Heavily occupied markets primarily mean one thing: a tough battle for the pole position. The far greater opportunity is offered by blue oceans, as the inventors of this business strategy call the unoccupied markets. But what's behind it? What exactly the Blue Ocean Strategy is and how entrepreneurs can develop it in practice, you can read here. Also: examples, advantages, justified criticism, and what we can still learn from it.
At a Glance
Markets as free as the wide, blue ocean - that's what the Blue Ocean Strategy promises.
Goodbye competition, hello innovation - the Blue Ocean Strategy makes it possible. Motto: Away from highly competitive markets (Red Oceans), towards the new market (Blue Oceans). The clue: Companies should create the blue oceans themselves. Rethinking is required. And massively so. Practical examples show how this works. The criticism of the method is justified. Nevertheless: The tools of the Blue Ocean Strategy are valuable tools for Strategic Management - whether in red or blue oceans.
Definition: What is the Blue Ocean Strategy?
What does a business strategy have to do with blue oceans? Well, quite clearly: Success. Simply explained, the Blue Ocean Strategy means nothing other than to detach oneself from fiercely competitive markets (Red Oceans) in business development and to settle in the free waters of new markets, the so-called Blue Oceans. Finding unoccupied markets? That doesn't sound so easy. It isn't.
The Blue Ocean Strategy is therefore about inventing a new market yourself and offering customers innovations there, true to the approach: self-made entrepreneur. This, according to inventors W. Chan Kim and Renée Mauborgne, promises high profit and low costs. The reason for this is obvious: The competition is still missing in the market.
Study and Book on Blue Ocean Strategy
The high growth and above-average ROI of this strategy were proven by the study "Value Innovation: The Strategic Logic of High Growth" (1997). In 2005, the book "Blue Ocean Strategy" was published, with many examples and tests of European companies and industries. To be able to apply the Blue Ocean Strategy in practice, we must first gain a deeper understanding of the markets.
About Red and Blue Oceans
Red Oceans are all industries we know. They are markets whose rules, boundaries, and market participants are known. The strategy there usually looks like this: Competitors tweak features, prices, and messages, the best manage to analyze and secure their positioning so cleverly that they end up in the top positions. The fight for demand is and remains tough. It can literally "draw blood" at times.
Characteristics of the Red Ocean Strategy
Known markets, lots of competition, tough battle, rivals must be outperformed, strategy: differentiation or cost reduction, securing demand.
Blue Ocean Strategy
It's quite different in the Blue Oceans, as these market fields simply don't exist yet. And that's the clue to the whole thing, and the crux. The task is: Don't fight for demand, but create it. The tool for this is a substantial, strong, and above all completely new USP (Unique Selling Proposition)!
Characteristics: Newly invented markets, no or little competition, little struggle, rivals don't exist/barely exist, strategy: differentiation and cost reduction, creating and securing demand (different customers through new USP).
Well-known Examples of the Blue Ocean Strategy - and Two Strategic Approaches
According to the inventors, there are two approaches to how Blue Oceans can be developed, which the following prominent examples illustrate very well.
Creating a Completely New Industry
eBay invented a completely new market: online auctions. Before eBay, there was no comparable platform that allowed private individuals to auction their used items to other private individuals. eBay thus created a new market and established itself as a pioneer.
Creating an Unoccupied Market Field from an Occupied Industry
Cirque du Soleil combined theater with the traditional circus idea and created a profitable Blue Ocean from the sinking Red Ocean circus. By combining theater art and circus acrobatics, Cirque du Soleil created a completely new entertainment experience that sets itself apart from traditional circuses.
More Examples
- Apple revolutionized the music industry with iTunes by creating a legal and user-friendly platform for purchasing and downloading music.
- Uber fundamentally changed the taxi and transport industry by creating a new market for ride-sharing services.
- Airbnb created a new market in the accommodation sector by enabling private individuals to rent their apartments and houses to travelers.
- Tesla entered the automotive market not as a traditional car manufacturer, but as an innovator in the field of electric vehicles.
- Yellow Tail revolutionized the wine market by making wine accessible to the mass market.
Developing Blue Ocean Strategy: From Theory to Practice
To be able to apply the Blue Ocean Strategy, there are various tools that are coordinated with each other.
Step 1: Redefine Product/Service with the ERRC Square
This Blue Ocean tool initially helps companies approach their blue ocean and potential customers. The following questions are intensively addressed, which together help to reduce costs (Elimination and Reduction) as well as increase benefits (Raise and Create). The result is a strong USP.
- Eliminate: Which factors can we remove that are seen as disruptive by the target group and where there is too much competition?
- Reduce: Which features can be reduced that are rather unimportant?
- Raise: What is very important to customers? What should we increase/deepen beyond the market standard?
- Create: What could be new, previously unknown features that satisfy (emotional) needs of the target group?
Important: Always think from the perspective of the ideal target group and never focus only on the "WHAT"! The Why-How-What method, for example, helps with this.
Step 2: Measure Success with the PMS Square
Next, companies should review their current and planned product range. The PMS Square helps strategy departments with this, the results of which provide a good basis for strategic orientation in the market and in marketing.
Categorize your portfolio into the following categories:
- Pioneers: Innovative offerings with strong growth potential (and thus the greatest chance for Blue Oceans).
- Migrators: Optimized products whose potential lies between red and blue markets.
- Settlers: Innovative products that already exist frequently (imitations) and thus belong to Red Oceans.
Evaluation: Based on the graph, you can see if you're giving away growth potential by focusing mainly on Migrators, or if you need to prepare for rather low future growth with high effort because your portfolio consists mainly of Settlers. In both cases, new, innovative solutions would be perfect to improve your growth opportunities.
Step 3: Evaluate Changes with the Value Curve
Now it's about directly comparing your own company and its products with the competition. The value curve makes this clear: You visualize the core features of your product on the horizontal axis and their expression compared to the competition on the vertical axis. This makes it even more apparent where and how you can differentiate yourself and where new, unoccupied market fields might open up.
The following search paths help in opening up new markets:
- Do you see relevant alternative markets?
- Are there new buyer groups that fit you?
- Are there complementary products or services that come into question?
- What emotional needs that animate buying have you overlooked so far?
- Are there trends?
Advantages and Disadvantages (Criticism) of the Blue Ocean Strategy
The advantages are probably obvious. Once you've found your functioning Blue Ocean and manage to position yourself well here in the long term, you've won for the time being.
Advantages at a Glance
- Competition becomes easier or disappears completely.
- High ROI, strong growth possible.
- Innovation and agility at its best.
Disadvantages of the Blue Ocean Strategy at a Glance
- Entrepreneurs must be ready for big changes, especially if they are established companies.
- Everything new: sales, marketing, etc. A company must be set up for this: The bigger the changes, the more resources are needed.
- Hardly feasible alone for many giant corporations.
- It stands and falls with the target group and their demand - if that's not met, there's no blue ocean.
- Teams must be pulled along - without employees who believe in and support the new strategy, nothing works.
The Probably Biggest Criticism
The book only mentions successful companies, i.e., those that have made it. However, according to the book, only Nintendo strategically pursued the Blue Ocean approach from the beginning. All other business models were created BEFORE the strategy, or the Blue Ocean Strategy is based on the analysis of already successful organizations. Therefore, the question remains how well the approach can really be put into practice.
A functioning, promising business strategy therefore always includes a sophisticated and visualized vision, a connecting purpose (emotion sells!), strategic goals such as strategic marketing. And without a high-performing team that works independently and with maximum productivity, even the best business strategy brings nothing. It stands and falls (in the long term) with leadership and agility. Especially in times of digitalization and skilled labor shortage, both are one of the most important tasks, also of strategic management.
Blue Ocean or Red Ocean - Your Path
Whether it's the blue or the red ocean, a razor-sharp USP, successful annual planning, and top teams are indispensable for every successful company. The tools from the Blue Ocean Strategy mentioned above always help with this.
Do you need support with growth and strategic orientation? Do you want to know how to reach your goal quickly? Then feel free to arrange an initial free conversation with me. Together we'll find the path that perfectly suits you and your organization - and lets you grow sustainably, no matter in which markets!
