Blue Ocean Strategy

Definition

Blue Ocean Strategy is a business approach that encourages companies to create new market spaces, or 'blue oceans', where competition is minimal or non-existent, instead of competing in overcrowded markets, or 'red oceans'. This strategy focuses on value innovation, aiming to offer customers unique products or services while reducing costs, thus creating new demand and fostering sustainable growth.

5 Must Know Facts For Your Next Test

1. The Blue Ocean Strategy emphasizes breaking away from the competition by focusing on creating new demand rather than fighting for existing customers in saturated markets.
2. Successful examples of Blue Ocean Strategy include Cirque du Soleil and Nintendo's Wii, which created entirely new entertainment experiences by combining different elements and targeting non-customers.
3. The approach encourages companies to innovate in ways that alter industry boundaries, making competition irrelevant and focusing on delivering exceptional value to customers.
4. Implementing a Blue Ocean Strategy involves the 'Four Actions Framework' which includes eliminating, reducing, raising, and creating factors within an industry.
5. Companies adopting this strategy often utilize tools like the Blue Ocean Idea Index to assess potential blue ocean ideas based on buyer utility, price, cost, and adoption.

Review Questions

• How does Blue Ocean Strategy differ from traditional competitive strategies in terms of market approach?
  • Blue Ocean Strategy differs significantly from traditional competitive strategies by shifting the focus from competing in existing markets to creating new markets. Instead of trying to outperform rivals in a saturated industry, it encourages businesses to innovate and find uncontested market spaces where they can offer unique value. This leads to reduced competition and allows for more sustainable growth, as companies can attract customers who were previously ignored.
• Discuss the role of value innovation in Blue Ocean Strategy and its impact on industry profitability.
  • Value innovation is at the heart of Blue Ocean Strategy as it combines differentiation with low cost, enabling companies to create new demand while enhancing profitability. By offering unique products or services that appeal to customers while simultaneously lowering costs, firms can tap into previously unserved markets. This shift not only increases revenue opportunities but also alters industry dynamics by making competition less relevant, ultimately leading to improved industry profitability.
• Evaluate how companies like Cirque du Soleil successfully applied Blue Ocean Strategy and what lessons can be learned for future business ventures.
  • Cirque du Soleil successfully applied Blue Ocean Strategy by reinventing the circus experience to create a new form of entertainment that blended theater with traditional circus acts. By targeting an adult audience willing to pay a premium for a unique experience, they eliminated many traditional circus elements like animals while raising artistic value. The lessons learned include the importance of understanding customer needs beyond existing market definitions and the potential for innovative combinations of offerings to create entirely new markets. This example highlights how businesses can thrive by thinking outside conventional boundaries and focusing on value innovation.

Related terms

Value Innovation:

Value innovation is the simultaneous pursuit of differentiation and low cost, which is a central concept in Blue Ocean Strategy, aimed at creating new market space.

Red Ocean: Red oceans represent the existing market space where companies compete for a share of the market, often leading to fierce competition and decreasing profitability.

Strategic Canvas: A strategic canvas is a diagnostic and action framework that allows businesses to visualize their strategic positioning compared to competitors and identify areas for creating blue oceans.