In a saturated market, young companies frequently face daunting challenges. Understanding the blue ocean strategy definition – creating uncontested market space by ignoring the competition – offers a way out of this predicament.
If this sounds too good to be true, let’s explore examples of blue ocean strategy, its benefits and the companies that have successfully implemented it.
What is the blue ocean strategy?
The blue ocean strategy, also known as Value Innovation, is a method where companies enter new, competition-free markets by developing an innovative concept. The strategy was developed by W. Chan Kim and Renée Mauborgne, who use the metaphor of “blue oceans” to differentiate from “red oceans”, which are characterized by fierce market competition.
Goals and benefits of the blue ocean strategy
In their book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, business professors Chan Kim and Mauborgne presented their concept for successful businesses.
Taught at INSEAD Business School, this strategy is considered a part of strategic management, advocating that companies shouldn’t compete against each other but instead forge their own path.
To make competition irrelevant, companies must create unique and innovative products. This strategy allows them to avoid the pressures of pricing strategies. While imitators are inevitable, Mauborgne and Kim demonstrated in their study that companies could maintain their unique selling proposition for 10 to 15 years using the blue ocean strategy.
The major benefits of the Blue Ocean Strategy include:
Virtually no competition
Creation of new demand, thereby attracting a new customer group
Cost structures are not subjected to competitive pricing, allowing for optimization
Significant innovation leads to high sales volumes without competitive struggles
Red ocean vs. blue ocean: what’s the difference?
Chan Kim and Mauborgne often use the analogy of red and blue oceans to describe the blue ocean strategy.
The colorful depiction has a metaphorical significance. While many predators (competitors) fight each other in the red oceans, the fish in blue oceans swim peacefully without interfering with each other and driving profitable growth.
Key differences between the blue ocean and red ocean strategies include:
Blue ocean strategy | Red ocean strategy |
Companies enter a new market space with (almost) no competition | Companies must prove themselves against numerous competitors in the existing market boundaries |
Innovation is the key differentiator | Competitors are differentiated mainly by the cost-benefit ratio of existing products |
Prices remain relatively stable due to uniqueness | Low costs determine competitiveness in a known market space |
The target audience needs to be acquired anew | New customers must be won over from competitors |
There is little to no competition | Cutthroat competition is crucial for companies’ survival |
The ERRC grid: steps to an innovation concept
How do companies create a brand-new product that withstands competition? Companies must first distance themselves from conventional methods to enter the Blue Ocean Market.
The greatest challenge of the blue ocean strategy is thinking in a completely new direction. The ERRC grid (Eliminate, Reduce, Raise, Create) can help:
Eliminate. Identify aspects of the product that are unnecessary or perceived as disruptive and remove them.
Reduce. Focus on what is truly important to the target audience – quality over quantity.
Raise. Emphasize the most important factors, creating excitement around your product’s functions and features.
Create. Now is the time for innovation. Design new, crucial features to distinguish your product from the existing offerings.
Once all portions are addressed, a value curve can help measure business success by planning individual product features according to their intensity. This curve enables direct competitor comparison, giving you an edge in predicting success.
Successful examples of the blue ocean model
Perhaps the most famous example of the blue ocean model is Cirque du Soleil. This renowned circus had to get creative during a period of crisis in the fiercely competitive circus industry.
Many attributes that had long defined the circus were simply no longer trendy. Cirque du Soleil developed a new concept that eliminated animals from the show and focused on high-quality dance and live performances. This allowed them to expand their audience and increase ticket prices.
Other successful examples of the Blue Ocean shift include:
Nintendo: With the launch of the bestseller Nintendo Wii, Nintendo moved away from traditional video games with hand controllers and distinguished itself from its competitors like PlayStation and Xbox. The new motion sensors and expanded control frameworks attracted more than traditional gamers.
Yellow Tail: Yellow Tail wines stand out on the wine shelf primarily through one thing: their label. The target audience isn’t traditional wine drinkers but those who care little for the elegant pomp of wine connoisseurs. Australian winery Casella Wines found an innovative way to differentiate itself from typical wine producers and speak to a different audience.
Nespresso: Buying coffee in capsules is no longer unusual today. However, when Nestlé first introduced the concept of Nespresso machines, it revolutionized thinking and changed the rules of the game.
Southwest Airlines: The budget airline Southwest Airlines opted to omit unnecessary extras like assigned seating, allowing them to offer flights along the same routes at lower prices. Improvements to the check-in process also enhanced customer perceptions.
Amazon: Today, the online shopping giant is an integral part of many users’ lives, but at its inception, selling books over the Internet at the best price point was an unexplored idea. Amazon has shown a pioneering spirit and continues to hold its leading position in the e-commerce industry boundaries.
Final thoughts: blue ocean marketing focuses on unique selling propositions
Companies, startups and entrepreneurs that adopt the blue ocean strategy consciously make strategic moves to venture into uncharted waters alone instead of swimming with the current.
Here, they discover less competition but must create demand within a new target audience to establish a unique selling proposition and achieve long-term success.
This strategy highlights the value of innovating beyond the crowded marketplace, offering new solutions that differentiate from the competition and redefine the playing field, securing a sustainable competitive advantage and greater market share.
