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Instead of viciously competing with other companies, find a way to work in a marketplace free of competitors.
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.
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 might be a boon for your business, or it may unintentionally hamper your operations. Look over the blue ocean pros and cons to decide if the strategy is right for you.
These are some of the benefits of the blue ocean strategy:
These are some downsides of the blue ocean strategy:
Kim and Mauborgne’s book suggests taking the following steps to implement a 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.
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.
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.
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.
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 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.
If you recognize an unserved market that your business can provide value to through your products and services, it may be a huge opportunity just waiting to be discovered. By pivoting to address this market’s needs, you’ll go where your competition isn’t, potentially finding fertile ground in which to expand your business. Consider the tips in this guide if you think you’ve found a blue ocean, and start creating a market of your own today.
Carlyann Edwards and Kayla Harrison contributed to this article. Source interviews were conducted for a previous version of this article.