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.
Blue Ocean Strategy encourages innovation by prompting companies to look beyond existing market boundaries and think creatively about value creation. By focusing on creating new market space, companies can reduce direct competition, as they are not simply trying to outperform existing competitors but are instead carving out a unique position.
The strategy emphasizes achieving a balance between value creation and cost management. This can lead to the development of products or services that offer high value to customers at a lower cost than traditional offerings.
The Blue Ocean Strategy places a strong emphasis on understanding customer needs and creating products or services that resonate with them. This customer-centric approach can lead to higher customer satisfaction and loyalty.
Successful implementation of the Blue Ocean Strategy can result in the creation of a unique market space that is difficult for competitors to replicate quickly, providing a sustainable competitive advantage.
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.
Pursuing a Blue Ocean Strategy involves taking risks and venturing into unknown territory. There is a risk of failure if the market does not respond positively to the new offering or if the company fails to execute the strategy effectively.
The transition from a red ocean (competitive market) to a blue ocean can be challenging. Companies may struggle with the execution of the strategy, including product development, marketing, and operational adjustments.
Successfully implementing a Blue Ocean Strategy often requires significant resources, both in terms of time and investment. Smaller companies or those with limited resources may find it challenging to execute the strategy effectively.
Creating a new market space means convincing customers to adopt a novel approach. There may be resistance or skepticism from customers accustomed to existing products and services.
Once a Blue Ocean Strategy is successful, other competitors may enter the space, turning it into a more competitive "red ocean." This requires ongoing innovation and adaptability to maintain a unique market position.
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.
Some things to think about:
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.
Look at the outliers and extremes of your customers.What do they do?It is here that you may find your blue ocean rather than in the mainstream middle ground.
Aim for the stars and be happy if you land on the moon! Most realisable opportunities lie with Tier 1 customers rather than in Tier 2 or 3.