SMARTLY

BLUE OCEAN STRATEGY

CREATING BLUE OCEANS & BLUE OCEAN ANALYTIC TOOLS

Comparing Two Oceans

Blue Oceans: Untapped market space free of competition, where The Profit and Growth Consequences
firms can create customers. Blue oceans have the potential to of Creating Blue Oceans
provide rapid profit growth. Business
86% 14%
Launch
Red Oceans: Established markets with entrenched industry Revenue
62% 38%
practices and intense competition for profits. Impact 1dd0b4

Profit
39% 61%
Impact
Strategic move: The set of decisions a firm makes to create blue Launches within Launches for
oceans. red oceans creating blue ocean
Source: Kim, WC & Mauborgne, R 2015, Blue ocean strategy, exp. edn. p. 7. HBS Publishing, Boston.

Value innovation: Creating an increase in value to customers

while reducing firm costs, rendering competitors irrelevant.
Value-cost trade-off: The paradigm of many competitive strategies
in which greater value comes at a greater cost and lower value
comes at a lower cost.

The Strategy Canvas

High
Strategy Canvas: A tool used to illustrate a companys competitive Level of Investment

strategy. Ringling Bros.

and Barnum &
Cirque du Soleil
Bailey

Factors of competition: Factors that an industry competes on and

invests in; for example, price. Low

Theme
Price Animal Multiple Thrills and Multiple
shows show arenas danger productions
Value curve: A line made by plotting a companys profile across a Star
performers
Aisle
concession
Fun and
humor
Unique
venue
Refined
watching
Artistic
music and
strategy canvas. s
Factors of Competiton
environment dance
Source: Kim, WC & Mauborgne, R 2015, Blue ocean strategy, exp. edn. p. 43. HBS Publishing, Boston.

Optimizing Strategy

Four actions framework: Four questions used to facilitate Eliminate Raise

understanding or formulation of a company strategy. Which of the factors Which factors should
the industry takes for be raised well above
granted should be the industrys
Eliminate-reduce-raise-create (ERRC) grid: A helpful tool used eliminated? A New standard?
to complement the four actions framework. Value
Reduce Curve Create
Successful blue ocean strategy has three hallmarks: Which factors should Which factors should
be reduced well be created that the
below the industrys industry never
1. Focus: An emphasis on only key factors of competition. standard? offered?
Source: BOS, 2005 hardback, pg. 29
2. Divergence: A break from an industrys prevailing
strategies.
3. Compelling tagline: e.g. Southwests, The speed of a
plane at the price of a carwhenever you need it.

2017 Pedago, LLC. All rights reserved.

BLUE OCEAN STRATEGY SMARTLY

BLUE OCEAN ANALYTIC TOOLS & CHARTING YOUR COURSE

Reading Value Curves

High High High

Overdelivery without payback Blue Ocean Product
average
trackers
average average
trackers product Incoherent
Another red strategy
Low
ocean product Low Low

Price Sleep Portability Total Social Price Sleep Portability Total Social Price Sleep Portability Total Social
Heart Rate Monitor Heart Rate Heart Rate
Media Monitor Media Monitor Media
Monitor Monitor Monitor
Integration Integration Integration
Flame Color Durability Flame Color Durability Flame Color Durability
Retardant Choices Waterproofing Retardant Choices Waterproofing Retardant Choices Waterproofing

Curves that converge suggest a High investment across all Zigzags indicate a corporation
red ocean product. factors signifies overdelivering with an incoherent strategy. A
without payback: investing in divergent curve indicates a blue
options or features that add ocean product.
little value for consumers.

Strategic Pricing
1 Identify price corridor 2 Specify price level within
Price corridor of the mass: A process for finding an optimal price of the mass
Three alternative product/service types:
the price corridor

point involving the following two steps: Same

form
Different
form, same
Different form &
function, same High degree of
function objective legal and resource
protection
1. Identify any existing alternatives to your product, either with pri
cin
g
Difficult to imitate
vel
differing forms and the same function, or differing form and Up
per
-le
Some degree of
Price Corridor
function, but the same objective. of the Mass Mid-level pricing legal and resource
protection
Low
er-
lev
2. Examine the price and user base of each alternative. Circles are proportional
to number of customers
product/service attracts.
el p
rici
ng
Low degree of
legal and resource
protection
Source: Kim, WC & Mauborgne, R 2015, Blue ocean
strategy, exp. edn. p. 128. HBS Publishing, Boston.

Network externalities: A phenomenon in which people place little Easy to imitate

value on a product used by few others. This makes setting a rival

strategic price crucial.
Type of good

Rival goods: Resources only your firm can use at any given time.
Nonrival goods: Resources anyone can use. non-
rival
Low excludability: Causes a product to be vulnerable if it doesnt Low High
have a limitation on its use by rival firms. Risk of imitation

Target Costing

Three levers of cost reduction: Price-minus costing

Streamlining: Simplifying and optimizing operations. strategic desired target
price profit margin = cost
Partnering: Forming strategic alliances to share cost burden with
other firms.
Cost-plus pricing
Pricing innovation: Changing the way a product or service is desired
monetized, e.g., Blockbusters choice to rent videotapes to cost + = price
profit margin
consumers rather than to sell them.

2017 Pedago, LLC. All rights reserved.

BLUE OCEAN STRATEGY SMARTLY

CHARTING YOUR COURSE

Strategic Sequence

Buyer The Six Stages of the Buyer Experience Cycle

Strategic sequence: A four-step process for formulating and Utility Map
se ry me
nts an
ce
sal
ple ten
evaluating blue ocean ideas. 1. P
urc
ha
2 . De
live
3. U se
4. S up
5 . M ain
6 . Dis
po

Customer
productivity
1. Buyer utility: The amount of value a product or service Simplicity
delivers to a buyer. This can be increased either by pulling

The Six Utility Levers

one of the six utility levers, or by removing blocks to buyer Convenience

utility. Risk

Fun and
image
Six stages of the buyer Six utility levers
experience cycle: Environmental
friendliness
customer environmental
1. Purchase 4. Supplements
Source: Kim, WC & Mauborgne, R 2015, Blue ocean strategy, exp. edn. p. 121. HBS Publishing, Boston.

productivity friendliness
Buyer utility map: Used to
2. Delivery 5. Maintenance simplicity risk determine how and when a
3. Use 6. Disposal convenience fun and image product can deliver exceptional
value.
2. Strategic pricing: Setting a price that will attract the
greatest number of customers in the shortest amount of
time.
3. Target costing: Using insights gained from determining
optimal price points to set your target cost of production.
4. Adoption: Ensure smooth adoption by engaging and
educating the three primary stakeholders: employees,
business partners, and the general public.
Blue Ocean Idea Index: A birds-eye view of the commercial
viability of blue ocean ideas.

Your
Oering

Utility Is there exceptional utility?

Is the price easily accessible to the

Price mass of buyers?
Does the cost structure meet the
Cost target cost?

Have you addressed adoption

Adoption hurdles up front?
Source: Kim, WC & Mauborgne, R 2015, Blue ocean strategy, exp. edn. p. 140. HBS Publishing, Boston.

2017 Pedago, LLC. All rights reserved.