What is Blue Ocean Strategy?
The Blue Ocean Strategy is defined as a brand strategy of instead of competing with your competition, you compete with yourself. Instead of doing what your competitors do but slightly better, you truly innovate.
The Blue Ocean Strategy is based on a study of over 150 companies. This research took over a decade to complete, and it examined companies from more than 30 industries. The study was done by Renée Mauborgne and W. Chan Kim, and it came to one inescapable conclusion: time and time again, certain companies manage to make their competition irrelevant. These firms do this by carving out their own market space.
Even better, the brand that understands this strategy can use it repeatedly.
In this post, we’ll explore the Blue Ocean Brand Strategy in detail. After reading this post and absorbing the information within, you’ll be ready to put the strategy to good use. In this first post, we’ll cover a few key concepts. Then we’ll switch gears, offering several in-depth examples. These examples lay the groundwork by clarifying what the strategy is and how it works. If you want to get an introduction to what a regular brand strategy includes, read that article.
Let’s dive right in.
WHY YOU SHOULD MASTER THE BLUE OCEAN STRATEGY
No one can halt the march of technology. Yet many C-suite executives get complacent, assuming that their offerings will remain relevant. Indeed, time and time again, technology disrupts corporate strategy. Too often, executives shrug and play the same old game. But the world is:
Keep VUCA in mind as you read the stories below—the stories of companies who used the Blue Ocean Strategy to carve out space for themselves. Typical corporate strategy places the focus on the competition. The logic goes something like this: do what they’re doing, but do it better! This reasoning ignores the inescapable reality that is VUCA.
The problem is that it’s hard to build an awakened brand this way. If you’re fighting over scraps, you’re lucky when the customer picks you over the competition. Building brand recognition and loyalty? That’s another level of difficultly entirely in the modern world of social media and 24-hour news cycles.
The Blue Ocean Strategy takes a common wisdom and flips it on its ear. Instead of competing with your competition, you compete with yourself. Instead of doing what your competitors do but slightly better, you truly innovate. If this seems a bit ephemeral, don’t worry. Things will become clear soon enough.
There are two core concepts to understand at this point.
THE RED OCEAN
The red ocean is the industry you exist in right now. It’s full of hungry competitors. You’re all hunting the same fish. This is the known market space, and it’s cramped. Here, you try to out-compete your competitors however you can. You’re scrambling for a bigger slice of the market share pie. Put another way, you’re competing with all others in your space for a share of existing demand.
As more sharks enter this red sea, profits and growth shrink even further. It’s possible to survive in this arena and even to thrive, but it’s not easy.
THE BLUE OCEAN
A blue ocean, by contrast, represents the market space that does not yet exist. It’s the space that you could move into if only you knew how. If only you had an in. Knowing how—or having an in—could mean coming up with a new concept, a new manufacturing process, a new licensing deal, or something else that’s truly innovative. But whatever the way in, you’ll know you’re in a blue ocean when you find yourself creating demand instead of chasing market share.
In a blue ocean, at least for a time, you will be the only shark. It’s a good place to be.
Knowing how to navigate the red ocean will always be important. It’s always a good skill to have. But knowing how to move into a blue ocean can help catapult your brand to new levels of success. Plus, finding blue ocean success will mean you can more effectively operate in the typical red ocean environment. You’ll be fitter and more likely to survive, and you’ll be more agile to boot.
Remember that supply often exceeds demand. In many markets, it’s becoming clear that navigating the red ocean is no longer enough. Competing for a share of a contrasting market is not a viable strategy for long term success. Blue oceans allow you to tap into growth opportunities you wouldn’t have had access to otherwise.
Of course, while the term ‘blue ocean’ is relatively new, the concept is not. As you’ll see from the examples below, skilled entrepreneurs have been creating their own opportunities for decades. If Henry Ford, Scott Cook, Reed Hastings, and George Eastman could create blue oceans, so can you.
WHAT YOU’LL LEARN IN THIS POST
Before we dive into examples, let’s examine some of the tools you’ll be learning about in this post. Each tool in this list is an essential kit for the blue ocean strategy. Some are designed to net you results right away. Others are geared toward helping you transition out of the red ocean over time.
The five core tools are:
• The Strategic Canvas. The strategic canvas is the first tool you will use. It can help you evaluate your competitive positioning. With the strategic canvas, you’ll gain a clear understanding of your value curve.
• Buyer Utility. With the buyer utility map, you’ll gain a demand-side perspective. From this new vantage point, you’ll spot blue ocean opportunities like a pro. Buyer utility is also referred to as the buyer’s experience cycle.
• Non Users. Analyzing non-users gives you insights into any blue ocean opportunities you spot. You’ll uncover juicy intel on people who need your solution but who don’t know it yet.
• Visual Exploration. Visual exploration is a mindset. It takes the emphasis off of cold, hard analysis and shifts it toward real-world exploration. With visual exploring, you can gain even more insights into potential markets.
• The Four Action Framework. You can use the four action framework to re-think your overall business strategy, shifting it toward the blue ocean mentality.
THE 5 TOOLS: GOING DEEPER
As you’ll see, this tool kit is quite extensive. Don’t worry if the following sounds a bit theoretical for now. Our intention here is to introduce the tools; we’ll explore them in much more depth in future posts. So stay tuned.
#1 THE STRATEGIC CANVAS
The strategic canvas, pioneered by Renée Mauborgne, is the core diagnostic tool of the strategy. It’s a framework that allows you to view the current strategic landscape of your market. The output of this tool is a clean graph, so gleaning insights from this tool are straightforward.
The strategy canvas is composed of a horizontal axis and a vertical axis.
The horizontal axis displays the range of factors that your industry competes on. Think of these as red ocean factors. The vertical axis, though, displays the volume of offerings available to consumers. For instance, the high-end restaurant industry might compete on the following points along the horizontal axis:
• Customer service
By drawing a strategy canvas in this space you could readily see how many high-end restaurants try to focus on most or all of these factors, with the vertical axis showing the offering level. Often, when a business tries to compete on all of their red ocean factors at once, they tend to be mediocre. Spotting competitors like these are important. It enables you to uncover what they’re doing wrong.
You could also use this high-end restaurant strategy canvas to identify a market opportunity. If, for instance, you find that consumers have low access to a fast quality dining experience, then this may be a way to differentiate yourself.
To look at another example, if you find that most of your competitors compete on price, then you might consider focusing not on price but on quality. Consumers in such a space have ample access to inexpensive options. This indicates that they might be receptive to a more costly—but for higher quality—alternative.
You can see this particular scenario unfolding frequently in developed nations. Consider the recent trend away from cheap disposable plastic straws toward sturdier, but more expensive, steel straws.
Or consider Southwest Airlines.
The company competed on price when its competitors were focusing on quality and costly add-ons. It was commonly thought at the time that it would be difficult for an airline to compete on price. But Southwest executives realized that if they could do so, then consumers hungry for a cheaper alternative might flock to them.
Their strategy canvas indicated that consumers wanted an easier and less expensive alternative to high-street airlines. See this case study for more on Southwest.
If all this sounds a bit ephemeral, don’t worry. We’ll explore the strategy canvas in depth in a future post.
#2 BUYER UTILITY
Developed by W. Chan Kim, the buyer utility map will help you identify blue ocean opportunities. It puts you into a demand-side mindset by identifying strategic pivots you could make to better position yourself.
The tool will help you identify ways you can provide incredible utility to your customers. The buyer utility map is essential because without it you won’t be able to differentiate yourself from the competition.
There are two components of the utility map:
• The Buyer Experience Cycle. This cycle breaks the buyer’s experience down into six stages. These stages run sequentially. Knowing how quickly your customers run through these stages can give you insights into how to provide them more utility.
• Utility Levers. These are specific actions you can take to provide more utility to your customers. The buyer utility map helps you identify them.
If you do nothing more than master the buyer utility map, you’ll drastically improve customer retention.
#3 NON USERS
Identifying non-users is a critical component of the blue ocean strategy. There are three types of non-users, and you’ll learn how to find them all.
First-tier non-users are customers who are seeking a product like yours. Yet for whatever reason, they don’t buy from you—yet. These are the customers who are closest to the existing market. They purchase an industry’s offerings out of necessity. They don’t have much in the way of brand loyalty, and they’re often looking for the best deal.
If you can offer them more value than your competitors do, you can earn their loyalty.
Second-tier non-users are individuals who consciously choose to avoid an industry’s offerings. These are people who may want or need a particular product but who choose not to go after them. Maybe they perceive the product to be more trouble than it’s worth. Or maybe they are fine with their current solution. Think of how the film gave way to digital cameras. Digital cameras were around long before they were adopted by the mainstream.
Or consider how Uber is making money from consumers who wouldn’t be caught dead in a taxi. Airbnb, meanwhile, appeals to consumers who won’t willingly patronize hotels.
Who are the people who refuse to buy your products? How can you convince them to give you a try? Could you repackage or reposition so as to better appeal to these people?
Third-tier non-users are folks who have never considered your product an option. They’re not in the market for what you sell, but that doesn’t mean they wouldn’t benefit from using your product. Netflix was faced with many third-tier non-users. But over time, they convinced people that online streaming was the future.
Who are your third-tier non-users?
#4 VISUAL EXPLORATION
Visual exploration is all about field research. Once you’ve identified non-users, you need to observe those non-users in the wild. How could your product or service benefit them? How can you best communicate your value to these people? That’s what visual exploration is all about. In other words, it’s about spending a day in the life of your non-users. This helps you gain invaluable insights into what makes them tick—and what makes them buy.
There are many, many tools you can use here, and we’ll go into detail in a later post. You’ll learn about mind mapping, visual storyboarding, buyer personas, and culture probes.
#5 THE FOUR ACTION FRAMEWORK
The four action framework is all about raising, creating, reducing, and eliminating. We touch on this in our section about Netflix below. In a nutshell, it’s a framework that helps you see how you can stand out from the pack. Here’s a summary:
• Raise. Which factors about your offering can you raise above industry standard?
• Create. Which new factors can you create that will differentiate you?
• Reduce. Which factors—such as cost—can you reduce below industry standard?
• Eliminate. Which factors are you competing on that you shouldn’t be?
If you can find a factor for each of these, you’ll be well on your way toward venturing into a deep blue ocean.
BLUE OCEAN EXAMPLES
As you read about these companies, keep the following Blue Ocean core concepts in mind:
• Eliminate. What can you eliminate from the standard process of product creation? How will eliminating those elements put you in an advantageous position compared to competitors?
• Raise. How can you raise customer satisfaction? How can you provide the customer instant gratification?
• Reduce. Where can you reduce waste? Fees? Costs?
• Create. What opportunities can you create for customers that they can’t get elsewhere?
If you can secure these four elements, you can find yourself in a blue ocean. Let’s see how it’s done.
Ford Motor Company
The Ford Motor Company introduced a revolutionary invention, the Ford Model T, in 1908. It is hands down one of the best examples of a company creating a market for themselves. The Model T was the first automobile to make car ownership practical for the masses. Before the Model T, cars were incredibly expensive. They contained custom parts that couldn’t be mass-produced. But Henry Ford’s assembly line process made it possible for his company to churn out the Model T at an unprecedented rate.
Indeed, before the Model T rolled off factory floors, the average car cost $1,500. Back then, that figure amounted to twice the average annual salary. But Ford was not out to sell novelties to the ultra-rich. He referred to the Model T as the ‘car for the masses,’ after all. Because of his new assembly line process, the T was more reliable than its contemporaries, and it was cheaper to repair. Even better, the lower price tag meant that the average American could afford it.
Consider for a moment that when Ford came onto the scene, there were over five hundred automakers in America. But it was a thin, highly competitive market that catered to a small pool of wealthy customers. Ford took a new approach. He created a car that was highly standardized with limited options and colors. By creating a car he could sell for a profit at a lower price point, Henry Ford created a market for himself. He recognized and satisfied unanswered demand. That is the core of the Blue Ocean strategy.
In 1908, Ford’s market share in the auto industry was 9 percent. By 1921, it had soared to 61 percent.
Today, Cemex is one of the world’s biggest cement producers. To get there, the company employed the Blue Ocean strategy. Historically in Mexico, cement was a highly sought after building material. Many Mexican citizens owned land, though they had little disposable income. A growing family often meant adding a new room or two to a house. But do-it-yourself projects required cement. After all, other building materials, such as wood, were often prohibitively expensive.
However, the typical Mexican citizen found themselves spending much of their paltry savings on quinceañeras, baptisms, and other events. These events have high cultural significance in Mexico, and often, no expense is spared. This left Cemex with a dilemma if they were to increase cement sales.
The problem was not one of lack of demand. The people wanted to buy the cement so they could work on home renovations. The problem was that Cemex was operating within a red ocean. There were many companies offering cement, and the competition was fierce. In addition, this particular red ocean was being squeezed by societal pressures. Do-it-yourself renovations ranked relatively low on the priority scale for Mexican homeowners, beneath the aforementioned baptisms, festivals, and other events.
The Patrimio Hoy.
This initiative plugged directly into Mexican heritage by way of the tanda. A tanda is a traditional community savings scheme in which several households contribute a small sum to a community pot every week for up to 10 weeks. Each week, the participants draw lots to see who gets the entire pot. The winner that week can use the money to make a big purchase. Typically, the Mexican used tandas to pay for quinceañeras and baptisms.
You can probably guess where this is going.
Through their Patrimio Hoy initiative, Cemex set up special tandas. These tandas paid the winner not in pesos, but in Cemex cement. This way, people could contribute to a scheme that would help them—eventually—get the cement they needed to do their own home renovations. Often, the weekly contribution was small enough that they could still contribute to more traditional tandas.
Cemex quite literally creates demand for their product out of thin air, and they did so by working within the confines of local custom.
The firm also offered on-site building lessons for winners, helping them make the most of their cement. Their competitors remained locked in a red sea. Cemex moved into a blue ocean by selling the dream of affordable home renovation.
Tea has been a popular drink for thousands of years. It’s relatively low caffeine content provides a mild lift without jitters. Its mild flavor is pleasing with or without sugar. In Britain, tea is a big business. Phillips, the Dutch electronics giant, saw a big opportunity in the British tea market. Their R&D wing realized that British consumers were having a hard time getting a quality cup of tea.
You see, the British public water supply can be quite rich in limescale, a chalk deposit. While not dangerous in its own right, limescale muddies a clear cup of tea and has, well, a chalky texture. Some British consumers added milk to their tea to disguise the presence of limescale. Many others, however, had to remove the scale with a spoon.
The attitude of many kettle manufacturers of the time was that the limescale problem was for the local municipalities to sort. Phillips decided to tackle the issue head-on by creating a kettle that would automatically filter the limescale at the spout. Overnight, the kettles became best sellers.
Phillips created a market for itself by addressing customer pain points. Note that its competitors were content to wait for the government to upgrade its public water systems. But by addressing the problem themselves, Phillips created a demand for their own product.
Bloomberg is another good example of moving into a blue ocean by addressing pain points. In the ‘80s and early ‘90s, the biggest financial information providers catered to C-suite executives or IT managers. Firms like Telerate, Dow Jones and Reuters were content to compete for these scraps. But it was clear to Bloomberg that it wasn’t the C-suite that made the minute-to-minute decisions, it was the traders on the floor.
Their response was to create a system that catered to traders and analysts, not to out of touch executives. After all, if their new system could sway the experts on the ground floor, those experts would then become advocates for Bloomberg. Those advocates would go up the chain of command and demand that the C-suite switch to Bloomberg’s more user-friendly system. Or, at the very least, they would ask nicely. That was the hope. And that’s what happened.
Bloomberg’s new system, which boasted multiple flat-screen monitors and feature-rich keyboards, was much easier to use. It allowed traders to make split-second decisions that weren’t possible on older systems. By focusing on users instead of high-level decision makers, Bloomberg created demand for its innovative system.
Indeed, had Bloomberg approached the C-suite with their new system, those executives may not have seen the value. Why is a flat screen monitor so important? Why isn’t a CRT good enough? Why do they need a fancy keyboard with dedicated financial functions? Only the soldiers in the trenches knew the answer to those questions, so Bloomberg didn’t bother with the executives. In so doing, they saw great success.
The Japanese firm sought to expand into an increasingly competitive market, the home copier industry of the ‘80s. The standard industry logic of the time was to provide companies with large, durable machines that rarely needed servicing. Canon executives questioned the logic of competing in this red ocean. After all, to a certain extent, a copier was a copier. If two copiers both make copies reliably, there was little to differentiate them. It’s hard to build a brand in such an environment. Plus, all copier manufacturers were bottlenecked by the pace of technological development anyway. No copier was substantially faster than any other.
So Canon went in the opposite creative direction. They created market space for themselves by designing smaller machines. Then they sold those smaller copiers directly to consumers. Canon’s new line of copiers was compact, easy to use and affordable. While not as durable as their gigantic counterparts, they were precisely what computer hobbyists needed. It turned out there were many such computer enthusiasts out there, and they scrambled to get their hands on a Canon copier.
In the mid-’80s, Intuit sought to differentiate itself from other emerging financial planning solutions. The company wanted to position itself as the premier software alternative to the costly CPA — certified public accountant. But the company had a problem. Most consumers were still unfamiliar with personal computing. While MS-DOS and Apple II users knew that both platforms offered robust business solutions, the concept of serious personal computing was just taking off.
Intuit set out to address these concerns head-on. First, they designed the Quicken software to resemble a checkbook. This drove home the point that Quicken was both easy to use and instantly familiar. Even people new to personal computing could get the hang of the software in no time. What’s more, users realized that using Quicken was infinitely faster than balancing a checkbook by hand.
The rest is history.
Apple is no stranger to innovation. They had to show up on this list somewhere, right? iTunes was a game-changer because it gave Apple access to the digital music market, and what a market it turned out to be. Though competitors like Spotify have since appeared, Apple still enjoys a strong position in the digital music space.
iTunes was born when Apple executives noticed that the Internet had unleashed a flood of illegal music file sharing. Programs like Napster, LimeWire, and Kazaa enabled consumers to share music with each other for free and over great distances. Worse, the government’s ability to hamper this illegal activity left a lot to be desired.
Sensing opportunity, apple hammered out a historic agreement with the five largest music companies, EMI Group, Sony, Universal, Warner Brothers, and BMG. The result was, of course, iTunes. The service offered consumers an easy way to get low-cost access to digital music. Note that, again, the company addressed a pain point. Consumers no longer had to buy an entire CD just to get that one song they wanted. With iTunes, they could access the song on their iPod for a low price.
The service offered such high value to consumers that it actually made a dent in illegal file-sharing. A few years later, Valve, with its service Steam, would do the same for PC gaming.
Netflix was founded in 1997 by Reed Hastings.
Today, the phrase Netflix and chill have entered common parlance. It means, essentially, to relax at home with your favorite show. But Netflix wasn’t always a household name. In fact, there was a time when it wasn’t at all clear that the company would survive. It started out as a competitor to Blockbuster. The idea was that consumers could rent a DVD or two at a time. The appeal: there was no store to visit—it was all handled by mail. A novel concept to be sure, and had Blockbuster adopted it themselves earlier, they may have survived.
By 2013, sensing a shifting market, Netflix began creating its own original content. It offered that content as part of its streaming service. This is a stellar example of corporate agility, but it’s also Blue Ocean Strategy at its finest. The company grew its audience over many years by peddling OPC—Other People’s Content. Then, when that audience was bigger than ever, the company created its own content. They then offered that content to their captive audience. Today, Netflix has largely moved away from OPC and relies heavily on Netflix Originals to retain its monthly subscribers.
Let’s return to our four core elements of the Blue Ocean Strategy—From the four action framework—and apply them to Netflix.
• Eliminate. Netflix eliminated stores. In so doing, they eliminated the need for localized inventory, meaning they could keep their DVDs in warehouses for quick distribution directly to customers.
• Raise. Netflix offered customers a more comfortable way to enjoy their favorite movies. All they had to do was walk to their mailbox and retrieve the DVD. Done. No lines. No obnoxious strangers. In addition, Netflix provided an easy way to use a single payment method. No cash to handle.
• Reduce. Netflix made strategic partnerships that allowed them to lower their licensing fees. Eventually, they reduced their licensing fees further by creating their own original content.
• Create. Netflix offered customers an unlimited number of movies to watch. They just had to return a DVD to get a new one.
Now go back over this list and apply the four core steps to each company. How did each company eliminate, raise, reduce, and create?