Blue ocean strategy is a business plan created in 2005 to describe a market with no competition or very little competition. INSEAD business school professors Chan Kim and Renee Mauborgne developed this business plan.
The professors divide the business environment into Blue Oceans and Red Oceans. It refers to the empty ocean of market options and opportunities that happen when a new industry enters. Blue Ocean strategy helps you search for a business in which a small number of businesses operate and is no pricing pressure. The authors describe blue oceans as those markets with high potential profits. However, most businesses operate in Red Oceans. They exist in typically dense markets where companies intend to beat their opponents.
According to authors Kim and Mauborgne, companies can be more successful if they create Blue Oceans. Uncontested market space that creates new demand and makes competition irrelevant.
Red Ocean vs. Blue Ocean
As we have already mentioned, most companies operate under intense competition. Moreover, they do everything to gain market share. When the firm’s products are under pricing pressure, its operations could come under threat. This situation usually comes when the firm operates in a saturated market, which is the Red Ocean. Moreover, companies try to find a new business to enjoy uncontested market share or Blue Ocean.
Traders love Blue Ocean markets because of several characteristics. A Blue Ocean market has no rivals. A Blue Ocean market business leader has first-mover advantages, cost advantages in marketing with no opponent. Moreover, it can set prices without competitive constraints and have the flexibility to take its offering in different directions.
The strategy strives to capture new demand. It also aims to make competition irrelevant by offering a product with better features. It helps the firm make huge profits as its product can have higher prices because of its unique features.
Remarkably, there are two ways to create a Blue Ocean. You can create a new industry or create a Blue Ocean within a red one.
How to Create a Blue Ocean Strategy
Authors offer a five-steps to create a Blue Ocean strategy:
- First, determine which business, service, or product to address before creating a team.
- Make sure the team has a shared opinion of the current state of the industry.
- Research the problems in the industry. Also, identify non-consumers of the sector. For instance, if companies in the industry typically cater to children, try figuring out ways to include adults.
- Develop a roadmap to reach the firm’s goal by making practical Blue Ocean options. Re-create market barriers and establish new market space.
- Launch a Blue Ocean initiative by quickly testing in the market and refining it to maximize its potential.
Four Actions Framework
Implementing the Blue Ocean Strategy involves taking some steps. We can accomplish this with the help of the Four Actions Framework.
- Which factors must be raised above the industry’s standard?
- We can also determine which factors the industry takes for granted must be eliminated to reduce costs and create a new market?
- Which factors must be reduced below the industry’s standard? For instance, the price of manufacturing a certain material for a product could be reduced.
- Which factors must be created that the industry has never offered to the market? Remarkably, businesses can create their own market through differentiation from the competition by creating a new product or service.