Blue Ocean Strategy

Blue Ocean Strategy is a book published in 2004 written by W. Chan Kim and Renée Mauborgne, professors at INSEAD, and the name of the marketing theory detailed in the book. First published in 2005, it was updated and expanded with fresh content in 2015. 

 

BLUE OCEAN STRATEGY is the simultaneous pursuit of differentiation and low cost to open up a newmarket space and create new demand. It is about creating and capturing uncontested market space, thereby making the competition irrelevant. It is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.

RED OCEANS are all the industries in existence today – the known market space. In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known.

Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, profits and growth are reduced. Products become commodities, leading to cutthroat or ‘bloody’ competition. Hence the term red oceans. Cutthroat competition results in nothing but a bloody red ocean of rivals fighting over a shrinking profit pool.

BLUE OCEANS, in contrast, denote all the industries not in existence today – the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.

In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. A blue ocean is an analogy to describe the wider, deeper potential to be found in unexplored market space. A blue ocean is vast, deep, and powerful in terms of profitable growth.

When there is limited room to grow, businesses try and look for verticals or avenues of finding new business where they can enjoy uncontested market share or 'Blue Ocean'. A blue ocean exists when there is potential for higher profits, as there is now competition or irrelevant competition.

The strategy aims to capture new demand, and to make competition irrelevant by introducing a product with superior features. It helps the company in make huge profits as the product can be priced a little steep because of its unique features.

Companies have long engaged in head-to-head competition in search of sustained, profitable growth. They have fought for competitive advantage, battled over market share and struggled for differentiation. Competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space.

Blue Ocean Strategy presents a systematic approach to making the competition irrelevant and capture their own blue oceans.

Blue Ocean Strategy Formulation and Execution

The authors suggested a “Four Actions Framework” for businesses to discover an obscure blue ocean as follows:

·         Eliminate: Which factors that the industry has long competed on should be eliminated?

·         Reduce: Which factors should be reduced well below the industry’s standard?

·         Raise: Which factors should be raised well above the industry’s standard?

·         Create: Which factors should be created that the industry has never offered?

For instance, the authors provide the example of the Canadian Circus Company, Cirque du Soleil which came up with a game changing business model in the 1980s and which resulted in the altering of the dynamics of the circus industry. The Five Forces model when applied to the circus industry predicted that it was doomed to failure because of high power of suppliers, and the increase in the alternative forms of entertainment that were eating into the market share of the circus industry. Further, concerns and pressure from animal rights groups and increased awareness of the customers about the consequences of conventional circuses were beginning to spell trouble for the circus industry. Therefore, the Five Forces model of Porter when applied to this industry predicted a slow death for it.

However, Cirque du Soleil followed what can be called a Blue Ocean strategy wherein it replaced the animals and reduced the importance of individual stars and created an entirely new business model based on a combination of music, dance, and athletic shows to innovate and create value for itself. In other words, what this means is that instead of tweaking the existing strategies, Cirque du Soleil went in for an entirely new strategy of creating a new market altogether by redefining its core competencies and taking “Four Actions”:

• Eliminating the factors that the industry takes for granted which in the case of Cirque du Soleil was to eliminate the animals, the three separate rings, and the star performers.
• Reducing the factors below the industry standard, which meant that the company ensured that much of the danger and thrill that characterizes conventional circuses was reduced and this resulted in the company creating a new market for itself that was different from the conventional market for circuses.
• Increasing the factors which should be raised well above the industry standard meant that Cirque du Soleil pioneered original and unique approaches such as developing its own tents and by moving out of the confines of existing venues which meant that it was able to create demand for its product from scratch.
• Finally, by introducing aspects of novelty such as dramatic themes, music and dance combined with artistic renditions, and an environment that was geared to be more upscale and niche meant that Cirque du Soleil ensured that it combined differentiation with value creation.

Blue Ocean  market is characterized by:

• Low competition or absence of it 
• Products that combine good value and affordable price
• Large enterprises on the market

If one decide to follow the Blue ocean strategy it means your goal is not to be better than the competitors but to make this competition useless by creating a new market space. It is a pacifist marketing scheme and is considered a strategic planning tool for assessing a business. Let's understand Blue Ocean strategy with the help of some real life examples. 

 

1.      UBER

 

Uber Cab is a brainchild of the Blue Ocean Strategy and has dramatically transformed the picture of the transportation industry by discarding the nuisance of booking cabs, denial of services, meter issues and unwanted arguments.

It is a ridesharing service that enables customers to book their rides with the ease of swipes and taps. It also permits users to trace a  driver’s progression towards the pickup point in real-time through the medium of a smartphone application called the Uber App.

Uber devised a new market by the amalgamation of advanced technology and modern devices. It tried to differentiate itself from the regular cab companies and in turn developed a low-cost business model that offers flexible payments, pricing strategies and generates good revenues for both the drivers and the company.

In the initial stages, Uber was successful in capturing the uncontested market space but was eventually flooded by the competitors. In spite of that, it continues to command the market and is speedily expanding across the world. As of 2019, Uber approximately has 110 million riders worldwide and holds 69% of the market share in the United States.

Uber is a great example of the Blue Ocean strategy. It solved one of the major problems of the consumers while booking cabs which was, denial of services, meter issues, and unwanted arguments.

2.      iTunes

 

Apple headed into the space of digital music with its unique and eminent product ie. iTunes in 2003. In previous days, conventional mediums like compact discs (CD) were put to use to disseminate and listen to music.

When iTunes ventured into the market, it solved the basic problems which were faced by the recording industry. As a result, iTunes cut down the practice of illegally downloading music while simultaneously catering to the demand for single songs versus entire albums in a digitalized version.

High-quality music at a reasonable price offered by Apple became the talk of the town. All the available Apple products have iTunes to download music and have largely ruled the market space for decades. It is also recognized for driving the growth of digital music.

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Apple users can download legal and high quality music at a reasonable price from iTunes making traditional sources of distribution of music irrelevant. Earlier compact disks or CDs were used as a traditional medium to distribute and listen to music. Apple was successful in capturing the growing demand of music for users on the go. All the available Apple products have iTunes for users to download music.

 

3.  Airbnb is an online marketplace that acts as a mediator who wants to rent out their homes to people who are looking for places for accommodation. Airbnb eliminated the problems of travellers in finding a hotel with quality service. Airbnb is one of the most successful companies in the lodging industry with a revenue of $3.4 billion in 2020.

4. Oyo Rooms is a hotel chain founded by Ritesh Agarwal. Oyo Rooms entered an unexplored market, budget hospitality. It solved the problems of consumers who were looking for a decent hotel at an affordable price.

Ritesh Agarwal founded OYO Rooms, formerly known as Oravel.com, in the year 2013. This 4-year-old start-up has already disrupted the Indian hospitality segment with the use of technology. It eases travelers to find budget hotels which are on par with star hotels in value offering.  From 300+ cities, 10,000+ hotels and 200,000+ rooms they have come a long way of effectively extending presence to over 500 cities encompassing 28 states and 9 UT’s with 18000+ hotels and 270,000+ rooms in India.

The network of OYO is guaranteed to provide standardization on various measures in each room including free Wi-Fi and breakfast, flat screen TVs, branded toiletries, 6-inch shower heads, a beverage tray and so on. The predictable and quality experience is assured by performing an audit of these standards on a regular interval.

We can attribute the triumph of OYO to the successful execution of Blue Ocean Strategy in the hospitality sector. Value innovation, the cornerstone of Blue Ocean Strategy, by offering superior customer value and concurrently reducing the cost of the business. The business concept of OYO Rooms eliminated extravagant features of 3-star and higher hotels, such as stylish lounges, sports club, spa, and so on but, at the same time retaining standardized services and hygiene of sophisticated hotels. As a result, OYO Rooms could significantly reduce the price per room compared to three-star hotels and outperformed in providing superior customer value.

5.   Indian Premier League. Launched in 2008, the Indian Premier League (IPL) has reinvented what the game of cricket and cricket leagues mean by transforming the long-winded gentlemen’s game into a thrilling three-hour sports drama. The result has been the creation of a blue ocean of new market space that has achieved tremendous success, creating all-new demand for the sport not only in India, but around the world. At the IPL games, people not only see the best and the hottest cricket players in the IPL’s eight extravagant teams, they are also entertained by Bollywood music, shouting and dancing with cheerleaders during the intermissions. As a result, the IPL opened a new market space, called “cricketainment,” in which cricket is played and enjoyed in a completely different way. In so doing, the IPL became the most popular primetime TV show for Indian families, finding its target audience in non-traditional cricket viewers. Most importantly, the creation of cricketainment neither displaced nor disrupted existing domestic leagues and other forms of entertainment. Rather, IPL unlocked a nondisruptive market that was beneficial to both domestic cricket leagues and the entertainment industry.

These examples of the Blue Ocean Strategy can enlighten future startups regarding the execution of a  strategic planning scheme and successfully unlocking new demand.