Blue Ocean Strategy

Every entrepreneur’s dream is to innovate – to create a new product that no one else is offering. But that’s not so easy. One idea that could help came from W. Chan Kim and Renee Mauborne.

Red oceans are filled with competition. They are cut throat and bloody – hence the color “red.”

Blue oceans are free from competiton.

Traditionally, companies competed with each other on the basis of price or quality. But when there is an oversupply of commoditized products, then the profit margins shrink for everyone. That is the red ocean.

The blue ocean is unknown and uncontested space.

When a company tries to keep up with competition, it stops being unique.

The authors give the xample of Cirque du Soleil, the Canadian traveling circus for grown-ups.

The circus was a dying trade when Cirque du Soleil was created in 1984. Children had better things to do on their games consoles and animal rights groups had circuses in their sights. So Cirque du Soleil stopped trying to beat the competition.

Instead of hiring more famous or more expensive clowns, it created a new market for a new group of customers, who were happy to pay much more. Pret a Manger is another example, it is a restaurant that serves quality food at fast-food speed. Other examples include Curves, an affordable, women-only health club chain; and JC Decaux, which energized outdoor advertising in the 1960s by creating street furniture.

Value innovation makes competition irrelevant. There are four principles to Blue ocean strategy.

  1. Reconstruct market boundaries: Look for blue oceans where the competition isn’t looking—in industries that provide alternatives to your products; among users as opposed to purchasers or influencers; in complementary services (like post-sales maintenance); in emotional or functional appeal; or across time, by anticipating trends. NetJets, the creator of fractional jet ownership, looked across alternative markets and broke the tradeoff between owning an executive jet and flying first class. Home Depot did the same by providing professional home decorator advice at prices that were lower than the hardware store’s. The reason why Home Depot in this example was not competing with hardware stores is that it targeted an entirely new segment of customers.
  2. Focus on the big picture, not the numbers Kim and Mauborgne describe how to draw up a “strategy canvas” instead of drowning in spreadsheets and budgets.
  3. Reach beyond existing demand Instead of concentrating on customers, look at non-customers. Callaway Golf discovered that many people didn’t play golf because hitting the ball was too hard. So it designed a golf club with a bigger head.
  4. Get the strategic sequence right Build the strategy in the following order. If the answer to any of these is no, you need to rethink: Buyer utility—is there exceptional buyer utility in your business idea? Utility is not the same as amazing technology. Price—is your price easily accessible to the mass of buyers? Traditional innovation launches start high and come down (it’s called “skimming”). But in the blue ocean it is important to know from the start what price will quickly attract the mass of target buyers. Volume generates higher returns than it used to and, for buyers, the value of a product may be closely tied to the number of people using it. Cost—can you hit your cost target and make a profit at your strategic price? Adoption—what are the hurdles to adoption and are you addressing them up front?

Blue ocean ideas threaten the status quo and may inspire fear and resistance among employees, business partners and the public.

Educate the fearful. “Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean and a break from the competition.” W. Chan Kim and Renée Mauborgne

Source: 50 Management Ideas You Really Need to Know

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