The concept of a “blue ocean” was conceived by Chan Kim and Renee Mauborgne in the mid-2000s to denote a previously unexplored area of the market, free of competition and preset rules. According to the information presented in their book published on the subject, a blue ocean provides plenty of opportunities to entrepreneurs and might be discovered or created by following certain advice, which the authors had outlined in their research.
Blue ocean strategy, introduced in the book of the same name, suggests gaining profits by innovation and taking a new route in business, and the authors based their ideas on the research they had performed for over more than a decade, during which they had reviewed the activity of multiple companies in different industries.
Main features of Blue Oceans
Businesses that operate in blue oceans are mostly innovators in their spheres, and in most instances, entering a blue ocean is associated with combining product differentiation with low production cost, which is opposed to the situation within red markets, in which it’s usually considered that an entrepreneur has to choose one of those things. The theory presented by Chan Kim and Renee Mauborgne disputes this notion, giving examples of successful companies (for instance, Ford, Cirque du Soleil, Nintendo) which managed to achieve success by pursuing both goals. By following a strategy of maintaining low production cost while offering a relatively new product to the public, it’s possible to find a new business area, which is a blue ocean.
Although the projection of entering a blue ocean is highly attractive for any entrepreneur, there are difficulties associated with such a procedure. Firstly, a blue ocean implies a new area, which means a lot of studying and research, putting effort into innovation, and implementing new strategies into life, which doesn’t always run smoothly. Additional difficulties are also connected with a fact that popular and demanded spheres are already taken, and it may be a challenge to create a new one, and the challenge is often combined with high risks. However, blue ocean theorists assume that a consistent and methodical approach to creating a blue ocean or shifting to it minimize the risks involved. But still, there are disadvantages and hazards important to be noted, such as too fast and radical changes while shifting to a blue ocean might result in a decline instead of a success, so other business factors and strategies should also be considered and kept in mind while implemented the blue ocean strategy.
Blue Oceans and red oceans
For a better understanding of the concept, it’s possible to divide all business areas and market segments into two contrasting groups — red oceans and blue oceans. Red oceans are all markets that are already filled with manufacturers or service providers, and where the competition exists.
In most cases, the market rivalry is rather severe, as every company competes for its own share of demand among other companies offering a relatively similar product. Such a situation makes businesses to search for compromises between value, prices, costs and customer service, trying to attract and retain the customers, who can turn to their competitors at any moment. And even if a company manages to keep the customers for a long time, it results in another company’s losses in that sphere, which makes a competition bloody. This is what provides the name for a business area operating under this scheme — a red ocean.
An opposite situation takes place if a company doesn’t enter a market with the already established rules and pre-existing demand, but instead of it pursues a new goal by creating a unique offer, thus creating a new market. A perfectly blue ocean refers to a market area with a total absence of rivalry, and a company that succeeds in finding such a sphere is granted with a range of possibilities connected with the lack of competitors. For instance, a company which created a blue ocean owns more freedom in price setting, gains some cost advantages, and in general has more flexibility and control over their product development.
How to enter a Blue Ocean
The authors of the Blue Ocean strategy focus on the importance of intention to combine two objectives previously considered to be mutually exclusive — a low cost of production and a product’s uniqueness. This is considered to be a key to innovation, which is necessary to shift to a blue ocean. The authors offer several ways, tools and methods of finding a balance between those goals.
The most general course of action aimed at reaching the abovementioned goals and entering a blue ocean is the following:
- Studying and assessing the current market state to spot tendencies, possible demand meeting no offer, and other important information;
- Setting up initial points and appointing a crew responsible for the whole affair;
- Determining weak spots and areas withing a company or a sphere in general, which might be omitted, altered or reorganized to innovate the business process or create a fully new one;
- Finding out ways and methods of turning non-customers into customers, creating a demand instead of fighting for a share of existing demand;
- Planning a whole strategy, concentrating on a big picture and a change of market boundaries;
- Getting into action and testing the strategy.