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What is Blue Ocean Strategy?
Blue Ocean Strategy is a business strategy framework that aims to create uncontested market spaces, also known as “blue oceans,” instead of competing in existing, crowded markets, also known as “red oceans.” Developed by W. Chan Kim and Renée Mauborgne, this strategy focuses on finding new markets and creating innovative value propositions to attract untapped customers.
The Concept of Blue Oceans and Red Oceans
In the traditional business environment, companies operate in red oceans, where competition is intense and market boundaries are well-defined. Companies in red oceans constantly fight for market share, leading to saturated industries and often diminishing profits.
Contrastingly, blue oceans represent markets that are yet to be explored or invented. These markets are devoid of competition as they offer unique products or services that cater to a different set of customer needs. By strategically creating blue oceans, companies can break away from the competition and achieve sustainable growth.
How Does Blue Ocean Strategy Work?
Blue Ocean Strategy encourages companies to pursue differentiation and low-cost simultaneously. This can be achieved by following the following key principles:
1. Value Innovation: Instead of competing solely on price or features, companies are encouraged to create uncontested market space by delivering superior value to customers through innovative offerings that align with their needs.
2. Eliminate, Reduce, Raise, Create: This analytical tool helps companies identify factors that can be eliminated or reduced to reduce costs, while simultaneously identifying factors that can be raised or created to increase customer value. By challenging industry assumptions, companies can forge new markets.
3. Reach, Resonance, Relevance: This strategy framework also emphasizes the importance of appealing to three tiers of non-customers: “soon-to-be” customers, “refusing” customers, and “unexplored” customers. By understanding and catering to the needs of these non-customers, companies can create new demand.
4. Visualizing Strategy: Blue Ocean Strategy also encourages companies to create visual and easily understandable strategy canvases to foster internal communication and alignment.
Real-world Examples of Blue Ocean Strategy
One notable example of companies successfully implementing Blue Ocean Strategy is Cirque du Soleil. By combining elements of traditional circus performances and theater, Cirque du Soleil created a new form of entertainment that appealed to a broader audience. They eliminated costly elements of traditional circuses, such as animal acts, and focused on artistic performances, thus creating a blue ocean market.
Another example is the entry of Southwest Airlines into the airline industry. By offering low-cost, no-frills flights and targeting customers who previously avoided air travel due to high prices, Southwest Airlines created a new market segment that was untouched by traditional airlines. This move allowed them to operate profitably while avoiding direct competition.
In conclusion, Blue Ocean Strategy offers a fresh perspective on business growth by challenging conventional competition strategies and encouraging companies to explore new markets. By creating uncontested market spaces, companies can differentiate themselves, deliver superior value to customers, and achieve long-term success.
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