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What is Blue Ocean Strategy?

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08/09/2022 |

10 min read

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Businesses face numerous challenges, ranging from brand development to acquiring and then retaining customers. As a result, they have two options: innovate and survive, or fade away and die.

More and more new businesses are coming up with strategies to gain a significant market share. This can be accomplished by aggressively expanding in an existing market space with a reliable proof of concept or by creating a new, untapped market. 

In 2004, those two approaches were defined as the "Blue Ocean Strategy" and the "Red Ocean Strategy." 

Let’s take a closer look at them. 

 

Table of contents:

  1. The Ocean Strategy: an introduction
  2. Blue Ocean Strategy vs Red Ocean Strategy: key distinctions
  3. Conclusion

The Ocean Strategy: an introduction

W. Chan Kim and Renée Mauborgne co-authored the innovative company management theories known as the Blue Ocean Strategy and Red Ocean Strategy at the start of the twenty-first century. They were first presented in the 2004 book "Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant" (see the authors’ blog here). Overall, the theory is the result of an extensive analysis of more than 150 strategic decisions made over the course of more than a century, separated into 30 industries.

Let's dig deeper into the findings.

Red Ocean Strategy

At the time the book was published, Renée Mauborgne and W. Chan Kim's phrase, "The Red Ocean Strategy," encapsulated the then-current state of the market by highlighting how everyone was wasting energy in a never-ending struggle for a limited resource (usually: a piece of an already defined market). To remain competitive, they had to metaphorically become the sharks and turn the waters of competition red and bloody (hence the term: Red Ocean Strategy) by competing against multiple companies to outperform them and feed on a larger share of the market.

The majority of “old” industry giants fall into this category, including traditional big brands like Ryanair, Southwest, Audi, Tesco, or Strabag. They are surrounded by competition offering similar products, promoted as slightly different experiences (with surely different prices). As each brand in the market gains knowledge from the mistakes made by the rivals and then modifies similar (or nearly identical) strategies to maintain growth, their options are becoming progressively more limited. Because of this, there are at least a few alternative brands that can offer you services that are comparable. In each and every industry.

The water becomes crystal clear: what is the Blue Ocean Strategy?

As opposed to crimson red oceans, the Blue Ocean Strategy allows “any organization to step up to the challenge of creating blue oceans in an opportunity-maximizing, risk-minimizing way”. To thrive, they should concentrate on finding new market niches ripe for growth (so, the blue oceans), with the aim to achieve long-term success. This eliminates the need for constant battles with competitors.

The concept is based on the presumption that industry structure and market boundaries are not set in stone and can be altered by the actions and beliefs of industry participants. This area is deep, vast, and powerful in terms of opportunities and profitable expansion, much like the ocean itself. Because the markets ("oceans") are relatively new, there is frequently little to no competition. This represents a significant improvement over the company's previous strategy management, which required business owners to choose between differentiation and low cost.

In fact, the majority of current tech giants fall into this category. Tesla, Apple, iTunes, Amazon, Netflix, Uber, Air BnB, Facebook, EA Games, and many more started with a unique idea to add something new to the market. But it’s also IKEA, Cirque de Soleil, Subway, Coca-Cola, and Sephora, which constantly invest in new tech solutions such as interactive apps using AI and many other features. 

As you can see, understanding and implementing this strategy is a valuable tool for business owners. After all, who wouldn't want to dominate their own niche?

An additional bonus is that because society becomes so enamored with the emerging concept and is pushed by curiosity to constantly seeks out updates, Blue Ocean Strategy brands typically don't need to spend much on marketing. But that doesn't mean that when developing a plan, it should be treated as a footnote!

Blue Ocean Strategy vs Red Ocean Strategy: key distinctions

The competition

As the Red Ocean Strategy has already been proven successful in a specific market, other companies will try to capitalize on the concept and enter the field, increasing competition. Additionally, since businesses can use the same industry best practices, their products quickly start to resemble one another, and hence efforts have to be made to establish a brand with a slightly different offering (be it: uniforms, branding, or social media activity).

The Blue Ocean Strategy is a tool for modern business owners. It concentrates on a completely new market outside of the rat race so that the companies don't have to make hasty business decisions because there is simply no one to compete with and no way to replicate an idea that does not (yet) exist. In this reality, competition is simply unimportant. Instead, the resources can be used to adapt the idea to market demands, which usually means losing a solid market share in the "Red" environment. 

However, if introduced correctly, such companies can hold the attention of the entire audience for years, enabling them to dominate their respective markets.

The (actual) demand

The process of Blue Ocean formation typically concentrates on finding a new market niche that should subsequently draw (or "create") new customers. The offer, therefore, should focus on offering high-value, unique solutions to extremely specific needs that may or may not be sufficient for society. A smaller, more devoted customer base is actually a better place to start; for practical reasons, this is typically the level of young adults who are open to trying new things and have some cash to invest in the product.

Red Ocean, on the other hand, capitalizes on pre-existing demand. Companies must, as previously stated, add their own "touch" to the shopping experience – usually hidden behind the "core" message or the highly adjusted buyer persona – but the offer itself is nearly identical. The primary goals are to increase brand loyalty and to consistently attract new customers (who are already familiar with the industry and willingly choose to follow one of the brands).

The profit

Because there are already too many similar brands on the market, Red Ocean companies must constantly compete for the attention of their customers. Profit and growth are actually declining due to competition and resource scarcity. Blue Ocean businesses, on the other hand, fully exploit the Big Idea's potential, gaining access to as many customers as they can persuade. And the greater the demand, the greater the opportunity to grow quickly and profitably. As a result, the company has a stronger position in its niche and is more responsive to market realities.

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Blue Ocean Strategy vs Red Ocean Strategy according to the Chan Kim/ Renee Mauborgne blog update

Blue Ocean shift: is it for everyone? 

The Blue Ocean Strategy, without a doubt, provides an analytical framework for comprehending and entering uncrowded markets. It promises to help your business gain a competitive advantage in a brand-new niche, which could attract the masses to your unique idea. However, in today's competitive world, good ideas do not always lead to great businesses.

So, how do you transform a "Red Ocean" business into a "Blue Ocean" business?

First of all, you have to reconstruct the market boundaries. Determine which factors should be elevated above industry standards to provide the necessary differentiation in a non-competing market. Then, eliminate general, "well-known" industry compromises that once added value but no longer do (i.e., paper check acceptance, obsolete delivery options). After that, consider removing factors that are no longer required by industry standards. Can automation improve the efficiency of operational processes? Can you simplify/reduce the branding? Should some materials be replaced? Physical databases moved to the Cloud?

The more resources you make available, the better. However, keep in mind that your main goal here is to not become cheap, but simply to prepare the ground for innovation by retaining the tried-and-true essentials.

Now it's time to think about the innovations. Create a strategy canvas outlining the industry context, competitor markets and products, and your own unique selling points.  

Think about what element in your industry should be developed that has never been introduced before. What is the most pressing issue confronting your industry? What is a good long-term business plan in terms of profit and revenue generation? What are your customers' thoughts on various services/products? Have you noticed any commonalities among the buyers? Can technology help to solve any upcoming problems? Are you even familiar with current technological solutions in terms of their applicability to your industry? 

If you are having trouble with this section, we encourage you to participate in Codete discovery workshops, which may help you answer the above questions. We can then propose the best strategy for mapping your current market position and assisting you in finding your own Blue Ocean using cutting-edge technology.

Conclusion

Every entrepreneur wishes their company was the only one in the market. Yet, you need to be aware that the Blue Ocean Strategy is not a success mantra. The entrepreneur's consistent effort is critical to the strategy's success. For example, you might discover that the market you want to enter doesn't exist because of a serious problem: the technology isn't yet available, the solution is prohibitively expensive, or people are unwilling to take your shortcut (due to a lack of awareness, skills, habits, or time).

As a result, each innovation should be thoroughly researched and discussed with an experienced consulting team before investing a single penny.

Big brands like Facebook and Uber can certainly teach you a thing or two about charting a new course. Once you've achieved some level of success, others will flock to you, each with their own market strategy. And each step you previously chose to avoid may now determine your level of success in your niche. And eventually, the water will turn red.

You can also follow large corporations' lead and abandon this innovative approach for a variety of reasons. Blue Ocean may appear to be too small, and thus too risky, to move the entire company into unknown waters. There is also the issue of allocating resources from tried-and-true solutions to uncertain futures. In fact, creating blue oceans necessitates calculated risks. When properly estimated, however, the end products – which may pose a direct threat to your core business – are usually the best solutions for the current times. If you're still having trouble, consider Kodak, which rejected digital photography due to poor quality in the 1990s.

That is why, in order to maintain your position as the undisputed leader in your newly-formed market, you must stay up to date on trends, new competitors, and other variables. And we will gladly assist you!

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