The blue Ocean Strategy refers to conducting business in areas which presently have zero or minimal competition. Instead of fighting for space in a red ocean full of many players, choose to shift your business to a place where you can thrive on untapped customer needs and become profitable.
This article on Blue Ocean Strategy is not only applicable for big companies (or business students looking to understand more about the Blue Ocean Strategy for their business cases), it’s also very applicable for small business owners and startup founders.
What you’ll learn from this article:
- What is the Blue Ocean strategy?
- What are the risks involved in the Blue Ocean strategy?
- What is the difference between a Red Ocean and a Blue Ocean?
- Case Study of a Company that successfully implemented a Blue Ocean strategy
- Sample Thought Process of Formulating a Blue Ocean Strategy for your Startup
- Have a Basic Idea of where Your Startup Currently is
- Why don’t more companies formulate Blue Ocean Strategies if they’re that useful?
- Case Study: Using a Blue Ocean Strategy for Female Clothing
Red Ocean vs Blue Ocean: You’re more likely in a Red Ocean before you tumble the Blue part of the Ocean
So, according to this theory, you can say that the business world is divided into two kinds of markets — the red ocean and the blue ocean.
The red ocean consists of current industries, competition, and boundaries, where the rules are well-defined and competitors strive to gain market share of the existing demand between the rivals.
As this market gets crowded, the prospect of profit reduces or nullifies. Blue oceans come into the second side of the market, aiming to make competition relevant by tapping into a completely new market space and tapping into that demand.
Companies aiming for the blue ocean tap into value innovation in their approach so that they can benchmark the competition.
This may bring about imitators, but solves the issue at hand.
With the blue ocean approach, organizations do not focus on beating the competition but adding value to the buyer and thus, opening up an uncontested market space.
Technically, all the leading start-ups follow a Blue Ocean Strategy.
- Facebook: Revolutionized the whole concept of Social Media. There were players before the advent of Facebook, but it just came and crushed all competition.
- Zivame: Changed the process of buying lingerie for Indian Women
- PayTm: There have been quite a few ideas of mobile wallet, but none as successful
- Medium: Valuing content by the average Joe
- Instagram: Making the process of sharing life activities interesting and visually compelling
Everywhere you look around, start-ups are trying to create a value proposition which has not been covered by its competitors or any other companies. However, note that you do want to compete in an ocean with enough customers!
If you’re fiddling with your Marketing Strategy instead of your Value Proposition, check out our other blog article instead – Ultimate Step-by-Step Guide to Building Your Startup – The Strawberry Startup Method
Case Study: Netflix vs Blockbuster
If you went back 20 years ago, almost everyone in the United States knew who Blockbusters were. You couldn’t miss the latest movie by renting DVDs, which became a great pastime for many baby boomers back then.
If someone told you to try Netflix, a monthly subscription service where DVDs (physical ones back in the day) would be posted to you, you’d probably reply “who?”
Ironically, two decades and a few pandemics later, Netflix reigns supreme in the digital viewing arena with Blockbuster faded into obscurity.
This is how Netflix employed the Blue Ocean strategy when venturing into the digital realm market was still relatively unknown and there wasn’t much competition back then.
Netflix was in the red ocean alongside Blockbusters 20 years ago. In fact, they were failing and hanging on by a thread with only 300,000 subscribers at the time. An offer of $50 million to absorb Netflix into the Blockbusters conglomerate in exchange for running the online rental side of things was turned down.
Because Netflix saw an opportunity that no one else did.
Nobody else in the industry was streaming content and offering a monthly-subscription plan to view anything and everything on the platform.
Instead of engaging in a battle of attrition in the red ocean, Netflix pivoted and used a blue ocean strategy. They became the first streaming provider for online content and learned how to use machine learning algorithms to tailor people’s viewing recommendations based on previously watched shows.
Learning how to apply the Blue Ocean Strategy can be extremely rewarding, although very difficult to begin with. After all, you don’t have much competition to compare yourself to or learn from.
Identifying the opportunities in the marketplace can help you carve out your business’s value proposition and offer unprecedented value before any competitors even begin to challenge you.
How to Differentiate your Product & Develop a Blue Ocean Strategy for your Business
Differentiation here can come in various forms:
- Product Innovation
- Excellent Service or Product Quality
- Responsiveness to Customers
- Quality as Reliability
Is the Blue Ocean process more for startups or established companies?
This Blue Ocean Strategy is applicable to any organization, as long as they recognise that they need to compete differently to avoid wasting resources fighting bigger competitors.
Whether you are a cash-strapped start-up, non-profit, a large, established company, or a government organization with bureaucratic obstacles, the process for making the blue ocean shift is the same.
If you want to move from downward pricing pressure to upward pricing possibility, from chasing customers to having customers seek you out, and from competing fiercely and slow growth to inspiring your people’s confidence and seizing new growth, the blue ocean shift process if right for you.
Creating an Untapped Marketplace outside of traditional Market Boundaries
The Blue Ocean Strategy can be extremely rewarding, but can also be the most work intensive. The Blue Ocean Strategy works to create an untapped marketplace outside of the traditional market boundaries.
Rather than finding ways to compete with companies that are already established in the market, you seek to find consumers that have been neglected, or are currently being underserved. By expanding your efforts in those areas, you could potentially access more consumers with fewer competitors.
For example Starbucks is a company that implemented the Blue Ocean Strategy successfully.
There were many coffee shops that were more established when Starbucks came on the scene. Instead of focusing on their coffee, they worked to brand Starbucks as something different, reaching an untapped level of consumers.
They offered coffee, but they also offered teas, smoothies, and Frappuccino.
They also sold CDs and newspapers, encouraging coffee lovers to stay around and chat. This allowed Starbucks to become a social venue as well.
What are the risks in the Blue Ocean strategy?
Entrepreneurs and companies face a lot of risks in the business world (Read: 10 Big Challenges that An Entrepreneur Faces),
The Blue Ocean strategy sounds great: Go to a new market to fulfil untapped customer needs.
Yes, but which one? it’s not that easy to come up with new ideas.
Everyone loves the success stories of companies like Cirque du Soleil, but there are thousands of stores of companies that are unable to find new markets or failed in the process of doing so. Here are some of the risks that come with the Blue Ocean Strategy:
Being too early
First mover advantage is a myth. Kodak invented the first digital camera. The iPhone was pretty late to the smartphone party.
Entering a market too early is a clear risk. You need patience and the right funding to grow it. The Amiga computer was a decade ahead of PCs and Macs, it was a technological marvel, and it died.
Being too new, too different
Some blue oceans are free of predators, but also free of fish. Many companies come up with great ideas but the market is not ready.
New markets introduce new terminology, solve new problems, or solve existing problems in new ways.
Consumers don’t like too much change. When P&G introduced their improved concentrated laundry detergents, they failed because consumers could not conceive how a few drops could clean as well as a cap-full of Tide.
Entering a new market is difficult. You need to be smart about who is your customer, what problem you are solving, how to educate them on new ideas, new products, new solutions.
Tassimo had a better product than Keurig when both entered the new single-pod coffee market. Tassimo did not execute, and it is all but dead now.
Trust and patience
Going to a different ocean, a blue ocean, requires a lot of trust, preparation and faith.
Results most likely won’t be immediate, so it requires patience. Many companies when pivoting to a new strategy they don’t do it gradually, they bet the farm. And they are not always right.
Case Study: Wearables
If we take the wearables market (Red Ocean), there are already a lot of manufacturers including Apple, Samsung etc.
So unless you create a new product which is different from the existing ones, it is unlikely that you would succeed.
To differentiate either you add something brilliant to your product or you have to use the age old trick of predatory pricing, which most likely is bound to fail against a gargantuan.
To sum it all up, Blue Ocean stands for innovation and Red Ocean stands for “Me-too”.
Sample Thought Process of Formulating a Blue Ocean Strategy for Your Startup
Successful entrepreneurship is about solving particular pain points that customers feel all the time.
So ask yourself – in all the experiences you have had as a customer, when did you have a shoddy experience, where you experienced a cumbersome or inconvenient process? Or when did think ‘this can be marketed better’? That can be your blue ocean in a seemingly saturated marketplace
Or what social ill have you seen that really bothers you – think of a business solution that solves that problem – the solving of a social ill can actually be the factor that attracts conscientious clientelle – that could be your blue ocean. (Do some research on social entrepreneurship – intriguing and innovative concept).
Case Study: Using a Blue Ocean Strategy for Female Clothing
A typical Blue Ocean strategy for women’s clothing would be:
- My data shows that an overwhelming number of women are frustrated because they do not find their sizes in the clothes they like. Therefore I would make a brand specialized in “odd sizes” (tall, xl, small etc.), with a very “high fashion” design.
- Or my data shows that an considerable number of women don’t know how to dress for s specific occasion (job interview, Opera Gala etc.). Thus my company will provide style advice and partner with brands to offer women the perfect ensemble for each occasion.
Bottom line, you can be creative with solutions and niche markets (pregnant women, teenagers, office workers, truck drivers, fisher or hunting etc.) but if you want to really have a Blue Ocean strategy you should do your research first (see the book).
Have a Basic Idea of Where Your Startup Currently Is
For a startup, the first step should be to have a clear understanding of where you stand.
To do this, you should draw your as-is strategy canvas that will give you and your team a big picture view of the current state of play in your target industry.
It will let you clearly see the industry’s defining contours without getting lost in the small operational details.
By drawing the strategy canvas, you would have captured on a single page the current state of play, the assumptions the industry acts on that you can later overturn, as well as the degree of competitive convergence across the existing players.
This gives the team a commonly agreed upon baseline to assess new ideas against.
The next step is to “imagine where you could be,” which is all about identifying the total demand landscape beyond the existing industry that you can unlock – these are current non-customers – and a big big-picture view of the ways in which the underlying assumptions and boundaries that currently define the industry also limit its appeal and size.
Here you will use tools such as the buyer utility map and the three tiers of non-customers to identify real opportunities that you could unlock to make a blue ocean shift. These are the first steps to get you started as we lay out in the book.
Why don’t more companies formulate Blue Ocean Strategies if they’re that useful?
- If many more do it, and succeed, Oceans will be very scarce.
- We generally hear a lot less about failure than success.
“If you sink in a Blue Ocean, there are no ships to hear your S.O.S. and there are no Pirates to salvage your valuables.”
Most managers don’t take such big risks because the business case will not be approved, even less understood.
A Blue Ocean Strategy may not last.
Now very soon other companies started to copy this and create products similar to iPod but by the time they get the manufacturing and distribution out Apple would have captured a lot of market share and will always enjoy the first mover’s advantage.
Post other companies also coming in the similar space they will keep fighting to gain more and more market share and will make the water change its color to Red.
Typically there cannot be a pure Blue Ocean forever, there will come a time when a competitor would come in and dirty the ocean (red).
Read this book if you want more information on Blue Ocean Strategy
“The expanded edition of Blue Ocean Strategy, is metaphorical, witty, and almost Biblical in its commentary of the bloody waters of competitive Red Ocean market forces .
I wish I could say my own pursuit of enlightenment led me to Chan Kim and Renee Mauborgne’s masterpiece on embracing and leveraging difference. Instead, I was referred to it by a young intrapreneur. Based on what we were attempting to achieve in entrepreneurship in our community, he strongly recommended that I read it.
I recently ordered the book and could not put it down.
The stories were compelling — both the winners and losers. While most of the expanded edition builds on the original work, the final chapters dispel misconceptions and explore the mis-steps and mistakes of early Blue Ocean strategy disciples.
As I read, I reflected on the work of developing entrepreneurial ventures in barren and sometimes depressed sub-economies in under-served communities. I reflected on the range of talent, resourcefulness, and perseverance in these communities. Why, then, don’t they have more “Blue Oceans” of uncontested market space? Or is it that our minds and souls are so numb that, as in the book’s Circus del Sol case study illustrates, we can’t envision the extra-ordinary? Are we living in self-imposed exile in a proverbial Dead Sea while the Blue Ocean waves are licking at our feet?
Just ordered the new book released in September and anxiously waiting to read and compare the books.” – Review from Amazon
Fundamentally all business innovation boils down to identifying ‘uncontested spaces’.
The dimensions or the attributes that describe the space may indeed differ for different industries or even for different businesses. Changing the attributes or parameters of a particular space constitutes a re-definition of the design-space.