BLUE OCEAN STRATEGY

A business model to kick-start innovation and new product development

W. Chan Kim and Renée Mauborgne outlined their theory in a book entitled Blue Ocean Strategy: How To Create Uncontested Market Space And Make The Competition Irrelevant. The model looks beyond existing markets towards groups of people who are not yet customers or do not realise that they could be potential customers.

As part of the process for finding a blue ocean, the authors suggest asking four searching questions about customers and the marketplace. This leads to actions that could all point to a new blue ocean:

  • Reduce: Which factors that are offered to customers should be reduced well below industry standards?

  • Eliminate: Which factors offered to customers are taken for granted and should be eliminated?

  • Create: Which factors offered to customers should be created because they have never been offered and they will be valued?

  • Raise: Which factors offered to customers should be raised well above the industry-standard?

 

In determining the viability of the new idea more questions must be answered. Each question requires the answer yes before the idea can pass to the next step. If an idea receives the answer no on any of the steps, the idea must be reconsidered or eliminated.

 

  • Step 1 Utility: Is the new idea really useful to people? Is there a strong reason why someone should buy the new product?

  • Step 2 Price: Is the proposed price of the product one that most potential customers will pay?

  • Step 3 Cost: At the price you want to charge and with the anticipated volumes you will sell, will you make a profit?

  • Step 4 Adoption: Will there be any major barriers that will stop you attaining your goals?

Blue Ocean Strategy encourages you to think about different levels of customers and potential customers.  The biggest opportunities could be figuring out how your products can be consumed by those who aren't current purchasers but they do have a need that hasn't yet been realised.  These people are observed at three different levels – Tier 1, Tier 2, and Tier 3.

The key to this framework is to really understand your customers. Look at what they buy, see how they use the products, find out what frustrates them and how they overcome these frustrations. 

Consider using some of other frameworks to identify and manage your innovation process. Edward de Bono's six thinking hats could help generate ideas. The framework on diffusion of innovation may help you understand how ideas become accepted by your target audience. Stage gate new product development will help you take the idea from conception to launch. The three horizons of innovation could be useful in understanding how revenues and profits develop over time.

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