The blue ocean strategy approach of identifying or creating a new market space free of competitors sounds attractive, it also has a lot of risks associated with it. This article examines four of the main risks associated with a blue ocean strategy.
Risk 1: There may be no market demand
One of the key dangers of pursuing a blue ocean strategy is that there may be no demand for your product. The ‘new’ market that you have created may actually be where customers don’t value the combination of attributes being offered. What may appear blue may really be a non-market, an area where there simply isn’t a business opportunity.
Risk 2: Difficulty getting other stakeholders on board
Beyond the challenge of finding customers in your new space, blue oceans can also run into difficulties getting other stakeholders, such as investors, suppliers, or distributors on board. While the existing market is already proven, the new market carries risks. Just as your firm runs the risk that the opportunity is non-existent, other stakeholders run the financial risk of investing in your firm, working with your firm, or stocking your product.
Risk 3: If you prove the market, other firms may follow
While not having a market opportunity is clearly a problem, a different problem arises if the opportunity transpires and other firms enter your market. Unless there are mobility barriers that make it difficult for other similar companies to move into your space, other companies are likely to see your validation of the new market and respond by also moving in. This can risk turning what was momentarily a blue ocean into a red ocean again, where you are going up against other firms rather than having the entire space to yourself.
Risk 4: The 'blue' ocean may actually be 'red'
A final danger is that the market that you identified as being blue (i..e, free of competitors) actually may be red, with a lot of existing competition, albeit different firms than those that you previously competed with. This can pose a significant challenge, as such existing companies may be much better placed to capitalize on this opportunity than you are. You may have in effect changed your firm from an area that it was strong on (albeit in a market with competitors), to another market that also has competitors, who due to their existing customer loyalty or developed capabilities are better placed to execute on the market.
Final thoughts: Don't let the allure of a new market cloud your judgment
When examining new market opportunities it is easy to fall into the trap of seeing the untapped market space and to envision capturing this entire new market. unfortunately, things rarely go as smoothly as this. Be it because the market never existed, the difficulty that you have gaining support from needed stakeholders, increased competition as new firms enter, or the fact that the supposedly blue ocean already has a lot of existing competition, creating a new market is not easy. Thus while there are significant rewards for those firms that are able to successfully execute on blue oceans, it is also important to consider the risks involved in changing the firm, and carefully examine whether you are likely to be successful.
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