Blue Ocean Strategy is a way to make the competition irrelevant by creating a leap in value for both the company and its customers. Blue Ocean denotes all the industries that is not in existence today—the unknown market space, untainted by competition.

Blue Ocean Strategy,

• Creates uncontested market space
• Make the competition irrelevant
• Focus on non-customers
• Create and capture new demand
• Break the value-cost tradeoff (Seek greater value to customers and low cost simultaneously)
• Align the whole system of a firm’s activities in pursuit of differentiation and low cost
• Ample opportunity for rapid growth in terms of profitability.

Blue Ocean Strategy allows innovative startups to identify uncontested market spaces and render their competition irrelevant.

The principle behind Blue Ocean Strategy is that all markets can be divided into red oceans and blue oceans.

Red oceans are characterized by consensus – a consensus as to who the customer is, who the vendors are, and what the product being sold is.

In red oceans, executives captivated in a conception-cage of competitive strategy business thinking, have been rivaling head to head with their competition over the same consumer segments doing exactly the same things, only better and cheaper in order to offer customers a better cost/value tradeoff in order to convince them to stick around with their wallets open. In the process, these executives wore out their own companies and their profits were ground to dust. Now, the Blue Ocean enunciation, based on long years of research, claimed that both serenity and profitability can be amply found in Value Innovation, which creates, via a new business model and new products, a “Virgin territory devoid of me-too brand propositions and cutthroat pricing” 

Consequently, in such a market, selling to the same customers, buying from the same suppliers, making the same thing, there is intense competition and thinner and thinner profit margins.

Seek Uncontested Market Space

Blue Ocean Strategy seeks to escape that. Blue Ocean Strategy seeks to direct ventures towards uncontested market space. Market niches where ventures are positioned so uniquely that competition is rendered irrelevant.

Value Innovation

To do that requires “Value Innovation.” Value innovation is recognizing the values and desires behind the spending choices people make, and then restructuring enterprise resources to provide a superior alternative that is still consistent with those values.

For example, when the theatrical circus, Cirque Du Soleil, began the circus industry was moribund. Rather than just putting together another circus, the founders of Cirque Du Soleil tried to understand the overall value system of people who go out for the evening.

Why do they choose the theater or the movies, as opposed to the circus?

The founders of Cirque Du Soleil found that people viewed the circus as low-brow, juvenile, even crude. The traditional three rings of the circus were a distraction, even annoying.

Also, they were increasingly uncomfortable with the use of animals – more sensitive to the possible abuse behind the entertainment.

Eliminate Elements Which People Do Not Value

So in putting together Cirque Du Soleil, the founders eliminated the three rings, presented the entertainment within a more sophisticated theatrical narrative, and got rid of the animals.

By combining the most valued elements of the theater and the circus, and eliminating the negatives of both, the founders of Cirque Du Soleil were able to create a superior alternative. An alternative which neither circus nor theater can directly contend with.

Identify Untapped Demand

Understanding noncustomers and underutilized customers often releases untapped demand. Often, obstacles to purchase can be easily removed.

In Asia, shopping malls and large department stores have recognized that although  woman constitute an enormous revenue source, there is still enormous unused demand.

Women spend a certain portion of their time with men. And men hate to shop.

To address this, many establishments have built “husband rooms” – rooms with video games, TV, and alcohol, where women can drop off their husbands and boyfriends while they shop.

Given the necessity of identifying uncontested market spaces – where competitors are rendered irrelevant – we see that in order to do this, we must pursue value innovation – recognizing the value system behinds people’s market choices structuring enterprise resources into a superior, innovative alternative.

Position Yourself Along the Emotional-Commodity Axis

For example, products are generally seen as either having an emotional appeal or of being merely commodities. By shifting a product’s position along this emotional-commodity metric, we often find the uncontested market space we’re looking for.

As an example, investment advise has traditionally had a heavy emotional element, heavily based on a personal relationship and trust between the client and the broker. However, enterprises like Charles Schwab and Vanguard Mutual funds, by shifting their offerings more towards the commodity end – offering low-cost, no-frills service – have acquired a huge customer base, people uninterested in the traditional niceties of investment management companies.

Focus on Buyers, Users, or Influencers

Another metric is customer type. Customers can be divided into buyers, users, and influencers. By switching focus from one customer type to another, competitors can often be completely outflanked.

When the financial information vendor, Bloomberg, started, most financial information systems providers focused on buyers. These buyers – purchasing agents in IT departments – tended to value low price and standardized easily maintained machines.

Bloomberg, however, recognized that the users – the traders – were people with high disposable income but little time. 

He added features to allow them to do online shopping during downtime on the trading floor. He also added features for easy financial calculations – features most IT purchasing agents were oblivious to.

Think in Terms of Product Line Rather Than Product

A corollary of Blue Ocean Strategy is to improve marketing efficiency and drastically reduce cost structure by thinking in terms of product line rather than product.

Doing so, marketing efforts are not wasted because of the failure of a particular offering.

For example, when Fred Weiss started his web site AllMath.com, a site devoted to math puzzles and exorcises, he met with limited success. He went on to start AllWords.com, which also had limited success. However, he struck it big when he started AllLottery.com, a provider of nationwide lottery data, partially due to the branding of the word “All.”

Another example is Black and Decker, the power tool company. Faced with increasing competition and unable to anticipate whether the market would demand electric drills or electric hammers etc. from year to year, they instead built a “meta” tool. A power tool platform which could easily be extended as an electric hammer or electric drill or any one of their tool line.

This meta-product approach, with its standardized parts and flexibility, gave Black and Decker a cost structure far superior to their competitors.

Blue ocean strategy applies across all types of industries from Consumer Product Goods to B2B, financial services, entertainment, IT, and even defense. New wealth is created by expanding the demand of the economy. The focus is making the right strategic moves and large R&D budgets are not the key to creating new market space. “Strategic move” is the set of managerial actions and decisions involved in making a major market-creating business offering and that have delivered products and services that opened and captured new market space, with a significant profitable growth. A good example in the auto industry is , GM created the blue ocean of emotional, stylized cars in 1920s, the Japanese created the blue ocean of small, gas efficient autos in the 1970s and the Chrysler created the blue ocean of minivans in the 1980s.

Among Indian brands, Tata motors is a notable brand in creating blue ocean strategy. Their plan to offer the Rs 1 lakh car is creating a new demand. To attract the Indian customers who are price, value conscious and those who intend to buy two wheelers. The main idea is create new segments in commercial passenger vehicles and extend its coverage of the entire spectrum of customer needs in mass transportation from the rural interiors to cities as well as the top-end luxury mass transportation segment.

The big “Blue Ocean” promise took over the business world, but also aroused a great wave of criticism, partially justified; with the strongest claim being that the text carries no novelty beyond Ted Levitt’s old differentiation directive, remolded with the trendy belief in the importance of innovation. 

First, it talked about differentiation and innovation on the levels of strategy and business model, while most traditional occupation with differentiation and innovation has been focused on the level of products or brands. But more importantly, the Blue Ocean thinkers honed a major observation regarding the nature of business competition. 

In sports competitions, competitors are compelled to completely defined rules while striving to achieve a superior result. In the business world, competitors also strive to achieve a better result of the same type: a larger share of the consumer’s wallet. However, the competition does not restrict participants to any specific actions. The contrary is true. 

And yet, it is in this aspect exactly that Blue ocean Strategy is wrong and misleading, upon claiming that competition can be rendered irrelevant. Even in the case of Yellow Tail, which obviously turned many non-wine-consumers to active buyers, clearly when consumers are buying Yellow Tail they are buying other types of alcohol that they would have purchased in its absence. The prospect of raising demand infinitely simply does not exist. This is where the Blue Ocean Strategy finds its limitation. Since you always take sales away from someone (whether a direct or an indirect competitor), and being that you will always be surrounded by businesses striving to increase sales, once your Blue Ocean Strategy works, sooner or later someone will copy or even improve your already successful model.

After a while the first copycats will arise, competing on the very same value points as you. That’s completely normal; however it forces the entrepreneur to find a new strategy every several years.

In other words, the most brilliant BOS will grant you with no more than a limited, relatively peaceful, period of time. Does this mellow promise of the BOS express maximal possible achievement? Naturally, you can guess that my answer is no. Introducing the Unfair Advantage. An UA is a situation in which you become unique and adored by your customers, while competitors do not imitated you. 

Beyond the not so simple challenge of creating a differentiated value innovation, the critical question is: what can be done which is immune from imitations? Apparently the principle is simple as it is unexpected: when your innovation and differentiation are improving on benefits considered central to customers in your industry, fully expected from a product or service such as yours, then sooner or later imitations will mushroom, no matter how big your innovation. Why? Exactly because the benefit is considered relevant by your consumer. On the other hand, when your innovation and differentiation offer further benefits which are not considered relevant in your category, there is a good chance of avoiding imitations, even after years of success.

This kind of differentiation, when it manages to excite consumers, is that which creates the Unfair Advantage. Why will you not be imitated? Because what you offer is perceived by your competitors as weird, irrelevant, or overly-unique, such which is pointless to imitate. This is the big secret. This is your competitor’s trap.

There are two main types of Off Core Differentiation: Imported Benefits, and Peculiar Particularity. In many cases a combination of the two is being used. 

The first type happens when you import a benefit which is important to consumers in other product categories, but are not considered relevant in yours. Umpqua Bank turned its branches into a unique combination of packaged goods stores, and community clubs, in order to provide consumers with benefits of a pleasant buying experience as well as a social neighborhood hangout, to which they go on a regular basis for various activities and social gatherings. Umpqua is today the largest independent bank in the Pacific Northwest, and it grew in 15 years from four to 120 branches, which is an imaginary growth rate in the banking industry. And the best part is that no one even tried to imitate them.

The other type is a unique style which is not typical to the category. Take Toblerone, the Swiss chocolate brand. It has been producing its triangular alp-summit look alike chocolate bars since 1908. No one has imitated them. The Body Shop chain has grown to 2,000 shops in 50 states, to become the second largest cosmetics chain in the world. It is an active crusader fighting for environment protection, underprivileged rights, human rights and animal rights, worldwide. It fine tunes its acquisition policy, employee volunteering requirements, marketing communication budgets etc, for serving these purposes. Again, no one has imitated them.

About the author

Farhaan Panagar wrote 13 articles on this Website.

Analyst with Deloitte.

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