Contents
- What is the blue ocean strategy
- Differences between blue and red ocean strategies
- Principles of the blue ocean strategy
- How to implement the blue ocean strategy
- Advantages and disadvantages of the blue ocean strategy
What is the blue ocean strategy
The blue ocean strategy is an innovative approach to business development that allows companies to find or create unique niches in the market while minimizing competition levels. This concept was developed by W. Chan Kim and Renée Mauborgne and outlined in their book "Blue Ocean Strategy". A successful example of this strategy is the company Cirque du Soleil, which transitioned from traditional circus performances involving animals to theatrical shows focused on creativity and originality.
Differences between blue and red ocean strategies
The blue ocean strategy is contrasted with the red ocean strategy, characterized by intense competitive rivalry. In red ocean conditions, companies offer similar products and compete for customers, often resorting to price reductions. In contrast, the blue ocean strategy proposes innovative solutions that allow avoidance of fierce competition. For example, the company Kizik created unique shoes that do not require tying laces, which opened a new niche in the market.
Companies pursuing a blue ocean strategy provide high-value products at reasonable prices, a concept known as "value innovation." An example of such a company is Airbnb, which allows travelers to stay in real homes, creating a unique experience at prices comparable to hotel offers.
Principles of the blue ocean strategy
The foundation of the blue ocean strategy consists of four key principles:
- Expanding market boundaries: Identify new opportunities beyond traditional industry perceptions using methods such as SWOT analysis.
- Focus on innovation: Create a radically new solution that offers significant advantages for the customer rather than just improving an existing product.
- Creating demand: Instead of focusing on retaining existing customers, aim to attract new ones, including those who are not yet aware of your product.
- Step-by-step strategy development: Develop a strategy in four stages:
- “Buyer utility”: Create a unique offering.
- “Price”: Determine an accessible pricing policy.
- “Cost structure”: Set a target cost level.
- “Implementation”: Define specific implementation steps.
How to implement the blue ocean strategy
Kim and Mauborgne developed several tools for implementing the blue ocean strategy. One of the key tools is the strategic canvas, which helps analyze the current market situation and highlight the company's unique offerings. This tool allows for the visualization of the parameters by which companies compete and assess their development. For example, when Apple entered the market with the iPhone, it focused on a minimal number of models and simplification of the interface, which distinguished it from competitors.
Another important tool is the four actions framework, which includes the following questions:
- Eliminate: What factors can be eliminated?
- Reduce: What factors can be reduced?
- Raise: What factors can be improved?
- Create: What should be created from scratch?
For example, the wine company Yellow Tail created a new product for people who are not knowledgeable about wines, allowing it to enter a new market with an accessible and easy-to-use product.
Advantages and disadvantages of the blue ocean strategy
The application of the blue ocean strategy offers numerous benefits, including the potential for rapid growth and the creation of a unique market with no competition. This approach reduces dependence on rivals and allows for more flexible pricing. However, there are also downsides, such as the need to step out of one's comfort zone, a high degree of uncertainty in adopting innovations, and the risk of competitors emerging after a new niche is created.
An example can be found in the automotive industry, where Henry Ford created a blue ocean by standardizing production and reducing car prices. However, over time, new competitors emerged in this market, and the blue ocean became red again.