Blue Ocean Strategy What Is It, Examples, Principles, Advantages

Instead of creating fashionable, customized cars for weekends in the countryside, a luxury few could justify, Ford built a car that, like the horse-drawn carriage, was for everyday use. The Model T came in just one color, black, and there were few optional extras. It was reliable and durable, designed to travel effortlessly over dirt roads in rain, snow, or sunshine. And like Cirque, Ford went outside the industry for a price point, looking at horse-drawn carriages ($400), not other autos. In 1908, the first Model T cost $850; in 1909, the price dropped to $609, and by 1924 it was down to $290. In this way, Ford converted buyers of horse-drawn carriages into car buyers—just as Cirque turned theatergoers into circusgoers.

These new spaces are described as “blue oceans” — a term meant to contrast with the struggle for survival in bloody “red oceans” swarming with vicious competition. Practical reality, therefore, demands that companies understand the strategic logic of both types of oceans. At present, competing in red oceans dominates the field of strategy in theory and in practice, even as businesses’ need to create blue oceans intensifies. It is time to even the scales in the field of strategy with a better balance of efforts across both oceans. For although blue ocean strategists have always existed, for the most part their strategies have been largely unconscious. Our findings are encouraging for executives at the large, established corporations that are traditionally seen as the victims of new market space creation.

Blue Ocean vs. Red Ocean Strategies

1. In blue oceans, competition is irrelevant as the rules of the game are waiting to be set.
2. Potentially even more damaging than employee disaffection is the resistance of partners who fear that their revenue streams or market positions are threatened by a new business idea.
3. This involves examining the existing market space, redefining industry boundaries, targeting their desired audience, and determining how much it will cost to provide this value proposition.

The circus realized that people did not want to go to the circus any more. Everybody had become more aware of animal abuse, especially within the circus industry. Insights on business strategy and culture, right to your inbox.Part of the business.com network.

The six-path framework to reconstruct market boundaries

To maximize the profit potential of a blue ocean idea, a company must start with the strategic price and then deduct its desired profit margin from the price to arrive at the target cost. It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a product or service. This mindset helps managers identify the full range of utility spaces that a product or service can potentially fill.

Unconscious process

It introduced street furniture with integrated advertising panels that were offered free to municipalities including maintenance and upkeep. Mass of refusing noncustomers flocked towards JCDecaux and the idea took-off as a profitable medium of advertisement. This involves comparing a business with its competitors by drawing “as is” strategy canvas and finding where the strategy needs to change. Asking executives to draw the value curve of their company’s strategy brings home the need for change. It serves as a forceful wake-up call for companies to challenge their existing strategies. Company competes not only with the other firms in its own industry but also with companies in those other industries that produce alternative products or services.

Palace theatersCreated by Roxy Rothapfel in 1914, these theaters provided an operalike environment for cinema viewing at an affordable price. Chrysler minivan With its 1984 minivan, Chrysler created a new class of automobile that was as easy to use as a car but had the passenger space of a van. Opposition to a new business idea can also spread to the public, especially if the idea threatens established social or political norms. First – streamline operations and introduce cost innovations from manufacturing to distribution. Likewise, Starbucks10 did the reverse and turned the commoditized coffee industry (rational) into an emotional experience. Customers now choose Starbucks to spend quality time and socialize over a good cup of coffee.

Part of the explanation is that corporate strategy is heavily influenced by its roots in military strategy. The very language of strategy is deeply imbued with military references—chief executive “officers” in “headquarters,” “troops” on the “front lines.” Described this way, strategy is all about red ocean competition. It is about confronting an opponent and driving him off a battlefield of limited territory. Blue ocean strategy, by contrast, is about doing business where there is no competitor. Focusing on the red ocean therefore means accepting the key constraining factors of war—limited terrain and the need to beat an enemy to succeed. And it means denying the distinctive strength of the business world—the capacity to create new market space that is uncontested.

These are businesses whose strategies fall on the margin between red oceans and blue oceans. This step is about going into the field to explore the six paths to create blue oceans. By observing the distinctive advantages of alternative products and services, businesses can realize what factors to eliminate, create, or change. Chan Kim blue ocean strategy meaning and Renée Mauborgne proposed the concept of the blue ocean strategy. It helps discover new markets with high growth potential for firms, but it also carries a high level of risk. These new markets are typically unknown areas and fields existing businesses have not yet explored.

While billions of music files were being downloaded each month illegally, Apple created the first legal format for downloading music in 2003. At the time, the automobile industry was still in its infancy with approximately 500 automakers producing custom-made cars that were more expensive and less reliable. Ford created a new manufacturing process for mass-producing standardized cars at a fraction of the price of its competitors. Businesses are constantly seeking strategies to stand out in a crowded market. The Blue Ocean Strategy emerges as a beacon, guiding companies toward uncharted waters where competition is irrelevant and new opportunities abound.