- The blue ocean strategy encourages tweaking your products to push them into their own market with low prices and no competition.
- Many household-name businesses have reached their current stature through blue ocean strategies, but the approach can be risky.
- To implement a blue ocean strategy, grow your current team and identify pain points that only your business addresses.
- This article is for business owners interested in creating their own market rather than competing.
Let’s say the products and services you offer aren’t enabling you to meet your revenue goals. What if you could figure out how to tweak your products and services to make them an industry of their own?
This is precisely what the blue ocean strategy suggests, though household-name brands used this approach long before a 2004 book gave it a name. We’ll explore how creating your own market has helped many businesses grow and share how your business can also benefit.
What is the blue ocean strategy?
The blue ocean strategy is about helping your company gain uncontested market space separate from other, similar businesses. These new spaces are described as “blue oceans” – a term meant to contrast with the struggle for survival in bloody “red oceans” swarming with vicious competition.
The blue ocean strategy represents the simultaneous pursuit of high product differentiation and low cost, making the competition irrelevant.
The name “blue ocean strategy” comes from the book Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Professor W. Chan Kim, who co-authored the book with Renee Mauborgne, explained the concept in a Forbes article: “Our study shows that blue ocean strategy is particularly needed when supply exceeds demand in a market. This situation is applying to more and more industries today and will be even more prevalent in the future.”
The blue ocean strategy encourages you to innovate and develop new, affordable products that make competition irrelevant.
Pros and cons of the blue ocean strategy
The blue ocean strategy might be a boon for your business, or it might unintentionally hamper your operations. Look over the blue ocean pros and cons to decide if the strategy is right for you.
Pros of the blue ocean strategy
These are some of the benefits of the blue ocean strategy:
- You avoid saturated markets. Your small business must compete with mega-corporations and other major players in your field. But if you adopt the blue ocean strategy, your product won’t be quite like anything else while still addressing customer needs at affordable prices. You’ll end up with no competition from the powerful big names in your field.
- It introduces growth potential. Going the blue ocean route means balancing product or service innovation with cost and utility, creating new value for your customers. As more customers buy what you sell, word-of-mouth advertising can increase demand.
- You’ll meet customers on their level. Value and affordability are equally important in blue ocean thinking. You’ll always introduce your innovations at price points your target customer can accommodate. This approach lowers your audience’s barriers to buying what you sell.
Cons of the blue ocean strategy
These are some downsides of the blue ocean strategy:
- It may be too ambitious. The logic behind the blue ocean strategy implies that any business can come up with an affordable, competition-free product or service. In reality, it’s not always easy to be this innovative. Even if you do have a great idea, real-world constraints could get in the way of making it a reality.
- It may be too risky. Perhaps you have found a way to make a completely unique product without setting an absurd price. Maybe you’ve come to this crossroads because people in your small business niche would buy from your business. But what if these people are the only ones interested in your offerings? If that’s the case, the blue ocean approach could needlessly constrain you.
- It may be impermanent. Innovations yield imitators, which means a blue ocean could easily become a red ocean with time. Even if a blue ocean strategy feels ideal for your business right now, it could cease to be possible in the long term.
How to implement a blue ocean strategy
Kim and Mauborgne’s book suggests taking the following steps to implement a blue ocean strategy:
- Figure out a starting point for introducing your new offerings, and hire employees who will help you build the strongest team and brand identity.
- Assess your current team’s strengths and weaknesses, and determine how to improve them.
- Identify pain points that your current and new customers might have.
- Develop products and services that address these pain points in ways unlike any other business.
- Write a formal plan for your shift and test your new products and services (and the processes you’ll take to get there).
Conduct a SWOT analysis to help your team members grow their strengths and boost their personal development, becoming the best versions of themselves.
Examples of blue ocean strategy
The blue ocean strategy might sound new, but businesses have been successfully using it for quite some time – even before Kim and Mauborgne named the approach. Here are three examples.
When household-name automotive company Ford launched its now-legendary Model T series, most manufacturers were customizing cars to each buyer’s needs. This approach led to high prices and inconsistent quality.
By contrast, the Model T came in just one color and model for every customer. The lack of customization led to lower prices and more consistent quality. Ford’s approach became the basis of the modern auto industry.
When Nintendo introduced the Wii in 2006, the company avoided competing with the Xbox and Playstation on graphics. Instead, Nintendo prioritized wireless motion-control gameplay that was unavailable on other systems. That’s how Nintendo was able to introduce more interactive, physical games like the Wii Sports series. The games’ popularity – as well as that of the console – grew rapidly.
Netflix has successfully employed the blue ocean model twice. Reed Hastings and Marc Randolph founded the company as the first-ever mail-order DVD rental business in 1997. Of course, Netflix eventually introduced the streaming TV model that permeates virtually every aspect of modern life. In both cases, the strategy paid off and made Netflix a household name on the level of Walmart or Amazon.
Other companies that have used blue ocean strategies include Apple, Yellow Tail, Amazon and Home Depot.
Finding blue oceans
While they avoided mentioning Harvard Business School’s Michael E. Porter by name, Kim and Mauborgne attacked his famous five forces market analysis head-on. Porter’s model looks at specific factors that help determine whether a business can be profitable based on other businesses in the industry.
Advocates of Kim and Mauborgne’s strategy would say this tactic promotes merciless competition, remaining in the red ocean.
The key to exceptional business success, Kim and Mauborgne say, is to redefine the terms of competition and move into the blue ocean, where you have the water to yourself. The goal of these strategies is not to beat the competition, but to make the competition irrelevant.
To discover an elusive blue ocean, Kim and Mauborgne recommend considering what they call the “four actions framework” to reconstruct buyer value elements in crafting a new value curve. The framework poses four key questions.
- Raise: What factors should be raised well above the industry’s standard?
- Reduce: What factors resulted from competing against other industries and can be reduced?
- Eliminate: Which factors that the industry has long competed on should be eliminated?
- Create: Which factors should be created that the industry has never offered?
This exercise forces companies to examine every factor of competition, guiding leaders to discover the assumptions they unconsciously make while competing. They can then search for blue oceans within their industries and make the shift.
When conducting a competitive analysis to improve your business and better serve your customers, be honest about your competitors’ strengths and success.
Blue ocean strategy in practice
Kim pointed out how Amazon has shifted from an online retailer to a digital platform that sells practically anything.
“Just think of its initial blue ocean shift in book retailing that separated it from the pack with its offering of the largest selection of books in the world, good prices, automatic confirmation of buyers’ orders, its useful selection on ‘people who bought this book also bought,’ and firsthand reviews on what readers found useful or not in a book,” he said.
Amazon isn’t always successful in creating blue oceans, however. According to Mauborgne, it failed in a few instances – against Zappos, eBay and Apple.
“In each of these cases, the companies Amazon went up against had all created blue oceans of their own, and whenever Amazon tried to imitate them, they failed,” Mauborgne said. “The lesson here is that the best defense is offense, and the best offense … is to make a blue ocean shift and create your own blue ocean. Imitation is not the path to success, especially in the overcrowded industries most companies today confront.”
Another company that created a blue ocean shift is Home Depot, which made an original value-cost frontier that led to the multibillion-dollar DIY market, according to Kim.
“When they saw Amazon encroaching upon their space, instead of competing head-on … they doubled down on offering what Amazon could not – knowledge and advice to complete complex do-it-yourself projects such as renovating your bathroom on your own,” he said.
Making the shift to a blue ocean strategy
When there is limited room to grow, businesses should try to look for verticals to find new sectors where they can enjoy uncontested market share. The aim is to capture new demand with a superior product that makes competition irrelevant. Unfortunately, this isn’t always successful.
As stores continue to expand and American shopping habits change, retailers are struggling financially. Stores such as Nine West, Claire’s and the Bon-Ton stores are a few among the multitude of companies that have filed for bankruptcy in the last several years.
For struggling businesses, Mauborgne recommended the strategy canvas, which is featured in her newer book with Kim, Blue Ocean Shift: Beyond Competing. A strategy canvas is a one-page analytic that helps businesses focus on an industry and its key competing factors.
“It drives you to take a hard look at yourself as the market sees you,” Mauborgne said. “If retailers applied it, they’d quickly discover that they all compete in the same space they have for 30 years, and all are near mirror images of one another. That creates a real wake-up call, gets everyone aligned, and creates a strong impetus for change.”
Her ultimate advice for businesses is to stop competing and start creating.
Carlyann Edwards and Kayla Harrison contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.