Blue ocean strategy is a business plan of action developed by W. Chan Kim and Renée Mauborgne and detailed in their 2005 book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant.
The authors divide the business environment into red oceans and blue oceans. Most businesses operate in red oceans, which are existing and typically crowded markets where companies are intent on beating their competitors.
Kim and Mauborgne contend that organizations can be more successful if they create what they call blue oceans, uncontested market space that creates new demand and makes competition irrelevant.
Who uses blue ocean strategy?
In blue oceans, companies create demand instead of fighting over it. Consequently, blue ocean strategy targets enterprises that are battling for market share, especially those that are fighting in a fiercely competitive market with major competitors.
The theory applies to companies in all industries, including B2B, industrial, consumer product goods, pharmaceutical, financial services, entertainment and IT.
How to create a blue ocean strategy
Kim and Mauborgne offer a five-step process for creating a blue ocean strategy:
- First determine which business, service or product to address before creating a team to execute the initiative.
- Be sure the team has a clear, shared understanding of the current state of the industry.
- Research the hidden problems in the industry. Also, identify non-consumers of the sector. For example, if companies in the industry typically cater to children, try figuring out ways to include adults as well.
- Develop a roadmap to reach the company’s goal by generating practical blue ocean options. Do this by using a systematic approach to recreate market boundaries and establish new market space.
- Launch a blue ocean initiative by quickly testing in the market and refining it to maximize its potential.
Examples of companies that used a blue ocean strategy
The following are examples of companies that successfully implemented blue ocean strategies:
- Cirque du Soleil: While traditional circus performances were targeted toward children, this Canadian company decided to offer customers more sophisticated entertainment provided by some of the best performers from around the world. Although Cirque still included children as part of its target audience, the fact that it charged higher ticket prices guaranteed that adults would be the company’s primary customers. Cirque du Soleil didn’t try to be just another circus with performing animals, clowns and a ringmaster. Instead, the company completely reinvented the market with its blue ocean strategy.
- Backroads: This travel adventure company turned travel into something other than the typical relaxing beach vacation or all-inclusive cruise. Backroads decided to offer something different: luxury fitness-based travel where guests can go hiking, biking, camping and more. As such, Backroads’ blue ocean strategy expanded the industry by appealing to a vastly different audience than individuals looking for relaxing vacations.
- iTunes: By entering the music market, iTunes solved the problem the recording industry was having with consumers downloading music illegally. At the same time, iTunes also addressed the demand for single digital songs. With its blue ocean strategy, iTunes created a new category of music sales, enabling consumers to buy single songs versus entire albums and allowing artists to profit.
- The National Youth Orchestra of Iraq: The orchestra’s blue ocean strategy was successful because the orchestra opted not to focus on technical excellence and a sophisticated European repertoire, but rather on “the power of music to bridge the deepest divides and highlight Iraq’s rich heritage.” The orchestra decided to stop using expensive guest conductors and soloists and stop playing a European repertoire. Now, the orchestra is made up of young men and women from all Iraqi ethnic and religious groups.
- The French Groupe SEB: This company earned its success by following the blue ocean strategy and moving out of the intensely competitive market for conventional French fry makers. The French Groupe SEB developed a French fry maker that operated without the need to heat large amounts of oil. The company transformed the market for French fry makers with Acti-Fry, a French fry maker that made healthier French fries with only one tablespoon of oil for two pounds of fries.