors of its people to be in line with the company’s overarching mission and strategies. As leaders, it should feel like employees’ hearts and minds are both invested in the blue ocean opportunity that they’re a part of. This requires a workplace and culture built on trust and commitment that continue to motivate people.
Here are ways that leaders can help foster the right type of workplace culture:
- Have a long-term company vision that’s unaffected by short-term losses.
- Make it clear that your company doesn’t operate under a market’s set rules.
- Don’t only define your business in terms of winning or losing.
- Have a flexible attitude toward pivots and changes.
- Hold true to your mission instead of getting sidetracked by unimportant factors.
- Build up teams that believe in your company’s cause.
Interested in more tips regarding how to transform your company with differentiation strategies? Check out: 3 Overlooked Factors to a Product Differentiation Strategy.
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