Creating or revamping a business is challenging, given the increased competition in most fields. When there are hundreds or thousands of brands in every industry, how do you compete?
Do you try to challenge the existing competitors, or do you create your own market based on innovation?
The Blue Ocean Strategy is a business strategy that focuses on creating a new problem that your product can solve. Using this method, you can outdo your competitors and create a market that you can dominate.
To help you formulate an effective business strategy, we’ll explain the Blue Ocean Strategy, its key frameworks, and how you can implement it.
What is the Blue Ocean Strategy?
The Blue Ocean Strategy is a way for organizations and entrepreneurs to create a new market space that makes the competition irrelevant. The strategy was developed by INSEAD professors W. Chan Kim & Renée Mauborgne in their 2004 bestseller titled “Blue Ocean Strategy.”
In this concept, existing industries in the market today are known as the red ocean. In a red ocean, companies use strategic moves to outdo each other to get customer attention and profits.
Rather than creating another product that struggles in the red ocean, businesses and entrepreneurs can create a new and uncontested market space called the blue ocean.
In a blue ocean, your product or service is the first of its kind, making the competition irrelevant. Much like the unexplored ocean, this marketplace has no set rules, is vast, and has a high potential for profitable growth.
The Red Ocean Strategy
The red ocean encompasses all industries known today. This ocean or marketplace has market boundaries and rules that are well known and accepted, both by businesses and consumers. So a new business in the red ocean is just another drop. You’re creating a product or service that’s adding to existing resources.
Existing markets are filled with hundreds or thousands of similar products. As a result, brands within this ocean struggle to grow and profit due to the cut-throat competition, hence the term red ocean.
The main focus of the Red Ocean Strategy is on gaining a competitive advantage through better products or lowered pricing. Growth is limited in this marketplace because thousands of other ‘fish’ occupy the same space.
The Blue Ocean Strategy is focused on innovation. It aims to get past existing industry structures and tap into a new market with plenty of demand.
The differences between the Blue Ocean Strategy vs. the Red Ocean Strategy
There are key differences between these two strategies. Let’s take a look:
- Existing vs. new market: Businesses can use the Red Ocean Strategy to participate in the known market space. In the blue ocean, you can build a new market.
- Competition vs. innovation: The Red Ocean Strategy is about beating your competitors in the market to get a greater share of a shrinking profit pool, whereas the Blue Ocean Strategy focuses on innovation.
- Current vs. new demand: The Red Ocean Strategy is about capitalizing on existing demand, while the Blue Ocean Strategy creates new demand.
- The value-cost trade-off: Brands in the red ocean have to make the value-cost trade-off, where they either offer greater value at higher prices or create reasonable value at lower costs. Businesses in the blue ocean do not have to stick to this trade-off.
- Systematic alignment: A red ocean company has to choose (to an extent) between differentiation or low cost and align its whole system with that choice. A company in the blue ocean can do both at the same time.
Examples of effective implementation of the Blue Ocean Strategy
Many companies have flourished by using the Blue Ocean Strategy. Uber and iTunes are two great examples:
Uber
Uber revolutionized how people travel by inventing an online taxi service. Although it’s not a completely new product, Uber eliminated the inconvenience of waiting for taxis on the street. It also introduced ride tracking, solved payment problems, and implemented instant customer service.
They use technology to make life more comfortable for both drivers and customers. Drivers also get convenient access to their earnings online and are shown exactly how much they earn from each ride.
iTunes
Apple brought music online with iTunes and changed how people listen to music forever. They launched iTunes in 2003 to capitalize on the then-growing trend of people trading music online and mp3 players that could play online music.
They let people buy and download music online while simultaneously providing music labels with another source of income. This eliminated the customers’ inconvenience of buying entire CDs to get one or two songs that they liked.
iTunes also eliminated the market for illegal music downloading by pricing songs reasonably and creating intuitive search and navigation options. So, they created a market for themselves with little to no competition.
Blue Ocean Strategy frameworks
There are several vital frameworks and analytical tools in the Blue Ocean Strategy. Let’s delve into the most important ones:
Value Innovation
Value Innovation is a framework that focuses on the simultaneous pursuit of both innovation and low cost. It’s a better option than the value-cost trade-off, where your products are either high value at a high price or lower value at a lower cost.
Companies don’t need to pick between cost and value in the Blue Ocean Strategy. Instead, they can aim to create a high-value product at a reasonable or low cost in a completely new and unknown market space. To achieve this:
- Redundancies in existing processes are eliminated to lower costs.
- Value is increased by offering something that has not been in the market before.
Value Innovation is driven by market pioneering, technology, or futuristic products. Much like how iTunes received pushback from users in the early stages, in a value innovation-based framework, entrepreneurs may end up creating products that buyers are initially reluctant about and unwilling to pay for.
Strategy Canvas
The Strategy Canvas is a simple graph that helps you understand the current marketplace and the prospects for your organization. It is key for building a robust Blue Ocean Strategy.
In a Strategy Canvas, the x-axis or horizontal axis lists the different factors that companies within an industry are competing on. On the y-axis or vertical line, you can indicate the buyer’s value for each of these factors.
For every factor, the value it offers could be low, high, or somewhere in between. Mark these on the graph. Use one line to track the industry’s value curve and another to track the value curve of your company’s products.
In an excellent Blue Ocean Strategy, the value curve for your product must be higher than that of the industry going forward.
Do you like the idea of this canvas?
Using an online diagram maker like Miro, teams can easily create a Strategy Canvas that shows how your competition is performing, what they offer, and what buyers really want.
When multiple top competitors in the industry have the same value curve, it’s easy to see what their common strategies and products are and how you can escape the red ocean.
Four Actions Framework
To create a value innovation-based strategy, you can use the Four Paths Framework, which is based on four crucial questions:
- Are there factors in the industry that should be eliminated?
- Which factors should be raised above industry standards?
- Which factors can be reduced below industry standards?
- What elements or factors can be created that the industry has never seen before?
Answering these questions helps businesses grasp existing industry strategies and create a business model based on the Blue Ocean Strategy, where there is no trade-off between value and cost.
ERRC Grid
The Eliminate-Reduce-Raise-Create (ERRC) Grid is an analysis tool used with the Four Actions Framework. While the Four Actions Framework asks crucial questions, the ERRC grid helps you put it into action to create a new blue ocean.
With the grid, you can delve into each one of the four questions by arranging them in separate boxes.
Here’s an example of an ERRC grid for a virtual training program:
With an ERRC grid, you can analyze your strategy and industry to:
- Identify companies that are focused on beating the competition. These companies often focus on raising cost or value.
- Define how you can break the value-cost trade-off.
- Thoroughly analyze every factor in the strategy canvas.
You can create an ERRC grid like this in minutes and get your whole team involved with our collaborative visual workspace tool that has strategic planning meeting kits to help you.
Six Paths Framework
The Six Paths Framework is another option to create a blue ocean business model. It enables you to look within an industry’s strategic boundaries and see how you can reconstruct them.
Here are the six paths for you to explore:
- Path 1: Look across alternative industries
Rather than limiting your products or services to your industry, explore alternative, related industries. Yakult, for example, identifies as part of the health drink, juice, and pharma industries. However, none of these industries consider Yakult to be direct competition. Yakult has thus created a blue ocean to thrive in.
- Path 2: Look across different strategic groups
Strategic groups in your industry are companies that are using the same or similar strategy. When you identify these strategies, you can also formulate how to go beyond them and create a blue ocean.
- Path 3: Redefine the industry buyer group
All the top organizations within an industry usually have the same target buyer persona. Analyze this persona and then identify other buyer groups within your industry that you can target to create a blue ocean.
For example, if you create medical products that are typically targeted at hospitals and doctors, imagine the same product from the patient’s perspective and see if and how the product can be improved.
- Path 4: Explore complementary products or services
Delve into what your customers do before, during, and after using your product. Identify any minor inconveniences they face, and address them using a complementary product/service or an existing product update.
- Path 5: Rethink the functional-emotional orientation
For any product, there is an emotional appeal and a functional appeal. The emotional appeal is how a customer feels when they use your product, whereas the functional appeal is the benefit from using the product.
Understanding how the functional and emotional appeals relate to each other in your industry can help you redefine it. For example, if everyone focuses on functionality, maybe you can focus on emotion.
- Path 6: Shape external trends over time
Every industry is affected by external strategies. Instead of simply reacting and making small changes to adapt, a Blue Ocean Strategy can be built by understanding what trends are coming up and then gearing your products or service toward those trends.
Strategy Sequence
Creating a Blue Ocean Strategy requires a definite sequence to identify if it’s actually a viable idea. The sequence follows this order:
- Buyer utility: Does your product or service provide a compelling reason for customers to buy it?
- Price: Is your product priced to attract your target buyers? If not, it cannot create buzz or lead to purchases.
- Cost: Does the cost of producing the product still help you earn a good profit margin?
- Adoption: Are there hurdles that your customers will face when adopting your product?
This sequence is a step-by-step process that helps you see if your idea leads to a competitive strategy. Every time you fail one step in the sequence, it’s time to rethink.
How to start a blue ocean initiative for your business
Here’s a general guide to starting a blue ocean shift within your organization:
1. Understand your current situation
You can’t start a new product without understanding your current industry. List all the features, along with the pros and cons of your current product or service. You can also analyze your employees and work processes.
Get your team involved. Ask them what is working well, which process can be improved, and if there are any defects in the product. Brainstorming together can lead to a unique idea — ones you might not have thought about on your own.
Sometimes, creating blue oceans calls for a significant change in work systems. This could lead to employee doubts and uncertainty. However, when you include the employees in the creation process, it could help alleviate their fears.
2. Identify new opportunities
Use the frameworks to identify current problems in your industry, alternate industries you can target, and creative ways to solve existing customer pain points.
You can use your company’s strengths to identify new ideas. Analyzing your competitors and any common strategies they use can also help you go beyond self-imposed industry boundaries.
3. Create new offerings
Once you’ve identified the new market to target, think about the new product or service you need to create. You can either modify your existing offerings or create a whole new one.
If, for example, you’re releasing a modified version of an existing product, then you need to see what elements or features are redundant. Add any new required features as well.
It’s worth noting that your new product can alienate existing customers, especially in the initial stages. In this scenario, you can either see it as a worthy risk for your innovation and hope it pays off later, or you can create complementary services that might help retain your highest-paying customers.
4. Test new products
Create prototypes of new products for your Blue Ocean Strategy. Use focus groups, social media, surveys, demos, and more to see if your customers will actually like your product or if more changes need to be made.
Take the feedback from this stage seriously. It can make or break the formulation of your Blue Ocean Strategy. Feedback can also help your team come up with new features.
5. Promote new products or services
After you’ve created your Blue Ocean Strategy and product, it’s time to promote your new offerings and attract a new audience segment.
Use market research and customer segmentation to create content and social media marketing campaigns that increase product reach and build brand awareness.
Your marketing strategy needs to be sustainable, so you can seize new growth and build on it. If customers don’t know about your product, they can’t use it. Marketing also informs noncustomers of your products, boosting sales.
Use the Blue Ocean Strategy to outsmart your competitors
Creating your own blue ocean lets your business focus on solving new problems in innovative ways rather than getting stuck in the rat race of the red ocean.
Depending on your initiative and strategy execution, you can leave your competitors in the dust and capture a large market share. You can use Miro to collaboratively build, visualize, and optimize your blue ocean frameworks online.
