When we hear the word “ocean,” various adjectives come to mind, like “vast,” “open,” and “boundless.” Such terms apply to a specific strategy in the market.
When it comes to established industries, companies typically compete with each other for available market share. The intensity of this rivalry often reaches the point where some firms cannot endure. This kind of industry represents a ‘red ocean’, illustrating a saturated market share bloodied by competition. On the other end of the spectrum, there are ‘blue oceans’.
A lot of firms opt to either invent or expand out of a desire to find a blue ocean market with indisputable competition. Moreover, blue ocean markets possess a high amount of interest in the eyes of entrepreneurs.
What does it mean?
‘Blue ocean’ is a slang term whose origins date back to 2005. At its core, the idea boils down to the vast marketing options occurring when an unknown industry or innovation happens. The term blue ocean was coined by professors W. Chan Kim and Renée Mauborgne in their book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. The authors describe blue oceans as markets that associate with high potential profits.
Blue ocean strategy is the pursuit of differentiation, as well as low cost to launch a new market space. Furthermore, it aims to produce new demand. Its focus is on the creation and capture of uncontested market space. In the process, it will render the competition pointless. It draws from the idea that market boundaries and the structure of the industry are not a given. Likewise, that they can undergo reconstruction by industry players’ beliefs and actions.
Generally speaking, blue ocean markets possess several characteristics that attract entrepreneurs and innovators. There are no competitors in a pure blue ocean market. A business leader in a blue ocean has first-mover benefits and cost advantages in marketing that lacks competition. Furthermore, the ability to establish prices without competitive restraints and being flexible enough to take its offering down different paths.
Kim and Mauborgne’s book is split up into three parts.
1 – The four actions
The first part expounds on pivotal concepts of blue ocean strategy. These include Value Innovation – the concurrent pursuit of distinction and low cost – and essential analytical tools and frameworks. Examples of this are the strategy canvas and the four actions framework. This particular framework helps eliminate the trade-off between low cost and differentiation within a company. The four actions framework consists of the following:
- Raise: This inquires about which factors should be raised within an industry. Specifically, in terms of the standards of pricing, product, or service.
- Eliminate: This ponders which sections of a company or industry could be cut to reduce costs. Moreover, to build a completely new market.
- Reduce: This questions which areas of a company’s service or product are not essential but are vital for your industry. An example of this would be the cost of manufacturing a certain material for a product. This is something that can be reduced, therefore the reduction can be done without eliminating it.
- Create: This convinces companies to take the innovative route in regards to their products. Through the creation of a whole new product or service, a company can develop its own market. And they can do so by diverging from the competition.
2 – The four principles
The second part of the book goes into detail about the four principles of blue ocean strategy formulation. These principles cover various topics:
- Discuss how an organization can create blue oceans by looking across the six standard boundaries of competition. In other words, the ‘Six Paths Framework’.
- Cut down on their planning risk by way of following the four steps of visualizing tactics.
- Develop new demand through unlocking the three tiers of noncustomers.
- Initiate a commercially feasible blue ocean idea by aligning the uncommon utility of an offering. And doing so with strategic pricing and target costing, as well as overcoming adoption obstacles.
The four principles are the following:
- How to build indisputable market space by way of revamping market boundaries.
- Putting a majority of focus on the big picture.
- Going beyond pre-existing supply and demand in new market spaces.
- Nailing the strategic sequence to a T.
3 – Key implementations and hurdles
The final section of the book describes blue ocean strategy’s two core implementation principles. These include tipping point leadership and fair process. These principles are crucial tools for leaders to conquer the four organizational hurdles that can prevent the execution of strategies.
The four primary hurdles amount to the resource, cognitive, political, and motivational obstacles. These prevent participants in the strategy execution from comprehending the need to break away from the status quo. Moreover, it keeps them from finding the resources for new strategic shift implementation and incentivizing your people to implement the new strategy. Because of these hurdles, they also cannot conquer the powerful interests that may hinder the change.
Red Ocean: what is the difference?
Along with ‘blue ocean’, there is also the aforementioned ‘red ocean’. Unsurprisingly, given their names, the two mean different things.
Red oceans are pretty much all of the industries that exist today. In these types of oceans, industry boundaries are well-defined and customary. Furthermore, the competitive rules of the game are widely known. Companies will try to outperform their rivals in order to obtain a larger portion of existing demand. As the market space fills, profits and growth decline. Products transform into commodities and result in bloody, so to speak, competition, hence the name “red oceans.”
Red oceans are the conventional business approach towards beating the competition deriving from the military organization. Blue oceans, on the other hand, try to coordinate innovation with utility, cost, and price positions. The book pokes fun at the common choice between lower cost and product/service differentiation. It suggests that both are attainable simultaneously.
Below are just a handful of the organizations successfully illustrating blue oceans.
- Cirque du Soleil: In the 1980s, this Canadian company began with a vision of what the modern circus could be. Traditional circus performances were aimed at younger audiences, whereas Cirque presented something different. Something more sophisticated. Kids could watch it, though the primary customers were adults thanks to the high ticket prices. The goal of Cirque du Soleil was not to replicate the conventional formula and be like every other circus performance. Its blue ocean strategy would go on to reinvent the market.
- iTunes: Upon entering the market, iTunes provided a solution for the issue of people illegally downloading music. At the same time, it would address the increasing demand for downloadable songs. The blue ocean strategy of iTunes was to create a brand new category of music sales. One that allows artists to generate a profit and consumers to purchase singles versus whole albums. This media library was a dominating force in the market space for years. Moreover, many consider it to be the driving force behind digital music’s growth.
- Backroads: Thanks to this company, travel can be something more challenging than what we are accustomed to. Backroads’ expansion on the industry was meant to offer something innovative: luxurious active travel. These fitness-centric trips with meticulous designs include an array of features. These include guides that take guests camping, biking, hiking, biking, and so much more. Backroads’ blue ocean strategy was appealing to an audience different from vacationers looking for relaxation. It aided in expanding the industry to include travellers looking for fulfillment at the end of a trip.