Creating a blue ocean strategy

This scenario is what W. Chan Kim and Renée Mauborgne describe as a “red ocean” — saturated with competition and metaphorically stained by the “blood” of rivals fighting for the same customers. In contrast, a “blue ocean” represents an untapped market space, ripe with opportunities for growth without direct competition. Crafting a blue ocean strategy requires a shift from competing in existing markets to creating new demand and rendering competition irrelevant. Here’s a step-by-step approach to develop an effective blue ocean strategy.

1. Identify the Market Boundaries

The first step is to redefine the boundaries of the existing market. This involves examining the industry through six key perspectives:

Alternative industries: Identify alternatives that customers might consider to satisfy the same need.

Strategic groups: Explore different levels within the industry based on price and performance.

Buyer chain: Consider the needs of different stakeholders (end-users, influencers, purchasers).

Complementary products/services: Look beyond traditional offerings to discover value in complementary items.

Functional or emotional appeal: Shift the focus between functional utility and emotional appeal.

Time trends: Leverage emerging trends to create new opportunities.

Example: Cirque du Soleil redefined the boundaries of the circus industry by eliminating costly elements like animal acts and focusing on a theatrical experience, attracting a completely different audience.

2. Focus on Non-Customers

Instead of concentrating on existing customers, blue ocean strategists look at non-customers who either refuse to use current market offerings or have never considered them. These can be classified into three tiers:

Soon-to-be non-customers: People on the verge of leaving the market.

Refusing non-customers: Those who consciously choose against the market.

Unexplored non-customers: Individuals who have never been targeted.

Example: Nintendo’s Wii targeted non-customers of the gaming industry — families and casual gamers — by offering motion-based controls and simple, fun games.

3. Apply the Four Actions Framework

To reconstruct buyer value, the Four Actions Framework is essential:

Eliminate: Remove factors that the industry takes for granted but add little value.

Reduce: Cut down features that over-serve customers.

Raise: Enhance elements that provide significant value.

Create: Introduce new elements that the industry has never offered.

Example: In the airline industry, Southwest Airlines eliminated costly services like meals and reserved seating, reduced travel agent commissions, raised service frequency, and created a point-to-point travel system, forming a blue ocean of low-cost air travel.

4. Craft a Compelling Strategic Canvas

The Strategic Canvas is a visual tool to understand the current market landscape and differentiate your offering. It involves:

Key factors of competition: Identifying aspects that companies compete on.

Value curve: A graphical representation showing how a company's offering stands out.

Example: Yellow Tail, an Australian wine brand, used a simple strategic canvas that focused on fun and ease of drinking rather than the complexity of traditional wines, attracting non-wine drinkers.

5. Build Execution into Strategy

A blue ocean strategy is effective only when it’s executable. This involves:

Tipping point leadership: Focusing on the factors that have the most impact with the least resources.

Fair process: Engaging employees and stakeholders by explaining the “why” behind strategic changes.

Overcoming organizational hurdles: Addressing cognitive, resource, motivational, and political challenges systematically.

Example: BYD, a Chinese electric vehicle company, overcame resource limitations by leveraging low-cost manufacturing and focusing on battery technology, creating a blue ocean in the electric car market.

6. Continuously Innovate

Sustaining a blue ocean requires ongoing innovation. This includes:

Monitoring market shifts: Keeping an eye on competitors entering the blue ocean.

Value innovation: Continuously seeking ways to offer more value at a lower cost.

Example: Apple has repeatedly created blue oceans with the iPod, iPhone, and iPad by introducing products that combined new technologies with unparalleled user experiences.

Conclusion

Creating a blue ocean strategy involves systematically redefining market boundaries, focusing on non-customers, innovating on value, and ensuring flawless execution. By shifting the focus from competition to innovation, businesses can unlock new growth avenues, achieve higher profitability, and sustain their market position in the long term. Embracing the blue ocean mindset is not just about strategy; it’s about transforming the way businesses think about competition and value creation.