Blue Ocean Strategy

Publication Date :

23 Mar, 2023

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Table Of Contents

What Is 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.

What Is Blue Ocean Strategy?

Blue ocean strategy refers to a strategy where businesses try to discover new, uncontested marketplaces that can increase their growth potential.
It is a business concept presented in the book by W. Chan Kim and Renee Mauborgne in 2005.
The strategy includes six principles, a six-path framework, and a four actions framework.
Examples of companies that successfully implemented the blue ocean strategy include Netflix, DoCoMo i-mode, Apple Inc., Ford Motors, and others.

Blue Ocean Strategy Explained

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.

Principles

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.

How To Create?

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)

Examples

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.

Advantages And Disadvantages

The blue ocean strategy is applicable in most businesses. However, it does have some advantages and disadvantages to consider. Let us look at them:

Advantages	Disadvantages
It discovers an unknown marketplace.	Identifying the right blue ocean strategy can be challenging for firms.
Firms can increase their growth potential by identifying new opportunities.	They need help attracting new customers because of the new market.
It creates new demand and customers.	Sometimes, strategy execution might go wrong.
Breakthrough of the value-cost trade-off.	A lot of patience and trust are needed to acquire that market share.
It promotes value-based innovation.	Companies face high risk as it is a new field.

Blue Ocean Strategy vs Red Ocean Strategy

Although the theories of blue ocean and red ocean were given by W. Chan Kim and Renee Mauborgne in 2005, they differ. Let us look at them:

Parameters	Blue Ocean Strategy	Red Ocean Strategy
Meaning	It is a strategy where businesses try to discover a new market without competition.	The red ocean strategy implies those businesses that operate in the same existing market.
Purpose	To explore new opportunities for increased growth potential.	To beat the competitors in the current market.
Impact on demand	Create and capture new demand.	To focus on existing demand.
Value-cost trade-off	Break the traditional approach towards trade-offs.	Developing and using the same trade-off system.
Marketplace	Unknown or new market with no competition.	Competing in the same market.

Frequently Asked Questions (FAQs)

Is the blue ocean strategy still viable?

The blue ocean strategy is still viable and successful due to its high scalability features. It can be applied in every industry and business, and startups can use it to succeed in their strategies.

What does the term "blue ocean" mean?

The term "blue ocean" is a metaphor for the vast and untapped potential of these market spaces, much like the deep and unexplored waters of the ocean. Companies can carve out a unique and profitable niche for themselves in the market by creating new demand and value for customers rather than competing with existing rivals.

What types of companies can benefit from the blue ocean strategy?

The blue ocean strategy can be particularly beneficial for companies that operate in crowded and highly competitive markets. By identifying and creating new markets, these companies can differentiate themselves from their competitors and achieve sustained growth. In addition, companies seeking to innovate and disrupt existing industries may also find the Blue Ocean Strategy a valuable framework.