Blue ocean strategy is a simple framework to create a new market and make your competitors irrelevant. Understanding Blue Ocean Strategy and its antithesis, Red Ocean Strategy helps you to organize your thinking and plan towards new venture whether establishing a new business or coming up with a new product line. Want to learn the strategy? keep reading.
WHAT IS A BLUE OCEN STRATEGY?
A Blue Ocean Strategy is one where the key to success lies not in competing directly with rivals within a market, but in creating an entirely new market where there are currently no competitors and where the potential for high returns is vast. It has been developed by W. Chan Kim and Renée Mauborgne,
Blue Ocean Strategy involves a change in strategic thinking towards a mindset that challenges existing market boundaries, rewrites the rules of competition, and creates a new, as yet uncontested, market space.
The theory outlines two attitudes to the competition: Red Oceans and Blue Oceans. The current marketplace for all products and services is made up of Red Oceans (bloody battlegrounds), where boundaries are clearly defined and boundary.
A very different attitude pervades the Blue Oceans. These are areas of deep, uncharted, almost limitless potential where the aim is not to compete on traditional grounds but to develop products and services that create entirely new markets.
In essence, it is creating customers that do not yet exist. At its core, Blue Ocean Strategy believes that it is better to create tomorrow’s customers through developing a new market rather than scrabbling around trying to capture existing customers in the current marketplace. There may be many justifications for this approach but, quite simply, the reason seems straightforward: to create a monopoly situation and reap the high rewards before competitors enter the new market.
Value is achieved by integrating the utility of the product with its cost and price. It is not a case of choosing between competing through managing costs or product differentiation: it is about pursuing both.
It is this that creates the value that appeals across customer groups, drawing them into a new market. Think of this as maximizing the gap between the utility of the product and its price (facilitated by lower costs) – the larger this gap, the higher the value and the more it attracts customers.
BLUE OCEAN STRATEGY WORKS ON 4 MAIN PRINCIPLES
1 CHALLENGING EXISTING MARKET BOUNDARIES
Reconstruct the marketplace, identifying and creating new markets and customers. The Blue Ocean is a vast place where demand is unrealized – it doesn’t yet exist. The aim is to bring this demand into existence.
2 FOCUSING ON THE BIG PICTURE
Be clear about your goals: what matters and needs to be achieved.
3 REDUCING RISK TO MINIMUM
A detailed analysis of the current industry is to be performed
- Assess current industry standards and decide what can be eliminated
- Things that are not necessary to be reduced
- Things that do not need to be done to a high standard to be raised
- Things that should be done better be created
- Things that have never been offered before
4 PLANNING AND CAREFUL EXECUTION
You will need to overcome barriers and secure the resources and the support of your people especially influencers.
DIFFERENCE BETWEEN BLUE OCEAN STRATEGY AND RED OCEAN STRATEGY
The Red Ocean is where most industries are today. A very well defined market exists, demands are well known, competitors are well known and there is an established way of doing business. The banking industry in India is a good example of that.
The researchers called this the Red Ocean, analogous to an ocean will lot of shark where the sharks are fighting each other for the same prey and thus red blood is spilled all over.
Blue ocean is clean not much of a fight with predators. So let us look at the major difference between the Blue ocean and red ocean strategies
FOCUS ON EXISTING CUSTOMER VS CREATING NEW CUSTOMERS
In most industries, there is not much effort to create new buyers or to attract new buyers to the industry. The players work to attract the customers currently purchasing in that industry. While in the Blue Ocean strategy, there is a focus on trying to increase the size of the industry by attracting new buyers or creating a new buyer segment altogether.
A very good example is Reliance Jio in India. In a very saturated Indian telecom market, they created a new segment of people with 4G handsets using data services at one of the lowest cost in the industry. Other players offered data to high paying middle class but Jio created a new segment of lower-income group high-speed data users. The volume here was the key.
COMPETE IN EXISTING MARKET VS ENTERING LOW COMPETITION MARKET TO SERVE C
Sounds good, right? But how do you do that? Existing markets are all the customers doing business in the industry right now, whether they are doing business with you or your competitors. If someone wins a customer, then it is assumed, someone will lose a customer. For someone to win, someone must lose.In uncontested markets, there is only a winner, you.
No one else is fighting for the business because either they don’t know about it, or they don’t know-how. They will try, of course, but if you have done things the Blue Ocean Strategy way, they will not be successful for a very long time. Look at the example of Paytm. There have been more than 50 companies trying to compete with them including some well-established brand for digital money, no one has succeeded yet.
The competition becomes irrelevant because they cannot easily copy the ideas in a way that is a commercial success. Remember, the whole idea of Blue Ocean Strategy is to have high value at low cost. If you are doing that, how can anyone compete with you? All the would-be competitors fall by the wayside.
CATER TO EXISTING DEMAND VS CREATE NEW DEMAND
You will be creating value so high that you will be attracting customers that never before would have considered entering the market. Nintendo’s Wii appeals to families and seniors. attracted beer drinkers, Southwest Airlines appealed to auto travelers.
MAKE THE VALUE COST-TRADE-OFF VS. BREAK THE VALUE COST TRADE-OFF
There are ideally only two ways to win customers over your competitors in the long run, value or low cost. It was understood that you could not have both value and low cost. Kim and Mauborgne in their model have negated the concept and said that you can have high value and low cost and developed the tools to do it. In fact, if you don’t break the value cost trade-off, competitors will easily duplicate what you are doing and the ocean will once again be very red.
DIFFERENTIATION OR LOW-COST VS DIFFERENTIATION AND LOW COST
In the Red Ocean strategy it is very difficult to create differentiation in your product or service without great cost. While in Blue Ocean Strategy as you are creating a product line or service which itself is catering to the unique customers the differentiation is easily achieved and negligible cost.