What is Blue Ocean Strategy? 

Businesses need markets to survive. The simple rule of demand and supply applies here: when there is market demand, a business comes into existence to supply what the market needs. However, what happens when the market becomes saturated with multiple businesses, all at once, in the same place? 

When the competition gets tough and survival seems impossible, discovering new market spaces seems to be the only way out. This is when adopting the Blue Ocean Strategy makes sense—a dynamic framework that helps businesses explore new markets, encourages creativity and innovation, and enables them to achieve sustainable growth. 

In this blog, we seek to answer what Blue Ocean Strategy is and its relevance in today’s cut-throat competitive business environment.

What is the Blue Ocean Strategy?

Let’s begin with a simple explanation of the Blue Ocean Strategy in layperson’s terms. It refers to a well-designed business framework that employs innovation to create new, untapped market spaces for businesses to thrive, rather than continuing to compete in an already saturated market. 

This is because the former seemingly presents high growth potential and is thus also referred to as a blue ocean, in contrast to the latter (known as the red ocean). 

The Key Principles Behind Blue Ocean Strategy

The core principle that makes the Blue Ocean Strategy work is its idea of creating new market spaces that are completely uncontested, referred to as the blue ocean, rather than competing in a crowded space called the red ocean. This is the exact principle that governs the entire Blue Ocean Strategy theory. 

Let’s look at some of the key principles defining this strategy in a little more detail below:

• It’s a systematic process: The Blue Ocean Strategy focuses on following a step-by-step path to taking the business where it desires to be. It starts by evaluating the business’s current position in the industry, then discovers new paths/markets for it to thrive in, and finally identifies new ways to convert potential customers into consumers. 
• It works on creating a win-win situation: By bringing together the three strategic components of a business that drive its success – profit, value, and people – to create a win-win result for all. By bringing a value system into its approach and honoring the people who work for it, a business is better able to earn profit.
• More opportunity; less risk: The Blue Ocean Strategy allows a business to first test its ideas in a brand-new space to determine their commercial viability. This exercise also helps the business tweak its approach to improve outcomes while reducing overall risk.

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Red Oceans vs Blue Oceans   

This is an interesting analysis that helps you better understand how the Blue Ocean Strategy differs from the Red Ocean Strategy that we mentioned earlier in this blog. For a quick recap, a red ocean is defined as an existing market space that is booming with businesses competing with one another, each trying to outperform the other and vying for a larger market share. The competition is literally cut-throat, hence giving it the name ‘red’ ocean. 

This is when, and also why, new businesses start turning to market spaces that are still relatively unknown (and unaffected) by competition. Like a ‘blue’ ocean, this space is also vast and clear, awaiting new businesses to explore the new waters for themselves. For a better understanding, the Blue Ocean vs Red Ocean Strategy is detailed below:

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The Four Actions Framework

This forms an integral part of the Blue Ocean Strategy, which focuses on ‘rebuilding’ the existing key elements of buyer value to ‘create’ a new value curve for the business to make its presence in the new market space. In the process of recreating the new value curve, the Four Actions Framework poses four questions to help businesses develop effective strategies. 

The Four Actions Framework can be better remembered through the following defined ‘ERRC’ keywords:

1. Eliminate: What factors that the industry takes for granted and that buyers no longer value can be completely ‘eliminated’ to significantly lower costs?
2. Reduce: Which factors that are considerably below reasonable industry standards can be ‘reduced’, while still being offered, to save on costs? 
3. Raise: Which factors do customers care the most about and can thus be ‘raised’ well above industry standards?   
4. Create: Which new factors can be ‘created’, which have never been offered so far by the industry, and which have the potential to unlock new demand by potential customers in the future?

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Real-World Examples

The best way to understand the Blue Ocean Strategy is to look at real-world, everyday applications of it as successfully implemented by leading companies in the market. These companies applied the strategy to create a new market (blue ocean) within the existing saturated industry (red ocean). Here are some Blue Ocean Strategy real examples to help you understand better:

• Netflix: This is one of the most popular examples of a current leader in the digital streaming space, pushing behind the DVD rental market competition and creating a completely new market space, which it took by storm. With one move, Netflix successfully did away with the hassle of physical DVD rentals and improved access to the world of media and entertainment.
• Apple iPhone: This is yet another classic example of the Blue Ocean Strategy in the technology world. In a saturated smartphone market, Apple iPhone made the smart move to stand out by doing away with physical buttons and a stylus, improving UX standards, and introducing the App Store and multi-touch features.

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Benefits of Blue Ocean Strategy

One of the prime advantages of the Blue Ocean Strategy is that it enables businesses to tap into unexplored (possibly powerful) market spaces. In the process, it can make competitors irrelevant. Here are some other key advantages of adopting a Blue Ocean Strategy:

• Helps access untapped markets: The strategy shifts focus to unexplored market spaces and a non-customer base in saturated markets. Competitors are already fighting over existing customers, making it nearly impossible to make any profit.
• Helps build long-term customer relationships: Since the Blue Ocean Strategy helps businesses serve new markets whose needs haven’t been met by existing competitors, its customers are likely to be more loyal to the brand for a longer time. As their pain point is addressed, they are more likely to return.
• Higher profits; greater growth: This seems highly unlikely in a scenario fighting direct competition. But with little competition, businesses can earn higher profits in an untapped customer market and contribute to its long-term growth.

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Challenges and Risks

Like any other business plan, the Blue Ocean Strategy isn’t devoid of its set of risks and challenges that it must navigate to help the business reach the top. Here are just a few of the potential issues with this plan:

• Uncertainty is high: The risk of entering an unexplored market space can be rather high for a business. What if there isn’t sufficient demand as expected? What if the business goes into a loss? It is nothing less than a gamble when the territory is uncharted, and no data is available to validate our fears.
• The company may misinterpret its offering’s uniqueness: It can be all about perception. A product or service may seem like a unique proposition to a business. Still, it may not be perceived the same way by its potential customers, who may view it as a minor refinement to an existing offering in the market. Misreading the market opinion or its readiness to embrace the offering may pose a serious challenge to businesses.
• There is a risk of competitor imitation: If the product/service performs too well in the market, there is a risk that the competition will replicate the same idea to grab market share.

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How to Apply Blue Ocean Strategy

We learned in detail about Blue Ocean Strategy, its benefits, and its challenges. Now, let’s take a quick look at how we can apply this strategy in the real world to win over an uncontested market space. Listed below is a simple step-by-step process that businesses can use to apply the Blue Ocean Strategy:

1. Research the current market: Assessing the red ocean (current market landscape) is the first vital step in the process. This helps you view your competitors’ market positioning.
2. Identify the problem: When you review the red ocean, you can identify specific pain points in the existing customer base—their unmet needs—and research why non-customers haven’t converted yet and aren’t using your product or service.
3. Apply the Four Actions Framework: Once you have identified the problem, it’s time to work on the solution—the ERRC grid or framework that we discussed earlier in the blog. Pose the four questions to yourself and try to find appropriate answers as the next step.
4. Innovate and create a value offering: The ERRC framework will help you develop a unique value proposition for the non-customer base. You can now focus on offering a unique, low-cost (but high-value) solution to your customers’ needs—your first step to tap an undisputed market space.
5. Implement and review: The last stage is to execute the Blue Ocean Strategy and monitor its results over time. It’s also crucial to regularly adapt to the evolving market needs to stay relevant in the blue ocean.

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Conclusion

Let’s put it this way—the Blue Ocean Strategy is much more than just a theory. It’s a potent means for businesses to push aside the boundaries of competition and carve new spaces to survive and thrive. It allows them freedom to move away from fighting rivals in saturated red oceans to unexploited market spaces.