In a “blue ocean” strategy, startup companies create demand for their offering, rather than fighting over existing (“red ocean”) markets i.e. those with “blood in the water” and many competitors. This strategy involves a rejection of a fundamental tenet of more traditional market analysis: that there must be a trade-off between value and cost. When it comes to blue oceans, successful businesses will most often pursue differentiation and low-cost at the same time.

There are several powerful benefits to a blue ocean strategy:

  1. Focus: the company does not diffuse efforts to compete with others on multiple factors, features or fronts;
  2. Divergence: the value curve diverges from other players.
  3. Barriers to imitation: It is often easier to imagine adopting a blue ocean’s business model than it is to actually do it — such businesses attract a large customer base quickly, creating an immediate and ongoing cost disadvantage for would-be competitors.

Blue vs Red

Blue Ocean Red ocean
Create an uncontested market Competiting in existing market
Create + capture new demand Existing demand
Break value/cost trade-off Value/cost trade-off

Creating a blue ocean

So how does a company undertake value innovation and the creation of a new blue ocean market? Interestingly, a study1 of over 150 companies from more than 30 industries over the last 100 years found four common factors in the creation of new blue oceans:

  1. It’s not about technology/innovation. Whilst leading-edge tech is sometimes involved in the creation of blue ocean businesses, it is rarely a direct cause.
  2. Existing players often create blue oceans. This is a surprise to me, anyway, but with the right thinking it is often an “incumbent” who is able to redefine themselves or their offering to create an entirely new market.
  3. ‘Company’ and ‘industry’ are the wrong units of analysis.
  4. Building blue oceans builds brands.

There are a couple of different strategies a startup or company can use to try to “break out” of traditional thinking and (re)invent a brand new market:

  1. ERRC
  2. Six Paths

ERRC

The “four actions framework”/ERRC grid:

  1. Eliminate: Which factors do the industry take for granted?
  2. Raise: Which should be raised well above?
  3. Reduce: Which can be reduced well below standard
  4. Create: Which should be created (that the industry hasn’t offered)

Six Paths

The “six paths” framework2 for identifying blue ocean possibilities:

  1. Other industries: What makes them valuable to customers?
  2. Strategic groups: What market segments exist, and what prompts movement between them?
  3. Buyer/user groups: Who are the buyers and influencers? Which group does the industry typically focus on, and why?
  4. Scope of offering: Look at complementary offerings, and consider the “pain” the customer is facing.
  5. Functional/emotional orientation: What does your offering look like if it switches from primarily one to the other?
  6. Trends: Can you “get ahead of the curve” by recognizing growing trends in your industry?

  1. Kim, W. & Mauborgne 2004, ‘Blue ocean strategy’, Harvard Business Review, vol. 82, no. 10, pp. 76–84, viewed 21 September 2018, http://info.psu.edu.sa/psu/fnm/ymelhem/blue%20ocean%20str.v2.pdf. ^
  2. Van Goidsenhoven, J 2015, ‘(More research of BOS tools: The 6 paths framework)[http://vangoidsenhoven.weebly.com/game-dev-blog/more-research-of-bos-tools-the-6-paths-framework]', Game dev Blog, 12 March, viewed 21 September 2018, http://vangoidsenhoven.weebly.com/game-dev-blog/more-research-of-bos-tools-the-6-paths-framework ^