Blue Ocean Strategy

Blue ocean strategy is a business theory that aims to create new and uncontested market spaces where competition is irrelevant. The main purpose of this strategy is to provide value innovation by identifying new customer needs and preferences and offering unique products or services to meet those needs.

In 2005, W. Chan Kim and Renée Mauborgne proposed the concept of the blue ocean strategy. It helps discover new markets with high growth potential for firms, but it also carries a high level of risk. These new markets are typically unknown areas and fields existing businesses have not yet explored. This can help firms to attract new customers and create demand.

Blue ocean strategy is a business theory that aims to create new market spaces with little or no competition by providing value innovation. This strategy identifies and explores untapped areas where demand is high, and competition is irrelevant. By doing so, businesses can differentiate themselves from competitors.

Blue ocean strategy is not just a master plan for entrepreneurship but a framework that can be applied to any business or industry. The strategy involves identifying and creating "blue oceans" - new market spaces where demand is high, given competition is irrelevant, and utilizing existing market spaces where competition is fierce and profits are limited. Then, through value innovation, businesses can create new demand, open up new opportunities, and achieve sustainable growth.

The principles of the blue ocean strategy are as follows:

• Reconstruct Market Boundaries: The first and foremost principle of the blue ocean strategy is to reconstruct the existing market boundaries of the firm by discovering new marketplaces and avenues yet to enter. This allows firms to push the limits and discover new opportunities.
• Focus on the Big Picture: This principle suggests that firms should focus on a big goal instead of numbers and statistics. Developing a strong strategy and detailed processes should be the priority, while operational areas involving figures should be given less attention. In order to draw an accurate canvas, four steps are involved: visual awakening, visual exploration, visual strategy fair, and communication.
• Break the Existing Demand: Companies with a blue ocean strategy must break their traditional approach and explore new market segments, including reaching new customers. Expanding their existing audience base leads to finer segmentation and increased market share. However, it is not possible in established markets, so firms should take the reverse route and explore unknown markets.
• Get the Strategic Sequence Right: According to the fourth principle, companies should prepare the right sequence of their strategies based on price, buyer utility, cost, and adoption methods. Correct implementation can lead to huge profits for the firm.
• Overcoming Organizational Hurdles: This principle suggests that eliminating organizational hurdles is important for a successful strategy.
• Build Execution into Strategy: This principle focuses on building a strong team of employees that will boost the execution and performance of the blue ocean strategy.

There are two approaches to creating a strong blue ocean strategy. Let us look at them:

• Six-Path Framework: According to professors Kim and Mauborgne, every firm approaching the blue ocean plan must follow a six-path framework. It includes the six principles mentioned above. The first step is to study the existing market, which includes customers, competitors, and the industry. After that, firms can discover the factors that can provide value innovation to customers. This will lead to the discovery of an unknown marketplace or niche.
• Four Actions Framework: After identifying the niche, firms can work on exploring the value-added factors that can help develop the strategy canvas. The following four action frameworks are as follows:
  • Raise (identifying value drivers)
  • Eliminate (removing unnecessary costs)
  • Reduce (decreasing product or service offerings to save costs)
  • Create (developing the strategy canvas)

Let us look at some examples to comprehend the concept better:

Example #1

American automobile company Ford Motors is one of the perfect examples of the blue ocean technique. Before the launch of its series, there was a huge flood of luxury cars in the market. Every car manufacturer focuses on creating expensive, fashionable car models. However, it did not cater to the middle-class groups that did not want such vehicles.

A car, on the other hand, can provide comfort during muddy patches or bumpy roads. Thus, Ford Motors applied the blue ocean strategy, identified the unknown market areas (comfort cars), and applied the same. Thus, by the launch of Model T, customers could use them for everyday use.

Example #2

Another example is associated with the American discount broking platform Charles Schwab Corporation, incorporated in 1971. It implied the blue ocean theory and founded the first multinational financial services that help in reducing commissions during stock market transactions. Later, the Indian broking platform Zerodha adopted the same strategy and succeeded.