Blue Ocean Strategy
How to Create Uncontested Market Space and Make the Competition Irrelevant
Jan 3, 2025
W. Chan Kim
#Business, #Marketing
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Brief summary
The Blue Ocean Strategy describes how companies can create new, untouched markets instead of competing in existing ones. The goal is to offer value-driven innovation, providing products or services that combine differentiation with low costs. This strategy systematically demonstrates how to redefine market boundaries, tap into demand, and build sustainable competitive advantages.
General ideas
A Blue Ocean is an untapped market with newly created demand.
The focus is on customers, not on the competition.
Market structures can be actively shaped.
Value innovation arises when benefits, price, and costs are in harmony.
It is important to achieve differentiation and cost reduction simultaneously.
Market boundaries are constructed and can be changed.
Contents
Analytical tools
Strategy Canvas and Value Curve:
A visual tool to understand a company's strategic direction compared to its competitors.
First, various product attributes are listed and analyzed by different competitors. Each product attribute is evaluated and represented in a value curve . Blue Oceans show a significantly different curve than their competitors.
Product features:
Price
Use of
communication
Above-the-line marketing
Aging quality
Vineyard prestige and legacy
Wine complexity
Wine range
Easy drinking
Ease of selection
Fun and adventure
Comparison of cheap and expensive wine products with the innovative brand "Yellow Tail"
It is evident that Yellow Tail's curve stands out significantly from the competition.
4 Actions Framework:
Four ways to create new value.
Eliminate: Remove factors that provide no benefit.
Reduce: Reduce elements that are excessive.
Raise: Increase factors that customers value.
Create: to create entirely new benefits.
3 characteristics of a good strategy:
Focus: Concentration on a few key factors.
Divergence: Deliberate differentiation from the market.
A memorable slogan: A clear, memorable message.
Developing a Blue Ocean Strategy
6 ways to redesign market boundaries:
Analyze alternative industries and understand customer motivations.
Comparing strategic groups within an industry.
Examine the buyer chain and identify untapped target groups.
Include complementary products and services.
Balancing functional and emotional purchase incentives.
Identify long-term trends and use them strategically.
Strategy development:
Visual Awakening:
Comparing your own strategy with competitors to identify weaknesses.
Visual Exploration:
Examining alternative markets to determine what should be removed, created, or adapted.
Visual Strategy Fair:
Development of a new strategy based on market insights and customer feedback.
Visual Communication:
Communication of the new strategy with clear visual representations and concrete action plans.
Thinking beyond the existing market:
Analyze non-customers and understand why they stay away from the market. Develop strategies to remove barriers and create new demand.
Blue Ocean Criteria
A Blue Ocean strategy must offer exceptional value to the customer, be reasonably priced, profitable, and be accepted by the market. The strategy can be built using this sequence:
Buyer Utility: Does the product deliver unique value to the customer? If not, revise.
Price: Can the target group afford the product? If not, revise.
Cost: Are the costs for the product low enough to make it profitable? If not, revise.
Adoption: Are there any obstacles for the customer that prevent the product from being adopted by the market? If so, revise.
Buyer Utility Map:
Evaluation of whether an idea provides genuine benefit. The product's characteristics are examined in six phases, from purchase to disposal, and analyzed taking into account six aspects that improve customer benefit.
The six phases of customer benefit:
Purchase: How easy is it to find, buy, and pay for the product? Is the purchase process safe and fast?
Delivery: How quickly will the product be delivered? Is the setup or installation easy or complicated?
Usage: Is the product easy to use and store? Does it require training or is it unnecessarily complex?
Additional products: Are additional products or services needed for it to work? How expensive, time-consuming, or impractical are these?
Maintenance: Does the product require regular maintenance or updates? How easy and cost-effective is the maintenance?
Disposal: Does the product generate waste? How easy, safe, and inexpensive is disposal?
In each of these phases, the product can use the following levers to increase its value:
Productivity: Can the process be accelerated?
Simplicity: Can the process or product be simplified?
Comfort: Can comfort be increased during or through use?
Risk: Can the risks be minimized?
Fun: Can the product or process be made more fun?
Environmental friendliness: Can the product or process be made more environmentally friendly or sustainable?
This results in a table, the Buyer Utility Map , which lists the possible improvements to the product:
Pricing strategy:
The pricing strategy is based on a strategic target price. A target profit is then defined, from which the maximum permissible costs for the product are derived. Partners are then sought and processes optimized until the desired criteria are met.
Strategic pricing:
Defining a strategic price in comparison to alternatives. Determining the price corridor and selecting a position within it (low, medium, or high). The easier an offer is to imitate, the lower the price should be set.
Target Costing:
Determining target costs based on the strategic price and the desired profit margin. Cost reduction through process optimization, partnerships, and new pricing models.
Execution and implementation of the strategy
Overcoming organizational hurdles:
When implementing a Blue Ocean Strategy, four main barriers arise that must be specifically addressed.
Acceptance of change: Changes often encounter resistance. To overcome this, employees should experience the existing problems firsthand and understand why change is necessary. Direct contact with dissatisfied customers helps to recognize the urgency and build motivation.
Limited resources: Effective use of existing resources is crucial. Resources should be concentrated on so-called hot spots , i.e., activities with low effort and high benefit. At the same time, cold spots with high effort and low benefit are reduced. Resources that are not needed can be exchanged for more important ones.
Lack of motivation: Influential individuals, so-called kingpins , are used as role models. They publicly demonstrate the desired behavior and encourage engagement. Through the Fair Process , efforts are recognized, clear goals are set, and progress is communicated, which strengthens motivation and participation.
Corporate policy: Internal power structures can hinder progress. An experienced consultant can help mediate conflicts. Different interests are taken into account: Angels benefit from the change, Devils lose influence. The crucial point is to focus on the people and actions that have disproportionate influence.
Integrate implementation into the strategy:
Implementation requires fair and transparent processes based on three principles:
Engagement: Employees are actively involved in decision-making. They are encouraged to express their ideas and are recognized for their contributions.
Explanation: The reasons behind strategic decisions are explained openly. Everyone understands why certain measures are taken.
Clarity of expectations: New rules and standards are clearly formulated. Goals and milestones are understandable and verifiable.
Alignment of value, profit and people:
A successful Blue Ocean strategy is based on three interconnected pillars:
Value Proposition: The benefit that buyers derive from an offer, minus the price paid.
Profit Proposition: Revenue in relation to the costs of production and delivery.
People Proposition: Motivating incentives for the people involved in the implementation.
A true Blue Ocean only emerges when all three dimensions are in harmony and differentiation and cost advantages are created simultaneously.
Blue Ocean Renewal:
Because new markets attract imitators over time, Blue Oceans need to be renewed regularly.
Barriers to imitation:
Alignment barrier : When value, profit, and human offerings are closely aligned, imitation is difficult.
Cognitive and organizational barrier: Value innovation contradicts established ways of thinking and requires structural adjustments.
Brand barrier : A strong brand identity makes it difficult for competitors to credibly copy the model.
Economic and legal barrier: High volumes, patents or licenses protect against rapid imitation.
Renewal steps:
Blue oceans are not permanent. Companies should regularly monitor their industry's value curves, develop new products, and work with the Pioneer-Migrator-Settler Map approach. This is how they succeed in opening up new markets and revitalizing existing ones.
Avoiding Red Oceans
To avoid falling back into saturated markets, the following applies:
Focus on non-customers rather than existing customers.
New markets can also emerge within the existing core business.
Technological innovation is not an end in itself; value innovation is what matters.
Success comes from creating new value, not from early market entry.
Think strategically: increase, reduce, create or eliminate to lower costs and increase benefits.