Definition
Blue Ocean Strategy is a marketing theory that suggests companies are better off searching for ways to create new, uncontested markets, or “blue oceans,” rather than competing in established industries, or “red oceans.” In these blue oceans, demand is created rather than fought over, leading to the potential for high growth and profits. It encourages businesses to innovate and differentiate their products instead of engaging in cutthroat competition.
Key Takeaways
- The Blue Ocean Strategy refers to the creation of a new, uncontested market space that makes the competition irrelevant. Instead of fighting over existing industry conditions (the “red ocean”), companies can innovate to create unique value for consumers.
- It involves differentiating a product or service offering through innovation, thus creating a leap in value for both consumers and the company. This differentiation helps in drawing customers away from the competition.
- This strategy eliminates the trade-off between value and cost, allowing companies to achieve both differentiation and low cost. This leads to higher profits and growth, even in mature markets.
Importance
The Blue Ocean Strategy is crucial in the corporate finance world as it proposes an innovative approach, directing businesses to venture into untapped market spaces (Blue Oceans) rather than competing in saturated markets (Red Oceans). The focus is on creating unique, differentiated value for consumers, thus alleviating the need for aggressive competition.
The Blue Ocean Strategy fosters business expansion and growth, enhances brand value, and contributes to long-term sustainability by underscoring innovation and creativity.
Therefore, its importance is paramount for any business aiming for global market leadership and sustainable profitability.
Explanation
The Blue Ocean Strategy is an innovative approach primarily used in business and marketing, aiming to create a new market space or “blue ocean,” where competition currently does not exist. This strategy underscores the idea of creating and capturing new demand, making the competition irrelevant.
The primary purpose of this method is to encourage companies to innovate and create new segments in the market that provide unique value to consumers, essentially breaking away from the congested and fiercely competitive “red ocean.”By applying the Blue Ocean Strategy, companies can significantly broaden their horizons beyond their existing boundaries, which often results in novel offerings for end users as well as exceptional growth for the company. This approach is aimed at disrupting traditional competitive market spaces and creating uncontested market space that allows businesses to flourish.
It motivates businesses to discover and explore blue oceans – untapped and unexplored market areas – rather than engaging in cut-throat competition in saturated markets. This way, companies can introduce new products or services that render existing market boundaries obsolete.
Examples of Blue Ocean Strategy
Cirque du Soleil: Cirque du Soleil is a prime example of the Blue Ocean Strategy. Rather than competing within the established market of traditional circuses, they redefined the circus experience to create an unprecedented entertainment form blending theater, acrobatics, and spectacle. With this unique approach, they significantly reduced operational costs associated with animal care (as they used no animals) and star performers, while they were able to charge much higher ticket prices due to the unique experience they were offering.
Apple’s iPod and iTunes: When Apple first launched iPod and iTunes, they introduced a Blue Ocean Strategy. Before this, consumers had to use separate devices and platforms for listening to music, storing data, and managing their schedules. Apple integrated all these features into one device (iPod) along with a legitimised platform for music download (iTunes). The creation of this new market space made competitors virtually irrelevant and triggered a whole new industry of integrated devices.
Southwest Airlines: Traditionally, the airline industry is characterized by high competition, high operational costs, and numerous regulations. Southwest Airlines, however, carved out a unique market space by making flying as affordable and simple as bus travel. They offered point-to-point routes to avoid congested airports, no reserved seating, no meals, and utilized only one type of aircraft (Boeing 737) to simplify operations and maintenance. With these unique selling propositions, they appealed to a new demographic of customers who used to be bus passengers, creating their own ‘blue ocean’.
Frequently Asked Questions about Blue Ocean Strategy
What is Blue Ocean Strategy?
The Blue Ocean Strategy is a business model that suggests companies are better off searching for ways to play in uncontested market spaces (Blue Oceans) instead of engaging with competition in existing industry framework (Red Oceans). The strategy suggests creating new demand, making the competition irrelevant.
How does Blue Ocean Strategy work?
Blue Ocean Strategy works by encouraging companies to create new markets, often by looking at non-customers instead of their direct competition. This approach revolves around four key principles: eliminate factors that the industry takes for granted, reduce factors well below the industry standard, raise factors well above the industry standard, and create factors that the industry has never offered.
What is meant by ‘Blue Ocean’ and ‘Red Ocean’?
‘Blue Ocean’ refers to an uncontested market space where there is little or no competition, allowing a company to expand and grow. ‘Red Ocean’, on the other hand, refers to all the industries in existence today, where industry boundaries are defined and accepted, and the competitive rules of the game are well known. In ‘Red Oceans’, companies try to outperform their rivals to grab a greater share of product demand, often leading to a bloody competition – hence the term ‘red’ ocean.
What are the advantages and potential disadvantages of the Blue Ocean Strategy?
Advantages of the Blue Ocean Strategy include the potential for high growth and profits due to little or no competition, and the ability to set the trend instead of playing catch-up. However, the potential disadvantages include a high level of risk due to the unproven nature of new markets, and the potential for increased competition if the new market proves to be highly profitable.
Can you provide an example of a Blue Ocean Strategy?
An example of a company that successfully employed the Blue Ocean Strategy is Cirque du Soleil. Instead of competing with existing circuses, they reinvented the concept of circus entertainment by eliminating animal acts and sideshow attractions, focusing instead on storyline, unique stage designs, and artistic music and dance performances, creating a whole new market space that had not existed before.
Related Entrepreneurship Terms
- Value Innovation
- Red Ocean Strategy
- Strategy Canvas
- Four Actions Framework
- Eliminate-Reduce-Raise-Create Grid
Sources for More Information
- Investopedia: A trusted web resource for investing education, personal finance, and market analysis.
- Harvard Business Review: A general management magazine from Harvard Business Publishing that aims to provide professionals around the world with rigorous insights and best practices.
- Forbes: A leading source for reliable business news and financial information.
- McKinsey & Company: A global management consulting company that provides reports on various industries including market trends like the Blue Ocean Strategy.
