Blue Ocean Strategy

New Market Space

• Red oceans and blue oceans make up market
universe
• Red oceans: all industries in existence
• = known market space
• Blue oceans: all industries not in existence
• = unknown market space
 Red Oceans vs. Blue Oceans
• Red oceans
• Industry boundaries defined and accepted
• Competitive rules of game known
• Companies try to outperform rivals; cutthroat competition
• As market space gets crowded, prospects for profit and growth
reduced
• Products become commodities
• Red ocean strategy is a market-competing strategy
• Blue oceans
• Undefined market space, demand creation, opportunity for highly
profitable growth
• Most are created from within red oceans by expanding existing
industry boundaries
• Rules of game waiting to be set
• Competition irrelevant
• Blue ocean strategy is a market-creating strategy
The Rising Imperative of
Creating Blue Oceans

• Supply is exceeding demand in most industries

• global competition is intensifying
• Problems:
• Accelerated commodization of products and
services
• Increasing price wars
• Shrinking profit margins
• Red oceans becoming bloodier, need to be
concerned with creating blue oceans
 The Continuing Creation
of Blue Oceans
• Blue oceans have been around for some time; a
feature of business life
• Industries never stand still, constantly evolving
• Significant expansion of blue oceans over years
• So why the focus on red ocean strategy?
• Corporate strategy influenced by military strategy
• Need to create new market space that is uncontested
The Impact of Creating Blue Oceans
 From Company and Industry
to Strategic Move
• Are there lasting visionary companies that
continuously outperform the market and create blue
oceans?
• Found success of these model companies was a
result of industry sector performance, not companies
themselves
• Strategic move used as unit of analysis (rather than
company or industry)
• Strategic move: the set of managerial actions and
decisions involved in making a major market-
creating business offering
 Value Innovation
Key to Differentiation AND Cost
leadership
• Eliminating and reducing Factors industry
competes on:
E.g.: launch a phone-like device for communication for
senior citizens without a hi-fi camera with more focus
on better keypad.
• Raising Value
E.g.: improve the visibility and ease of use of the
keypad in the above device by improving tactile
feedback.
• Economies of scale- Cost saving due to large
volumes of production.
 Red Ocean Strategy v/s Blue
Ocean Strategy
Red Ocean Strategy Blue Ocean Strategy

Compete in existing Market Space Create uncontested market space

Beat the competition Make the competition irrelevant

Exploit existing demand Create and capture new demand

Make the value-cost trade-off Break the value-cost trade-off

Align the whole system of a firm’s activities with its strategic choice Align the whole system of a firm’s activities in purist of
of differentiation or low cost. differentiation and low cost
Six Principles of Blue Ocean
Strategy
Attenuating Risks associated
with Blue Ocean Strategy
1. Identifying paths to systematically create uncontested
market space leading to minimizingSearch Risk
2. Devising strategies that focus on value innovation and not
on incremental improvements to minimizePlanning Risk
3. Creating new demand by finding commonalities to minimize
Scale Risk
4. Creating a business model that will ensure a win-win for
both you and the customer to minimizeBusiness Model
Risk
5. Tackling hurdles within the organization to minimize
Organizational Risk
6. To make blue ocean a part of the strategy to minimize
Management Risk
Litmus test for Blue Ocean
Strategy success using Strategy
Canvas
• It must be focused (Focus)
• Reduce and eliminate unnecessary factors
• Focus on what concerns you most
• The value curve must be unique (Divergence)
• A similar value curve to the industry depicts red ocean
offerings
• The strategy should have a compelling tagline for the
offering.
E.g. “We have reinvented circus!” “We make texting for
elderly easy as abc!” Southwest- “The speed of a plane at
the price of a car- whenever you need it” For Yellow Tail
(casella wine) “The essence of a great land- Australia”
Four actions framework to
make value curve blue oceanic
Points of view
•Business often look at the industry from
a structuralist (supply) point of view

•What if we looked at the industry from a

reconstructionist (demand) point of view?

•Market boundaries are not viewed as given,

but could be reconstructed to unlock new
demand
Example: A highly competitive Industry

The American
Wine Industry
What the industry offers
Premium Wines Budget Wines
Polarised
Strategic Groups

Massive Choice
American Wine Industry
• 3rd largest in world: worth $20 billion
• Californian makes 66% - the rest is from Italy,
France, Spain, Chile, Argentina, Australia
• Exploding number of new wines – new vineyards in
Oregon, Washington, New York

Customer base stagnant

31st in the world in per capita consumption!
American Wine Industry
• Top 8 producers had 75% of the market; 1600 had
the remaining 25%
• $ millions spent in marketing - Titanic battles –
intense competition
• Sever price pressure
• The dominant growth strategy was towards
premium wines – more complexity, better image,
more prestigious vineyards, number of medals won
at wine festivals.
What wine customers said …
• “It is too confusing and complex”
• Wine descriptions and terminology
• The shopping experience
• The lack of clear guidance on what to buy and
drink

• Thus, massively intimidating for ‘noncustomers’

(the large majority of the US population who
were not wine drinkers)
 Segmentation of Market and Brands

Low Involvement High Involvement

Easy Going Enjoyers Aspirationals Appreciators Connoisseurs

 Glass with  Everyday  Image important  Want to  Sophisticated
friends enjoyment  Wine preferrers discover wine drinker
 To relax/unwind (sic)  Knowledge of  Discerning wine
 Least care  Stick with  Varietal wine regions tastes
choosing a wine limited list of knowledge  Frequently buy >  Don’t decide in
known brands  Interested in $10 wines store
 Not wine  Choose in-store some wine  Join wine clubs  Have a cellar
preferrers  Not interested in language  Don’t stick to  Less influenced
wine language  Enjoy trying new known brands by specials/
 Price is a strong wines promotions
influencer  Influenced by  Ideal wine is
major brand  Visit wineries / complex &  Actively pursue
advertising read wine articles interesting wine knowledge

Rosemount
Brand: Lindemans Wolf Blass Penfolds
Estate
Demographic: M/F: 50/50 Age: M/F: 30/70; Age: M/F: 70/30; Age: Age: 40+
35-49 30-40 35-50
 ERRC Grid yellow tail
T h e C as e o f yell o w t a il

E lim i na t e R ais e

E no log ic a l t erm in ol og y & d is tr ac tion s P r ic e v e rs u s bu d get wi ne s

A g ing q u a li tie s R eta in s tore inv o lv eme n t
A bo v e - the- li n e ma rk et ing

R e d uce C r e ate

Wi ne c o m p le xi ty E asy d ri n ki n g
Wi ne R an g e E ase o f s e lect i o n
Vi ne y ar d pr es tige F u n & a dv e nt u r e
 To Be Canvas
•Eliminate

•Reduce

•Raise

•Create
Yellow Tail
• Only 2 types initially – Chardonnay and Shiraz
• Fruity, soft on palette, sweet-ish – great for those who had
not drunk wine before
• Same bottle for red and white – low logistics costs
• Simple vibrant packaging – lower case letters/kangaroo
• Un-intimidating
• They were selling “The essence of a great land … Australia” –
ie they were not selling the wine
• Australian clothing for the retail staff – they enthusiastically
promoted a wine they could understand.
 Value Innovation of [yellow tail]
•Creating of a social drink that is accessible to
anyone
Utility proposition
•Easy drinking, ease of selection, sense of fun and
(customers, distributors and adventure
retailers) •Limit number of SKUs
•Price to move at volume

Price proposition •Targeted at the mass of customers

•Priced against the alternative (6-pack)

•Elimination of working capital tied up in aging wines

Cost structure •Fast product turnover
Strategy Canvas
Blue Ocean
Value Curve of a
wine called
yellow tail
Focus on offering

Added Value
Offerings

Value offerings
Results
• No 1 imported wine (outsells France and Italy)
• Fastest growing imported wine in the history of the
USA industry
• New consumers of wine
• Jug drinkers trade up
• Premium wine drinkers trade down

• Industry criticizes them mercilessly at first

Now wine press blurb gives it a “best buy” for

value; winning wine awards.
The Case of Cirque du Soleil

• Cirque du Soleil achieved rapid growth in a

declining industry with low profit potential
• Cirque du Soleil created uncontested new
market space that made the competition
irrelevant
• If you don’t know them you can see some at
• http://www.youtube.com/watch?
v=M4lAPI5BAuk
 Example: Cirque du Soleil

• Instead of simply trying to outpace the

competition, Cirque du Soleil offered people
both the fun and thrill of the circus and the
intellectual sophistication of the theater
• Because of this, Cirque du Soleil appealed to
both circus customers and noncustomers
Example: Cirque du Soleil

• Each show, like a theater production, had its

own unique theme and storyline
• This allowed customers to return to the show
more frequently
• They also did away with the traditional high-
priced concessions and vendors thereby
cutting costs
Example: Cirque du Soleil

• Cirque du Soleil effectively combined the best

of both the circus and the theater while
eliminating everything else
• This allowed them to achieve both
differentiation and low cost
Eliminate-Reduce-Raise-Create

Eliminate Raise
Star Performers Unique venues
Animal shows
Aisle concession sales
Multiple show arenas
Reduce Create
Fun and humor Theme
Thrill and danger Refined environment
Multiple productions
Artistic music and dance
 The Strategy Canvas
of Cirque du Soleil
Eliminate Reduce Raise Create
hi
Ringling Brothers

Cirque du Soleil
offering level

Smaller Regional Circus

lo
Animal Shows Multiple Show Theme Multiple
Price Thrills & Danger
Arenas Productions
Star Performers Aisle Concessions Fun & Humor Unique Venue Refined Viewing Artistic Music
Environment & Dance
© Kim & Mauborgne 2006
Six Paths to Reconstructing
Market Boundaries (Principle 1)

Six Paths
to Blue
Ocean
Creation
Focus on the Big Picture and Not
The Number(Principle 2)
“The best strategy is the one which can be
explained in less than 10 minutes”
How to make your blue ocean strategy:
 Visualizing Strategy at
Corporate level (PMS Map)
A company’spioneers are
the businesses that offer
unprecedented
value.

The potential ofmigrators lies

somewhere in between. Such
businesses extend the industry’s
curve by giving customers more
for less, but they don’t alter its basic
shape.

Settlers will
not generally contribute much to a
company’s future growth. They
are stuck within the red ocean.
Reach beyond existing
demand (Principle 3)
• Ex: First Tier- Pret, the fast food chain of UK
• Ex: Second Tier:- JCDecaux of France dealing
in outdoor advertisement. How they used
Street furniture for advertisement
• Ex: Third Tier- Joint Strike Fighter programme
of US Navy, Marines and Airforce
 Getting the Strategic Sequence
right (Principle 4)
Testing Sequence to check validity of
Blue Ocean Strategy: Works or not?
 Buyer’s Utility Map: Identifying
obstacles while buying and using

The newer and

focused your
offerings
chances are it
will be blue
Executing Blue Ocean
Strategy
Overcoming Key Organisational
Hurdles
• To overcome these organisational hurdles, the
companies must abandon the perceived wisdom on
effecting change.
• Conventional wisdom asserts that the greater the
change, the greater the time and resources will be
required to bring about results.
• Need of Tipping Point Leadership : To overcome
these four hurdles fast and at low cost while winning
employees backing.
• Disproportionate Influence factors being the pivot
lever.
Breaking through Cognitive Hurdle
• Do not make case with numbers.
• Bringing employees, managers
face to face with the worst
problems
• Connecting managers to market
and listening to dissatisfied
customers
Overcoming Motivational Hurdle
• Focussing on key influencers and
making their actions visible
throughout.(focus on king pins)
• Atomising the higher goals into
smaller goals to make it look
attainable
Jumping the Resource Hurdles
• Identifying starved and
oversupplied resources and
linking them to performance(hot
spots, cold spots and horse
trading
• Resource allocation redistribution.
Knocking over the Political Hurdle
• Have a highly respected
insider who aligns with the
strategy and keeps the politics
in check
• Keeping the allies and
dissidents in check.
 Building Execution Into Strategy

• Overcoming organisational hurdles is a key step as it

removes the roadblock that halts even the best of
strategies but company needs to invoke the most
fundamental base of action : attitudes and behaviour
of people deep in the organization.
• This principle aims at building people’s trust and
commitment and inspiring their voluntary
cooperation
 Fair Process

Valid for both- internal and external stakeholders

The Three Strategy Proposition
Blue Ocean
Strategy
Approach
The alignment of
Value proposition the three strategy
The utility buyers receive from an propositions in
offering minus the price they pay pursuit of both
for it. differentiation
and low cost.
Profit Proposition
The revenue an organization
generates from an offering minus
the cost to produce and deliver it.
Red Ocean
People Proposition Strategy
The positive motivations and Approach
incentives put in place for the The alignment of
people needed to support and the three strategy
implement the strategy propositions in
pursuit of both
differentiation
and low cost.
Barrier to Imitation
Imitation barrier to Blue Ocean Strategy
Alignment barrier
• Alignment of the value profit and people propositions around both differentiation and
low cost builds sustainability and hence a formidable barrier to imitation.
Cognitive and Organizational barrier
• Value innovation does not make sense to the company’s conventional logic.
• Imitation often requires significant organizational changes.
Brand barrier
• Blue Ocean Strategy may conflict with other companies brand image.
• Companies that value-innovate earns brand buzz and a loyal customer following that
tends to shun imitators.
Economic and legal barrier
• Natural monopoly: The market often cannot support a second player.
• High volume leads to rapid cost advantage for the value innovator, discouraging
followers from entering the market.
• Network externalities discouraging imitation.
• Patents or legal permits block imitation.
 Renewal of Blue
•
oceans
Renewal at the Individual business level
• To avoid the trap of competing at the individual business level,
monitoring value curves on the strategy canvas is essential.
• It alerts an organization to reach out to another blue ocean when its
value curve begins to converge with those of the competition.

• Renewal at the Corporate Level for a Multi business firm

• Due to its portfolio of diverse business offerings, it should be
continuously monitored from time to time.
• Dynamic extension of PMS (Pioneer, Migrator, Settler) map is used
to depict the movement of portfolio over time.
• As pioneers move to migrators and eventually to settlers, it is
important to keep healthy balance between all the three and keep
reviving the pioneer section accordingly.
 Apple’s Portfolio Over The Years

App Store App Store iPa

d
Pioneers iTunes store iPhone

iTune Store
iPod

iTune Store
iPhone
Migrator Macintos
iPod
s Macintos
h Macintos
h h Macintos
iPod h

Settlers

1997 2003 2008 2014

 Avoiding Red Ocean
Traps
• The belief that blue ocean strategy is a customer oriented
strategy that’s about being customer led
• The belief that to create blue oceans, you must venture
beyond your core business.
• The misconception that blue ocean strategy is about new
technologies
• The belief that to create a blue ocean, you must be new to
market.
• The misconception that blue ocean strategy and
differentiation are synonymous
 Avoiding Red Ocean
Traps
• The misconception that blue ocean strategy is a low cost
strategy that focuses on low pricing
• The belief that blue ocean strategy is the same as
innovation
• The belief that blue ocean strategy is a theory of marketing
and a niche strategy
• The belief that blue ocean strategy sees competition as
bad when in fact it can be good for companies
• The belief that blue ocean strategy is synonymous to
creative destruction or disruption.