32. Blue Ocean Strategy by Chan Kim and Renee Mauborgne, INSEAD , France.
Updated: Jun 8, 2020
Stand Apart from the Crowd
Blue Ocean Strategy is a marketing theory and the title of a book published in 2004 that was written by W. Chan Kim and Renée Mauborgne, professors at INSEAD., France .They assert that these strategic moves create a leap in value for the company, its buyers, and its employees while unlocking new demand and making the competition irrelevant. The book presents analytical frameworks and tools to foster an organization's ability to systematically create and capture "blue oceans"—unexplored new market areas.
Blue ocean strategy is based on over decade-long study of more than 150 strategic moves spanning more than 30 industries over 100 years. The research focused on discovering the common factors that lead to the creation of blue oceans and the key differences that separate those winners from the mere survivors and those adrift in the red ocean.The database and research have continued to expand and grow over the last ten years since the first edition of the book was published and the strategic moves we studied depict similar patterns, whether blue oceans were created in for-profit industries, non-profit organizations, or the public sector.
1) What is Blue Ocean Strategy
Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open up a new market 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.
2) What are the Red Oceans and Blue Oceans
In their classic book, Blue Ocean Strategy, Chan Kim & Renée Mauborgne coined the terms ’red ocean’ and ‘blue ocean’ to describe the market universe.
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.
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.
Red oceans are all the industries in existence today – the known market space.
Blue oceans are all the industries not in existence today – the unknown market space.
What Outcomes does Red Ocean Strategy Produce ?
Competing in red oceans is a zero-sum game. A market-competing strategy divides existing wealth between rival companies. As competition increases, prospects for profit and growth decline.
What Outcomes does Blue Ocean Strategy Produce ?
Creating blue oceans is non-zero-sum. There is ample opportunity for growth that is both profitable and rapid.
3) Typical Features of Blue Ocean Strategy
@ High profit growth at low risk
@ Industries not in existence today
@ Untapped market demand
@ Unknown market space.
@ Making Competition Irrelevant.
@ Creating Uncontested Market.
@ Value Innovation.
Blue Ocean Strategy Examples:
With the launch of iTunes, Apple unlocked a blue ocean of new market space in digital music that it has now dominated for more than a decade.
Apple observed the flood of illegal music file sharing that began in the late 1990s, enabled by file sharing programs such as Napster, Kazaa, and LimeWire. By 2003 more than two billion illegal music files were being traded every month. While the recording industry fought to stop the cannibalization of physical CDs, illegal digital music downloading continued to grow.
In agreement with five major music companies—BMG, EMI Group, Sony, Universal Music Group, and Warner Brothers Records— iTunes offered legal, easy-to-use, and flexible à la carte song downloads. By allowing people to buy individual songs and strategically pricing them far more reasonably, iTunes broke a key customer annoyance factor: the need to purchase an entire CD when they wanted only one or two songs on it. iTunes also provided a leap in value beyond free downloading services via sound quality as well as intuitive navigation, search and browsing functions.
In a little more than a decade, the U.S.-based financial information provider, Bloomberg became one of the largest and most profitable business information providers in the world. Challenging its industry’s conventional wisdom about which buyer group to target, Bloomberg created a blue ocean in the financial information services industry.
Until Bloomberg’s debut in the early 1980s, Reuters, Dow Jones and Telerate dominated the online financial information industry, providing news and prices in real time to the brokerage and investment community. The industry focused on purchasers —IT managers—who valued standardized systems, which made their lives easier.
Canon’s strategic move, which created the personal desktop copier industry, is a classic example of blue ocean strategy. Traditional copy machine manufacturers targeted office purchasing managers, who wanted machines that were large, durable, fast, and required minimal maintenance.
Defying the industry logic, the Japanese company Canon created a blue ocean of new market space by shifting the target customer of the copier industry from corporate purchasers to users.
With their small, easy-to-use desktop copiers and printers Canon created new market space by focusing on the key competitive factors that the mass of noncustomers – the secretaries that used copiers – wanted.
4) The Ford Model T
Ford’s Model T, introduced in 1908, is a classic example of a market-creating blue ocean strategic move that challenged the conventions of the automotive industry in the United States. It made the automobile accessible to the mass of the market.
Until that time, America’s five hundred automakers built custom-made novelty automobiles. Despite the number of automakers, the industry was small and unattractive with cars unreliable and expensive, costing around $1,500, twice the average annual family income. But Ford changed all of that with the Model T.
He called it the car ‘for the great multitude, constructed of the best materials.’ Although it only came in one color (black) and one model, the Model T was reliable, durable, and easy to fix. And it was priced so that the majority of Americans could afford one. In 1908 the first Model T cost $850, half the price of existing automobiles. In 1909 it dropped to $609, by 1924 it was down to $240. A 1909 sales brochure proclaimed, ‘Watch the Ford Go By, High Priced Quality in a Low Priced Car.’
Blue Ocean Strategy primarily aims at Value Innovation by reducing the prices of the Products and Services, while servicing the same Industry.
Blue Ocean Strategy enables the companies to move out of the Zero-Sum Game Markets, almost like Monopoly or New Markets ( Not Zero Sum Markets ).
In Nutshell, This Blue Ocean Strategy is all about moving out from Traditional Red Oceans ( Fiercely Competed Markets ) to Blue Oceans with Value Innovation with fairy high profitable New Markets.