Blue Ocean Strategy | Guide To Understand And Write Blue Ocean Strategy

1. What is blue ocean strategy?

A blue ocean is a business person’s dream of entering in a market with no competition.

Entrepreneurs with Blue Ocean strategy tend to move away from existing competition by- exploring new markets, and creating new demands.

Term- Blue Ocean meaning

A vast empty ocean of market opportunities that emerge when a new innovation/industry appears.

Concept- Blue ocean strategy meaning

Creating uncontested marketspace to make competition irrelevant; creating and capturing new demands; and breaking the cost-value tradeoff

What is a blue ocean strategy in simple terms?

Doing business in a market where there is no competition

Table - Blue OceanMeaning

1.1. Blue ocean concept history

In 2005, Chan Kim and Renee Mauborgne introduced the concept ‘Blue Ocean Strategy’ as a novel approach to deal the competition, and expand the market share. Since its introduction, the blue ocean concept has been widely discussed in the strategic management literature.

After knowing the origin of term ‘Blue Ocean’, now we define blue ocean strategy in light of strategic management literature.

1.2. What is blue ocean strategy definition?

The blue ocean strategy denotes the- unexplored market space with unattained competition, a strategy of creating a new land, rather than dividing the existing one, and a simultaneous pursuit of low cost and differentiation to create new demand(Kim and Mauborgne, 2017).

The strategic management literature defines blue ocean strategy based on following criteria:

  • Focus
  • Divergence
  • A compelling tagline

When companies’ value curve meets above criteria, then it defines a good blue ocean strategy (Siegemund, 2008).

1.3. What is blue ocean strategy in business?

In business world, entrepreneurs adopting blue ocean strategy tend to simultaneously pursue the differentiation and low cost strategy to open new market space.

In Blue Oceans, the entrepreneurs create new demand instead of fighting over existing demands. Successful implementation of blue ocean strategy requires entrepreneurs to get the product/service to the market with unique value before others could do.

2. Blue ocean vs red ocean strategy

Following table presents the difference between Red Ocean and Blue Ocean strategy:

What is the blue ocean strategy?

What is the red ocean strategy?

Create and capture uncontested marketspace by creating new demand

Outperform the rivals by grabbing greater share of existing demand

The competition is irrelevant

Focus on beating the rivals

Main emphasis on value innovation

Main emphasis on competitors’ moves

Value-cost tradeoff not important

Value-cost tradeoff remains important

A simultaneous pursuit of low cost and differentiation strategy

Choose either differentiation or a low cost strategy

A market creating strategy

A market competing strategy

Game rules wait to be set

Game rules are already set

Set new trends

Participate in existing trends

Look across the strategic groups within industry

Focus on enhancing the competitive positioning in existing strategic group

Redefine and explore new buyer groups

Better serve the existing buyer groups

Explore complementary products/services by expanding the industry boundaries

Operate within existing industry boundaries

Source: Self-drawn, information gathered from Lainos (2011) and Kim and Mauborgne (2014)

Table - Difference between Red Ocean and Blue Ocean strategy

The above table lists the key distinctive characteristics that define and differentiate the blue ocean strategy from red ocean strategy. In light of above characteristics, let’s analyze whether following companies adopted red or blue ocean strategy?

3. Blue ocean strategy examples

3.1. Is Uber a blue ocean strategy?

-Uber chose a blue ocean market by offering new mobility opportunities that were not present before.

-Uber identified the pain points of customers, and solved their problems by transforming the service consumption experience

-Uber improved the service quality by using technology, and simultaneously lowered the costs by using Taxi drivers’ own vehicles

-Key differentiating factors that defined Uber Blue Ocean Strategy include-

o Introducing rating/review system, GPS tracker and mobile payments

o Enhancing customer service, raising car cleanliness standards, and ensuring ride assurance

o Reducing price, uncertainty and waiting time ( Schroeder, 2019).

Note: Uber blue ocean strategy has now turned red due to intensifying competition in global ride hailing industry

3.2. Is Apple an example of blue or red ocean strategy?

Apple presents another example of blue oceans strategy.

-The company focuses on value innovation, not technological innovation

-Through superior quality, Apple created its own marketspace. Apple changed the market limits by offering superior value to buyers

-Instead of following the trends, Apple became the trend setter in the industry

-Rather than fighting over existing demands, Apple’s products like- iTunes and iPod created new demand.

Note: Despite the growing competition, Apple has managed to keep itself in blue ocean market through innovative marketing strategies

3.3. Is Subway an example of blue or red ocean strategy?

Subway found ablue ocean opportunityby unlocking the existing barriers to consumption of healthier yet tasty food.

-Subway created new demand for ‘healthier’ options to the fast food customers

-The company created a new marketspace by educating the customers about its product’s health benefits

-By introducing salads and other healthy food items, Subway set new trends in fast food industry.

3.4. Meta- a recent example of Blue Ocean strategy

A most recent example of blue ocean strategy is Meta (Facebook). The company is trying to create a new marketspace by bringing the metaverse to life, and help social media users connect, explore and grow their businesses. As there is no existing competition in this new market. It is clearly a blue ocean strategy.

3.5. Is Ryanair a blue or a red ocean strategy?

-Ryanair operates in intensively competitive market.

-The company focuses on the low cost strategy to grab greater market share from existing demand.

-Instead of focusing on a niche, the company focuses on a broad range of customers in existing industry, and tries to steal customers from rivals by lowering the prices.

-Compared to competitors, Ryanair offers basic airline service in cheap fares.

The above analysis suggests Ryanair adopts red ocean strategy.

3.6. Some other examples of red ocean strategy

Indigo and Spice Jet- both are Indian airline companies, and alike Ryanair, they also adopt red ocean strategy by fighting over the existing demand, and operating in intensively competitive market space.

3.7. Blue ocean vs. Red Ocean- Apple and Samsung example

Apple Blue Ocean Strategy

Samsung Red Ocean Strategy

Creates and captures demand for its new products

Fights over existing demand

Launches unique products irrespective of competitors

Observe existing competitors and build products by noticing their faults

Sets market trends

Follow market trends

Limited product variety

High product variety

Narrow customer base

Broader customer base

Competition is relatively less intense due to unique and exclusive brand image

Faces intense competition

Focuses on value innovation

Low cost strategy to avail cost leadership

Operates in relatively less crowded market

Operates in a crowded market

Table - Apple vs. Samsung

Above examples show how companies implement red and blue ocean strategies in the real world. However, a successful shift to Blue Ocean strategy requires certain components, as explained below:

4. Key components of successful blue ocean shift

·A clear mindset and perspective

o Adopt a clear mindset and expand the horizon to understand where opportunities reside, how they could be leveraged, and what are key strategic priorities

·Access to market creation tools and methodology

o Ensure access to the appropriate technical and non-technical tools and methodology needed to implement the blue ocean strategy

·Humanness process in place

o Instead of forcing the change, adopt a humanness process by encouraging the people to feel the need for change

Inability to incorporate above components leads towards Blue Ocean Strategy failure.

5. Reasons behind Blue Ocean strategy failure

Forbes cites three most common reasons behind blue ocean strategy failure:

5.1. Being eaten by the competition

Many times, businesses fail to recognize the potential competition, and are blinded by the false belief that they have best technology, and their offering is superior and distinct from the competition. Ultimately, such businesses quickly get eaten by the competitors.

5.2. There is no fish in the ocean

The Blue Ocean market was uncontested for some really good reason. So, a reality check is needed before entering in an uncontested market to ensure enough fish (customers) are there in the ocean (market).

5.3. You are swimming too far

Sometimes, firms swim too far. They enter in the markets that are completely unknown, and they do not have required competencies and capabilities to operate in highly unknown markets.

6. How to avoid Blue Ocean Strategy failure?

Companies pursuing blue ocean strategy should:

·Keep a close eye on potential competitors

·Do a reality check when entering in an uncontested market

·Ensure they have the potential to build competencies and capabilities needed to operate in an unknown market.

7. Evaluating Blue ocean strategy success vs. failure- real world examples

Many globally renowned companies started their journey with blue ocean strategy. Here we presentsome successful and failed blue ocean examples to understand how blue ocean concept is applied in real world, and what key lessons could be learned from it.

7.1. Success example- Subway

7.1.1. How subway implemented Blue Ocean strategy?

Subway presents an example of successful blue ocean strategy.

-The company launched the Jared Fogle Campaign to educate customers about the simultaneous price and health benefits of its offerings.

-The price benefits were communicated by launching 5 dollar foot-long campaign.

-By simultaneously pursuing differentiation and low cost strategy (a key characteristic of blue ocean strategy), Subway became USA’s second largest fast food brand.

7.1.2. What are reasons behind Subway’s blue ocean strategy success?

The key reasons behind Subway’s success were:

-A clear knowledge of customers’ pain points (unable to get healthy fast food options)

-Ability to cater the identified pain points in a superior way than competitors. Subway successfully set its product positioning as a healthy and high quality fast food brand

-Offering value innovation through low cost and differentiation. Subway sandwiches are not only considered heathy, but economical as well

-When fast food restaurants were making a rational appeal, Subway reset the industry orientation by making an emotional appeal in its advertisements, which worked well for the brand.

7.2. Failed example- Tata Nano

As per Harvard Business Review, there exists a huge gap in Blue Ocean strategy planning and execution. It increases the Blue Ocean failure chances. Here, we present Tata Nano as a failed example:

-As per Wall Street Journal, Tata Nano failed to create the blue ocean strategy due to its poor marketing, and inability to create and communicate a compelling value proposition.

-People were unable to understand and recognize the uniqueness of offering, and thus, rejected the Tata Nano despite its value based product innovation.

8. Blue Ocean opportunity and risk analysis

8.1. Blue Ocean opportunities

-Avail First mover advantage. In absence of competition, companies can gain the maximum market share

-Avail Price advantages. As no competitor is there, companies can set pricing strategy without competitor constraints

-Focuson core product/value rather than focusing on competitors

-Absence of competition means possibility of high profit margins

-Promotion ofValue based innovation

-High growth potential

-Creation of new demands and new customer groups

-Breaking the Value-cost tradeoff through value innovation

-Constructive value improvement by moving away from traditional strategic models

-A simultaneous pursuit of differentiation and low-cost strategy

-Sets new quality and innovation standards

8.2. Blue ocean risks

-The strategy is non-sustainable. Blue Ocean eventually turns into red ocean strategy

-Difficult to identify and successfully enter in unexplored markets

-Requires strong patience and persistence

-High risk strategy

-Difficult to choose the right blue ocean strategy

-Difficult strategy execution, as no prior examples are available to learn important lessons

-Risk of entering market too early. Customers may not understand the company’s offering

-Risk of becoming too different. Customers may become suspicious and reject the offering

-Lack of strategic clarity may cause internal resistance to change (Kraaijenbrink, 2019).

9. How to execute Blue Ocean Strategy in real world?

Follow these steps to successfully execute the Blue Ocean strategy:

·Get started by conducting the SWOT analysis

·Identify customers’ key pain points that are yet unaddressed

·Analyze the key strengths that business can leverage to address those pain points

·Evaluate the possible unique ways to address those pain points

·Test new market offering at a limited scale

·Fully launch the product in a new, uncontested marketspace (Dehkordi et al. 2012).

10. Blue ocean strategy framework

The strategic management literature offers various blue ocean strategy frameworks to explain how companies can pursue blue ocean strategy in real world. Some examples are given below:

10.1. The Four Actions blue ocean strategy Framework

10.1.1. What is Four Action blue ocean strategy framework?

The four actions blue ocean strategy framework guides the businesses to craft the new value curve by reconstructing the buyer value elements.

The framework outlines four questions that firms must consider to develop a new strategic profile:

Source: Kim and Mauborgne (2014)

Figure 1 - Four action framework

10.1.2. Key elements of four-action strategy framework

·Which factors a business can eliminate that customers do not value?

·Which factors a business can reduce below industry standard?

·Which factors a business can raise above industry standard?

·Which new factors business can offer to the market?

10.1.3. Practical application of Four-Action framework- real world examples


Source: Self-drawn

Figure - Uber value creation- 4 action framework

10.2. Six path blue ocean strategy framework

10.2.1. What is six path blue ocean framework?

The Six Path framework outlines six possible ways through which companies can identify the blue ocean strategies, and develop a distinct positioning in the market.

Here is the visual presentation of Six Path blue ocean strategy framework:


Source: Kim and Mauborgne (2014)

Figure 3 - Six Path blue ocean strategy framework

10.2.2. Key elements of Six-path framework

The framework outlines following ways to pursue blue ocean strategy:

·One way is to look across the alternative industries by exploring the substitutes, rather than focusing on competitors.

·Second way is to look across the strategic groups within the industry rather than focusing on competitive position within strategic group.

·Third way is to redefine the industry buyer group rather than focusing on better serving existing buyer groups.

·Fourth way is to explore the complementary products/services rather than focusing on value maximization within bounds of industry.

·Fifth way is to rethink the emotional and functional orientation of industry rather than improving the performance in existing industry orientation.

·Sixth way is to engage in shaping the external trends rather than adapting according to external trends.

10.2.3. Practical application of Six-path framework- Real world examples

Strategic options

Examples

Alternative industries

Yakult- a pro biotic drink creates blue ocean strategy by avoiding direct competition with Pharma industry and Juice brands

Look across strategic groups

TATA Group did not compete with existing strategic group, and rather introduced cars under 1 lakh- an offering that Maruti buyers would trade down, and motor cyclists would trade up.

Redefine buyer group

Novodisk- an insulin producer targeted patients (new buyer group) rather than doctors/nurses

Complementary products/services

Philips addressed the customers’ pain point by introducing the mouth filter in the tea kettle to capture the pouring water lime scale.

Rethink emotional-functional orientation

When fast food industry was focused on functional appeal, Subway made emotional appeal to create blue ocean strategy

Shaping external trends

Rather than following the trends, Apple adopted blue ocean formula, and become the trend setter in technology industry

Table 4 - Six Path blue ocean strategy framework examples

10.3. Strategy canvas framework

10.3.1. What is strategy canvas?

Strategy canvas is a visual analytic that depicts how organizations configure their offering in relation to competitors.

Here is the visual presentation of strategy canvas framework:


Source: Kim and Mauborgne (2014)

Figure 4 - Strategy canvas

On x-axis, strategy canvas framework places factors on which the industry competes. On y-axis, the framework places offering level that customers get across competing factors.

10.3.2. Key elements of strategy canvas

The framework communicates four key strategy elements:

·Competing factors

·The offering level across competing factors

·Company’s own cost structure and strategic profile

·Competitors’ strategic profile

By getting this information, companies understand how they can differentiate their offering from competitors to enter in an uncontested market.

10.3.3. Practical application of strategy Canvas- Real world example

Here we apply the strategy canvas framework to Netflix:

Source: Self-drawn

Figure 5- Strategy canvas- Netflix

The above example shows how Netflix created an uncontested marketspace by differentiating its offering across all key points.

11. Blue ocean strategy Summary and recommendations

To sum up, blue ocean strategy allows the companies to create new demands, and operate in uncontested markets. However, shifting from red to Blue Ocean is not an easy task. Businesses seeking blue ocean strategy must be aware of the potential risks and pitfalls to avoid failure.

Based on overall analysis, we propose some recommendations for successful implementation of blue ocean strategy:

-Carefully analyze the company’s strengths and weaknesses

-Identify the uncontested market space through market research

-Analyze the reasons behind ‘why’ the market has remained unexplored so far

-Evaluate whether the company has potential to successfully enter in uncontested market

-Do not ignore the potential competition

-Do not choose a ‘too different’ market segment that could not be explored with the existing/potential strengths and competencies

-Ensure there are enough customers available in that segment

-Develop a clear value proposition, and communicate it to the market

-Keep an eye on competition, as Blue Ocean will eventually turn into Red Ocean.

References

Dehkordi, G.J., Rezvani, S. and Behravan, N., 2012. Blue ocean strategy: A study over a strategy which help the firm to survive from competitive environment.International Journal of Academic research in business and social sciences,2(6), pp.477-483. https://www.academia.edu/download/21157509/Blue_Ocean_Strategy_A_study_over_a_strategy_which_help_the_firm_to_survive_from_competitive_environment.pdf

Harvard Business Review 2015. Closing the Gap Between Blue Ocean Strategy and Execution. Available at: https://hbr.org/2015/02/closing-the-gap-between-blue-ocean-strategy-and-execution

Kim, W.C. and Mauborgne, R., 2014.Blue ocean strategy, expanded edition: How to create uncontested market space and make the competition irrelevant. Harvard business review Press. https://books.google.com/books?hl=en&lr=&id=gwypBQAAQBAJ&oi=fnd&pg=PR4&dq=Kim,+W.C.+and+Mauborgne,+R.,+2014.+Blue+ocean+strategy,+expanded+edition:+How+to+create+uncontested+market+space+and+make+the+competition+irrelevant.+Harvard+business+review+Press.&ots=bPadEX7c6t&sig=qrnTyCzHlDi1-_5f2SzSRqtiQCo

Kim, W.C. and Mauborgne, R.A., 2017.Blue ocean leadership (Harvard business review classics). Harvard Business Review Press. https://books.google.com/books?hl=en&lr=&id=wmW_DQAAQBAJ&oi=fnd&pg=PT19&dq=Chan+Kim+and+Ren%C3%A9e+Mauborgne+blue+ocean+srategy&ots=jCcsMI5ivB&sig=xNjLhbiWbqV4IwOJ66Gi-j-mU0k

Kraaijenbrink, J., 2019. Looking For A Blue Ocean Strategy? Consider These Three Risks. Forbes. https://www.forbes.com/sites/jeroenkraaijenbrink/2019/09/03/looking-for-a-blue-ocean-strategy-consider-these-three-risks/?sh=af82ed323ed2

Lainos, I., 2011.Red ocean vs blue ocean strategies(Doctoral dissertation, University of Piraeus (Greece)). https://www.academia.edu/download/60618119/Red_Ocean_vs_Blue_Ocean__by_Lainos20190916-104647-xvz1rf.pdf

Schroeder, B., 2019. It's Not About Ideas. Do What Amazon, Netflix, Uber And AirBnb Did, Head For A Blue Ocean. Forbes. https://www.forbes.com/sites/bernhardschroeder/2019/05/11/its-not-about-ideas-do-what-amazon-netflix-uber-and-airbnb-did-head-for-a-blue-ocean/?sh=438a7c51207e

Siegemund, C., 2008.Blue Ocean Strategy for small and mid-sized companies in Germany: Development of a consulting approach. DiplomicaVerlag. https://books.google.com/books?hl=en&lr=&id=Hkz5AwAAQBAJ&oi=fnd&pg=PA3&dq=Siegemund,+C.,+2008.+Blue+Ocean+Strategy+for+small+and+mid-sized+companies+in+Germany:+Development+of+a+consulting+approach.+Diplomica+Verlag.&ots=-Yc5zWJ5RG&sig=x_4nrVWYCTrBLNazmgKXlNhrTRY

Wall Street Journal 2013. Why the World's Cheapest Car Flopped. Available at: https://www.wsj.com/articles/SB10001424052702304520704579125312679104596

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