This week we will look at ‘blue ocean’ strategy. It is a niche strategy that helps you analyse competitors in a different way. We will not do a standard benchmarking exercise (features/benefits) but will reduce/eliminate certain competitor elements and raise/create remarkable value which may be attractive for existing or new market segments. The blue ocean value approach fits in well with our value proposition driven process. Again think of it as a kind of plug-in.
This week’s objectives
By the end of this week you should be able to:
- define blue ocean strategy and contrast it to red ocean strategy
- analyse blue ocean strategy in real-world case studies
- apply blue ocean or red ocean strategy to analyse and plan for competitor elements and value.
Notes on the readings
Cirque du Soleil
Despite a long-term decline in the circus industry, Cirque du Soleil profitably increased revenue 22-fold over the last ten years by reinventing the circus. Rather than competing within the confines of the existing industry or trying to steal customers from rivals, Cirque developed uncontested market space that made the competition irrelevant. Cirque created what the authors call a blue ocean, a previously unknown market space. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In red oceans–that is, in all the industries already existing–companies compete by grabbing for a greater share of limited demand. As the market space gets more crowded, prospects for profits and growth decline. Products turn into commodities, and increasing competition turns the water bloody. There are two ways to create blue oceans. One is to launch completely new industries, as eBay did with online auctions. But it’s much more common for a blue ocean to be created from within a red ocean when a company expands the boundaries of an existing industry. In studying more than 150 blue ocean creations in over 30 industries, the authors observed that the traditional units of strategic analysis–company and industry–are of limited use in explaining how and why blue oceans are created. The most appropriate unit of analysis is the strategic move, the set of managerial actions and decisions involved in making a major market-creating business offering. Creating blue oceans builds brands. So powerful is blue ocean strategy, in fact, that a blue ocean strategic move can create brand equity that lasts for decades
Aren’t there more than just two types of competitive market? As always, it’s a simplification.
…you have to realize that the business universe consists of two distinct kinds of space, which we think of as red and blue oceans. Red oceans represent all the industries in existence today-the known market space. [..] Blue oceans denote all the industries not in existence today - the unknown market space, untainted by competition.