“To obtain profitable growth they should sail into the blue ocean of uncontested market space” - Chan Kim & Renée Mauborgne
The theory was coined by Chan Kim and Renée Mauborgne and explored deeper in the book, Blue Ocean Strategy, which the two co-wrote in 2004. It has been true and tried for years and companies who follow the framework have well-documented success. Studies show they have longer reins of success and create an empire.
Blue Ocean Strategy presents a fresh new route for a company to break free from the usual constraints of a market. Companies in the Blue act as frontiers, entering the brave new world in the form of an untapped market. The strategy is the bold creation of a new market. It presents advantages for the company as they access new opportunities and unhinged growth.
The Blue Ocean strategy is built upon the idea that instead of remaining in an overpopulated market and fighting over market demand and consumer favoritism, a company should harness its energy in a new market. In Blue, competition is irrelevant and a company positions itself as the dominant figurehead. The theory is built on the idea that the market is broken up into two categories: ‘the red ocean’ and ‘the blue ocean’.
Imagine if you found your unlucky self plopped in the middle of the ocean, nothing for miles around. Scary huh?
Now you have two choices.
I bet unless you're a daredevil with a penchant for fear-inducing activities, you’re picking door number two.
It’s a no-brainer.
This improbable example represents a fundamental building block of the Blue ocean strategy. The first option represents the Red ocean, the bloody, cutthroat competition where multiple industries flood the market fighting over the demand and consumers. With the Red ocean survival rate directly diminishes concerning the number of sharks or competition.
The main goals of surviving within the Red ocean are to
In the Blue Ocean, the survival rate is significantly better than in the red. There is no competition in the water. Blue oceans are uncontested markets. Blue oceans are dependent on the unlocking of new opportunities and demands. If diverse enough, they will wipe away the competition rendering it insignificant.
While the end goal of both Red and Blue oceans is profitability and sustainability in a market, the specific goals lined out in the Blue oceans follow a different thread than the Red oceans.
The objective of a Blue ocean strategy is
Transitioning into the blue ocean side of the market while posing difficulty has the potential to be very lucrative.
So how exactly does a company escape the shark-infested waters of the red ocean?
Becoming established in the Blue Ocean doesn’t mean creating a new product instead it's capturing non-customers of your industry from adjacent markets. This idea has the greatest potential to catapult a company from the Red Ocean to the Blue Ocean of an uncontested market. The Blue Ocean strategy requires incremental transformations of the service or product. This revamping offers new value, which is imperative to enter the blue. The profile of the service or product must be reinvented for success and doing so brings value innovation, a cornerstone of the blue ocean.
Value innovation is the key that unlocks pandora’s box of Blue oceans.
Although value innovation looks and sounds similar to the age-old concept of innovation, it’s vastly different. Innovation itself is the creation of a new product not existing, however, value innovation is manipulating the product to produce different results. The tell-tale differences between the two are based on two fundamental discrepancies. Value innovation differs from innovations because it must create differentiation and produce lower costs. Entering the Blue Ocean boils down to taking an analytical approach to the environment and challenging the established strategic logic and business models.
Creating a new market space is all about changes and improvements. To enter the blue ocean market four action frameworks must be taken:
Elimination focuses on what factors are being taken for granted and aren’t pinnacle points of need for the consumer. Once those are identified eliminate them from the equation. Following elimination is reducing, what factors are utilizing resources that don’t generate enough worth to be kept around. Remove the deadweight to make room for strengths. This brings into light the third action, raise. Raise factors above industry standards that are top or high priority. And finally, creating, arguably the most important action, generates new factors the industry has never seen before. The creation of those new factors is key in differentiating a product or service securing the passage to the blue ocean.
Once an industry has utilized all four action needs, value innovation is the end result. The balance between driving down costs of unnecessary needs and interjecting consumer or client value creates the perfect sweet spot for value innovation.
Adventuring into a blue ocean is the ultimate goal of industries. There are many real-world examples of companies that transitioned into the blue and are mammoth leaders in their industries and household names.
The coffee mogul company that pulled in a little less than 21 billion dollars in 2021 and has 33,833 stores worldwide is a great example of the blue ocean strategy.
Starbucks reinvented the way consumers think about coffee, they created a culture around it. Their coffee bars made the idea of coffee more social and interactive. The social aspect of the business created a value that other coffee shops couldn’t replicate. As a result, there’s a Starbucks coffee shop on every corner.
One of the most referenced and interesting examples of the Blue Ocean Strategy being implemented is Cirque de Solei, which completely revamped the circus entertainment industry, a dying breed.
Cirque de Solei followed the Four Action Framework to chisel away at the antiquated business plan revealing value innovation and scoring them a spot in the Blue.
Following the first framework, Cirque de Solei eliminated unnecessary costs. Instead of following the common circus industry trend of using live animals as an attraction, they removed them from the show. Animals are expensive to purchase, house, feed, and train. Using live animals as performers poses ethical and moral complications and are typically looked down on for animal cruelty.
To reduce unneeded elements from the company, Cirque de Solio looked at circus performers, an industry standard but typically unappreciated. Instead of having typical circus performers, Cirque de Solei took a creative approach to their live entertainment incorporating elements of multimedia productions and immersive experiences with acrobatic performers. They changed the type of consumers they attracted, drawing into theater customers.
Prior to Cirque de Solei’s revamping of their brand, children were the main target audience but with each passing year, fewer children were attracted to the circus. Children's audiences, especially when they don’t care, don’t exactly bring in the big bucks. Cirque de Solei shifted the type of clients they were targeting and replaced them with a higher-paying clientele. They focused on drawing in corporate clients, which has a two-fold impact. These corporate clients could afford higher prices generating Cirque de Solei's increased revenue. These price increases created an elusive, high-end reputation and less of a family-friendly atmosphere.
In tandem with a more sophisticated clientele, Cirque de Solei orchestrated new ways to differentiate their services. They included opportunities for premium seating for special audience members. Aside from the seating, they added food and beverages to improve the ambiance of the environment. Singing and dancing events replacing original circus performers which shook things up in the circus industry and allowed Cirque de Solei to differentiate their services.