Blue Ocean Strategy

The idea of escaping crowded, competitive markets by creating new market space where competition is irrelevant.

In their 2005 book Blue Ocean Strategy, professors W. Chan Kim and Renée Mauborgne of INSEAD proposed a different way to think about competition.

Red and blue oceans

Red oceans are existing markets where competitors fight over the same customers, often by cutting prices. Competition turns the water red.
Blue oceans are new market spaces where there is little or no competition, because the business has created new demand.

Value innovation

The key idea is value innovation: raising value for buyers while lowering costs, by rethinking what an industry offers. This challenges the idea that firms must choose between low cost and differentiation.

The authors suggest asking four questions about the factors an industry competes on:

Eliminate: which factors that the industry takes for granted can be removed?
Reduce: which factors can be reduced well below the industry standard?
Raise: which factors should be raised well above the standard?
Create: which new factors should be created?

The classic example

Cirque du Soleil reinvented the circus. It eliminated costly animal acts and star performers, and created theatrical storylines, artistic music and a sophisticated atmosphere. This attracted adults and corporate clients who never went to circuses, and allowed higher ticket prices.

Criticism

Many “blue oceans” turn red as competitors enter.
Examples are often chosen after the fact.
Creating new markets is hard and risky.

Still, the framework encourages businesses to look beyond head-to-head competition and consider non-customers.

A new kind of hotel

A hotel chain notices that many budget travellers only need a clean bed, a good shower and Wi-Fi. It eliminates restaurants and large lobbies, reduces room size, and raises cleanliness and bed quality. Costs fall while value rises for its target customers, opening a new market segment.

Thinking a blue ocean lasts forever

Successful new markets attract imitators. Firms must keep innovating to stay ahead.

Key takeaways

Red oceans are crowded markets; blue oceans are new market spaces.
Value innovation raises buyer value while lowering costs.
The eliminate-reduce-raise-create questions help rethink an industry.
Blue oceans can turn red as competitors enter.