The blue ocean strategy approach – developed by W. Chan Kim and Renée Mauborgne – is a set of techniques to identify new market spaces – those without existing competitors. Blue oceans are new opportunities, without fierce competition, in comparison to existing ‘red’ markets where competition is fierce.
What is a blue ocean strategy?
At a high level, the blue ocean approach is an attempt to identify new market spaces, free of competitors. The approach to identifying new market spaces is to systematically consider product attributes – dimensions that firms compete upon – considering which can be removed, reduced, increased, or added. The idea is to come up with a new configuration of attributes, different from the norm that other companies are pursuing.
- Eliminate: Consider eliminating features that are not valued by at least a segment of customers, adding unnecessary cost.
- Reduce: If it is not possible to completely remove a dimension, it may be possible to significantly reduce its focus or cost associated costs.
- Raise: Examine if there are attributes that that other firms have not been focusing on or prioritizing that can be significantly increased
- Create: Are there new features or services that you can add to your offerings that other firms are not providing.
Example of the approach: Cirque du Soleil
A classic example of the blue ocean approach is how Cirque du Soleil stepped away from traditional circuses to create a new production much more theatrical in nature. Cirque du Soleil recognized that there were certain dimensions not valued by customers – the animal in many circuses shows at the time, that not only were declining in acceptance but also had significant costs for the circuses. Similarly, other dimensions such as the comedic nature of theaters were reduced while raising the production value and adding dimensions such as the musical component of many shows.
An important component of this, and other successful blue ocean strategies, is that the market that Cirque du Soleil identified was desired by a segment of customers. While circuses did not appeal to the traditional theater or concert-going audiences, the combination of attributes that Cirque du Soleil created was attractive. Indeed, such attendees were willing to pay a ticket price in excess of that common with more traditional circuses, and given that there were no other companies providing similar shows to what Cirque du Soleil was producing, it did not face intense competition on price.
Why are blue ocean strategies important?
One of the key strengths of blue ocean thinking comes from the metaphor – it is attractive to be operating in uncontested markets, free of competition, rather than existing markets. Rather than looking to out-compete competitors on existing rules of the game, a situation resulting in intense competition, quickly eroding profits, by creating new markets it is possible to identify a space free of competitors and in turn the intense competition associated with existing market spaces.
Part of the success of the blue ocean approach also comes because it is an attempt to break the tension that firms face between being cost-focused and differentiated. Traditional thinking is that in many ways the cost-focused and differentiation approaches are mutually exclusive – attempting to incorporate both risks being stuck in the middle, neither competing effectively as a cost leader nor as a differentiated company. Rather than viewing an attempt to simultaneously pursue cost savings and new adding new differentiated features as necessarily resulting in firms being ‘stuck in the middle’, the blue ocean approach recognizes that at least some of these positions may be new opportunities. That is, there may be at least a segment of customers that desire this different configuration of product features and attributes, and in turn, given that no other firms are competing in that space, you may be able to step away from intense competition by focusing on that niche.
Importance for startups
No need to worry about a prior legacy business
While strategic change is difficult for existing firms to make – reconfiguring large bureaucratic firms is a difficult and risky task – new firms are much better placed to capitalize on new opportunities. There is no reconfiguring activity required for startups, who are able to pursue opportunities without having to be worried about legacy business.
Avoids going head to head with more established companies
As well as a greater ability to implement a blue ocean strategy, the importance of identifying a new market space may be particularly critical for startups, who lack the resources of established firms. Since existing firms typically have substantial resources that startups lack – finances, employees, existing customers, and a brand – it is particularly important to consider ways to shield your firm from intense competition. Identifying a market space where no other firms are competing is one approach to this – you may at least have a window of time to establish yourself without facing intense competition.
Will the blue ocean remain blue?
The idea behind a blue ocean strategy may sound great – but you have to ask, will it remain blue? If you identify a new market opportunity, while you may gain initial success, it is important to consider what is stopping other firms from moving into your market space.
New entrants can come from two sources: i) other firms moving or expanding from their existing red ocean into your blue ocean, and ii) new entrants who potentially either simultaneously recognize the new market, or following your success, decide to enter.
For existing incumbent firms, some important considerations are what are the mobility barriers that stop other firms from moving from their existing market into yours. For each of the dimensions that you have adjusted – either eliminating, reducing, raised, or created – it is important to consider whether it would be possible for an incumbent to also make such adjustments. Just as how going head to head against more established firms may place you at a disadvantage, if an established firm, with better resources, can easily pivot into your blue ocean, it is unlikely to remain blue for long.
For potential new entrants, it is important to consider whether a new company would be able to enter your blue ocean, again risking turning it from blue to red. The concept of entry barriers is how difficult it is for a new firm to establish. If it is relatively easy to create a business in the blue ocean (as is typically the case if you require no specific skills or resources to enter the market), then if you are successful, it will likely be easy for other firms to enter the market also. Consider whether you are building up resources that once established will, in turn, make it difficult for others to establish a foothold.
Final thoughts: Is it an attractive space?
When identifying a new market space it is possible to fall into the trap of getting consumed by the desire of creating something ‘new’ without asking whether the space that you have identified is actually a desirable space to be in. Just because other firms are not providing that product or service does not necessarily mean that it is a great business opportunity – in fact, there may be legitimate reasons why other businesses have not pursued that direction. Rather than a ‘blue ocean’ it may be more akin to a ‘dry ocean’ – a space that is not particularly attractive and difficult to attract customers towards. As with all business ideas, it is important to look to validate whether the envisioned market idea is likely to generate significant customer interest, or whether there is a reason other firms have not attempted (or have not been successful) taking that direction.
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