Blue Ocean Strategy

Red Ocean

Existing market space where companies compete for limited demand, often leading to shrinking growth, commoditization and price wars.

Blue Ocean

Uncontested market space created by redefining industry boundaries and generating new demand.

Value Innovation

The cornerstone of blue ocean strategy—simultaneously pursuing differentiation and low cost.

Example: Cirque du Soleil

Created a blue ocean by blending circus and theater, attracting adult audiences and corporate clients.

Principle: Make Competition Irrelevant

Instead of benchmarking rivals, blue ocean strategy focuses on creating a leap in value.

Insight: Strategic Move

The key unit of analysis in blue ocean strategy— managerial actions that create new market space.

Myth: Technology Innovation

Blue oceans are rarely driven by new technology; they often use existing tech linked to buyer value.

Statistic: Profit vs. Revenue

14% of ventures aimed at new markets delivered 61% of profits, despite only 38% of revenue.

Example: Ford Model T

Created a blue ocean by offering affordable, durable cars for everyday use—not luxury vehicles.

Example: AMC Megaplex

Offered blockbuster variety and stadium-size viewing at lower costs, creating a new market space.

Insight: Incumbents Can Innovate

Many blue oceans are created by established companies within their core industries.

Concept: Trade-off Myth

Blue ocean strategy rejects the idea that firms must choose between differentiation and low cost.

Example: Compaq ProSignia Server

Doubled performance at one-third the price using existing tech—value innovation in computing.

Insight: Industry Attractiveness

Blue oceans are often created in unattractive industries by redefining value.

Brand Equity

Strategic moves in blue oceans can build enduring brand value (e.g., Ford, IBM).

Insight: Market Creation

Blue ocean strategy focuses on creating new demand rather than fighting over existing demand.

Example: Chrysler Minivan

Created a new vehicle category combining car ease with van space — value innovation.

Insight: Strategic Language

Traditional strategy borrows from military language, emphasizing competition over creation.

Concept: Reconstruct Market Boundaries

A key principle of blue ocean strategy —altering industry boundaries to unlock new demand.

Insight: Future Growth

Blue oceans will remain key to growth as red oceans become increasingly saturated and commoditized.

Overview

- Red Oceans: Congested markets/industries

- Blue Oceans: Areas with no competitors -> creating uncontested market space

- Emphasize Value Innovation, which is simultaneously pursuing differentiation and cost.

- Goal: Breakaway from competition...

Relevance

- Framework for growth when existing markets are saturated.

- Helps planners identify noncustomers and unmet needs.

- Guides decision makers to allocate resources towards innovations (not always efficiency improvements)

- Bridges the gap between long-term and practical execution

Key Takeaways

- Create new demand rather than fight over existing demand.

- Pursuing differentiation and low cost simultaneously.

- Using systematic tools

- Barriers to imitation and sustainability of blue oceans

More on "Barriers to imitation and sustainability of blue oceans"

- Blue oceans aren't permanently competition free, but there are barriers to entry.

- People might not understand how to copy it

- Brand barriers, people might not accept change.

Critiques

- Lack of Implementation guidance (limited steps, theoretical)

- Underestimation of competitive response

- Data selection & survivorship bias

Conclusion

- Creating new demand (using value innovation instead of tradeoffs and using strategy tools)

- Underestimating competition (companies WILL eventually enter the market)

- Blue Ocean Strategy IS how you attain growth.

Professor talked about how __________ and _____________ come together when creating a blue ocean

Cost; value

Netflix example

Cost (savings for company): Not maintaining kiosks, no distribution for kiosks, eventually created their own content (saved on licensing costs)

Value (added for customers): Access to more content; also, more convenient (not buying DVDs)

Other Examples of Blue Oceans (not from article or class)

1. Nintendo Wii

Industry: Video gaming

Strategy: Targeted non-gamers and families with motion-based gameplay and intuitive controls.

Impact: Opened up gaming to a broader demographic beyond hardcore gamers

2. Uber

Industry: Transportation

Strategy: Connected riders and drivers via mobile app, eliminating the need for traditional taxi infrastructure.

Impact: Created a new market for on-demand ride-sharing

3. Airbnb

Industry: Hospitality

Strategy: Enabled individuals to rent out their homes to travelers, bypassing hotels.

Impact: Created a peer-to-peer lodging market that didn't exist before