Blue Ocean Strategy

Definition

Blue Ocean Strategy is a business approach that focuses on creating new market spaces, or 'blue oceans,' where competition is irrelevant, rather than competing in saturated markets, or 'red oceans.' This strategy emphasizes value innovation, which seeks to simultaneously pursue differentiation and low cost, enabling companies to break away from the competition and create demand in an uncontested market space.

5 Must Know Facts For Your Next Test

1. The concept was popularized by W. Chan Kim and Renée Mauborgne in their 2005 book 'Blue Ocean Strategy,' which has been influential in business strategy.
2. Blue Ocean Strategy encourages companies to innovate and create new demand, rather than competing for existing customers.
3. This strategy is implemented through tools like the Four Actions Framework, which involves eliminating and reducing factors that the industry takes for granted while raising and creating new factors.
4. Examples of companies successfully employing Blue Ocean Strategy include Cirque du Soleil, which transformed the circus industry by blending elements of theater and performance art.
5. The focus on non-customers is a key aspect of Blue Ocean Strategy, as it helps businesses identify potential customers who are not currently served by existing offerings.

Review Questions

• How does Blue Ocean Strategy differ from traditional competitive strategies in terms of market focus?
  • Blue Ocean Strategy significantly differs from traditional competitive strategies by shifting the focus from competing within existing markets to creating new market spaces where competition is irrelevant. In traditional approaches, companies often strive for market share within saturated environments, leading to intense rivalry. Conversely, Blue Ocean Strategy encourages businesses to innovate and find untapped markets or unmet needs, allowing them to differentiate themselves while simultaneously reducing costs.
• Discuss the role of value innovation in Blue Ocean Strategy and how it contributes to creating uncontested market spaces.
  • Value innovation is at the heart of Blue Ocean Strategy as it allows businesses to create uncontested market spaces by aligning innovation with utility, price, and cost positions. By focusing on value innovation, companies can enhance customer experiences while lowering costs, thus breaking away from the competition. This dual focus creates new demand and redefines industry boundaries, allowing businesses to achieve both differentiation and low cost effectively.
• Evaluate a case study of a successful company that implemented Blue Ocean Strategy, detailing the strategic choices made and their impact on market dynamics.
  • Cirque du Soleil serves as a compelling case study for Blue Ocean Strategy implementation. Rather than competing with traditional circuses, which relied on animal acts and low-cost tickets, Cirque du Soleil redefined the circus experience by integrating elements of theater, music, and dance into their performances. This strategic choice allowed them to target a different audience—adults seeking unique entertainment experiences—while simultaneously enhancing perceived value and charging premium prices. Their success illustrates how creating a blue ocean can disrupt established industries by offering unmatched value propositions.

Related terms

Value Innovation: A cornerstone of Blue Ocean Strategy, value innovation refers to the simultaneous pursuit of differentiation and low cost to create new market spaces and enhance customer value.

Red Ocean: Refers to existing markets where competitors fight for market share, often leading to saturated environments with cutthroat competition.

Strategic Canvas: A visual framework that outlines the current state of play in the market, helping companies identify how they can create blue oceans by focusing on unique value propositions.