5.2 Blue Ocean Strategy

Blue ocean strategy revolutionizes business thinking by creating new market spaces instead of battling in existing ones. It's about making competition irrelevant by offering unique value to customers, focusing on differentiation and low cost simultaneously.

This approach contrasts sharply with traditional competitive strategies. While red oceans involve fierce competition in crowded markets, blue oceans seek untapped opportunities. Companies like Cirque du Soleil and Nintendo Wii exemplify this innovative approach, redefining their industries.

Blue Ocean Strategy

Concept of blue ocean strategy

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• Business approach focuses on creating new, uncontested market spaces (blue oceans) rather than competing in existing, crowded markets (red oceans)
• Aims to make competition irrelevant by offering unique value to customers
• Key principles include value innovation, creating uncontested market space, making competition irrelevant, and aligning company activities to pursue differentiation and low cost

Blue ocean vs competitive strategies

• Traditional competitive strategies (red ocean) focus on competing within existing market boundaries, outperforming rivals, and capturing greater share of existing demand
  • Often involves head-to-head competition leading to "bloody" red ocean (price wars, feature battles)
• Blue ocean strategy seeks to create new market spaces and demand, making competition irrelevant
  • Focuses on value innovation creating leap in value for customers and company
  • Avoids direct competition by offering unique value propositions and targeting non-customers (people who previously didn't use the product/service)

Examples of blue ocean implementation

• Cirque du Soleil redefined circus industry by eliminating animal acts and focusing on artistic performances
  • Created new market space appealing to adult audiences willing to pay premium prices
• Nintendo Wii targeted non-gamers and casual gamers with motion-controlled gaming and family-friendly content
  • Avoided direct competition with Sony PlayStation and Microsoft Xbox by offering unique gaming experience
• Yellow Tail simplified wine selection for mass market with limited range of easy-drinking, affordable wines
  • Appealed to beer and ready-to-drink cocktail consumers, creating new market space in wine industry

Developing hypothetical blue ocean strategies

1. Identify an industry or market to focus on
2. Analyze existing market boundaries and competition
3. Identify key factors industry competes on (price, features, service)
4. Determine which factors can be eliminated, reduced, raised, or created to offer unique value
5. Develop new value curve that differs from industry's average offering
6. Ensure new strategy aligns with company's capabilities and resources
7. Communicate and implement blue ocean strategy throughout organization

• Example: Developing blue ocean strategy for fast-food industry
  • Eliminate: Traditional menu items, unhealthy options, in-store dining
  • Reduce: Price, waiting times, environmental impact
  • Raise: Food quality, customization options, convenience
  • Create: Healthy, plant-based menu items, mobile ordering and delivery, eco-friendly packaging and practices
  • Result: Fast-food chain offering healthy, customizable, eco-friendly meals at competitive prices, appealing to health-conscious and environmentally aware consumers (vegans, fitness enthusiasts)