BY W. CHAN & RENÉE MAUBORGNE
This book challenges readers to rethink traditional incremental innovation approaches. Typically, head-to-head competition is the norm for increasing market share, but this book teaches readers that there is a better way to compete and win. Based on a study of 150 strategies in 30 industries, the authors make their case for using innovation instead of fighting for position in a competitive market. Readers will learn that strategic success depends on creating a “blue ocean,” a market space that is uncrowded and primed for growth, by investing in innovation that brings more value to customers.
“Blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant.”
In creating this blue ocean, readers can avoid fighting for incremental competitive advantage and market share in what the authors call “the red ocean.” Red oceans are the overcrowded, bloody, cutthroat arenas where companies struggle to stand out and compete amidst shrinking profits. Readers will learn that this approach inhibits value innovation, causes price wars, and limits profit margins, creating a marketplace that prevents sustainable, profitable growth. By creating and capturing their blue ocean, readers can get out of the red ocean and stand out by focusing on innovation that creates a whole new market.
The blue ocean strategy is based on the alignment of the three strategy positions of value, profit, and people. Readers will find that this approach of value innovation, a process where a company introduces new technologies designed to achieve both product differentiation and low costs, is far more effective than merely pursuing innovation for its own sake. By creating a demand, rather than competing for limited demand, companies can stop fighting a fight they have little chance of winning.
“Value innovation requires companies to orient the whole system toward achieving a leap in value for both buyers and themselves.”
The systematic approach of the blue ocean strategy is founded on principles that can create a great leap in value that can make competitors irrelevant. The principles are comprehensive, easy to learn, and easy to implement for a new start-up or an existing business that wants to push the boundaries in a red ocean within their industry. Blue ocean strategy provides a clear four-step process to help readers redesign their market.
Step 1 — Reconstruct the market boundaries. This step involves rethinking assumptions about the size and scope of a particular market. By understanding where the competition is operating and what they offer, readers can find opportunities to create a blue ocean for their business. A prime example of this type of thinking is the consistent growth of the grocery chain Aldi in Australia. By challenging the assumption that they had to compete directly with their established competitors, Aldi found their niche by offering about half of the lines of products that were typically offered. This value innovation approach resulted in the chain opening an average of 30 new stores annually.
Step 2 — Focus on the big picture, not the numbers. By using a strategy canvas, a central diagnostic tool and an action framework developed by the authors for building a compelling blue ocean strategy, readers can determine the demand of a particular niche. It graphically represents, in one simple picture, the current strategies and potential prospects for a company.
Step 3 — Reach beyond existing demand. By focusing on non-customers and why they aren't a customer yet, readers can begin to figure out what innovations would result in more value and a broader market. By challenging the assumptions of demand in their industry, companies can begin to discover ways to create demand with value innovation.
Step 4 — Get the strategic sequence right. Building a blue ocean strategy includes four keys:
- Buyer utility, the extent to which customers can see the value and ease-of-use of a product, is the foundation for creating a product or service that is unique in the marketplace.
- The pricing structure must target large consumer groups. By appealing to the largest customer base with pricing that is seen as a value, readers can differentiate themselves and access a larger market.
- Costs of production must be low enough to ensure a healthy profit consistently. By focusing on reducing waste and increasing efficiency, the bottom line becomes healthier.
- Adoption, implementing practices that minimize customer effort and frustration, is critical in making it easy for customers to buy. By reducing or eliminating obstacles for customers, readers will find that customers are much more inclined to try a product or service.
“What are the alternative industries to your industry? Why do customers trade across them? By focusing on the key factors that lead buyers to trade across alternative industries and eliminating or reducing everything else, you can create a blue ocean of new market space.”
Cirque du Soleil, the largest theatrical producer in the world, uses circus styles from all over the world to present themes and storylines in their performances. Cirque's performances have been seen by more than 150 million people in over 300 cities since their creation twenty years ago, and their success can be attributed to creating a blue ocean. The circus industry had been steadily declining over the last few decades, and Cirque knew that it couldn't succeed by offering the traditional circus experience. Instead, they intentionally designed their performances to appeal to a completely different audience. Their target audience is adults who can, and will, pay higher prices for a unique entertainment experience.
By understanding the current state of the circus industry and rethinking the traditional circus customer, Cirque was able to create a demand for a different experience, effectively eliminating traditional competition in the industry. Using the principles of the blue ocean strategy, they were able to reinvent the circus experience and create a whole new market in a declining industry. By refusing to compete in the existing red ocean, Cirque found a profitable niche and a unique product that put them in a position of market dominance.
- Don't try to outperform competitors
- Create a new marketplace to make competitors obsolete
- Creating value innovation is the key to creating a blue ocean strategy
- Value innovation must include differentiation and cost control elements
Readers who adopt the blue ocean strategies in their own companies will find ways to finally get out of the cycle of traditional competition. They will learn how to innovate their products and services in ways that create broader demand and unique marketplaces by focusing on what customers want and making it easy for them to get it.