Competition is killing many businesses in the modern world. Be it the existing business or any start- up, every business is fighting cut- throat competition. Most of the businesses give up due to this but few survive. There are some businesses which are successful creating their own markets which are free of competition. You will find many examples which are operating almost in a monopolistic way in their segment and creating a marketplace which is free of competition. Some examples of such businesses are Uber, Netflix, Meta, iTunes, etc. So how they are able to do that and what is this strategy called? The answer is ‘Blue Ocean Strategy’. Let us learn more about ‘blue ocean strategy’ in this post.
What is the Blue Ocean Strategy?
Blue ocean strategy is a business term created in 2005, which means creating the own market with little competition for a particular business. The ‘Blue Ocean’ refers to the vast empty ocean of opportunities that occur when a new innovative product or business appears.
The term “blue ocean” was discovered by INSEAD business school professors Chan Kim and Renee Mauborgne in their book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant (2005). The authors define blue oceans as those markets associated with high potential profits.
Blue Ocean and Read Ocean Strategies
In an established industry, there is intense completion among the players. The companies fight over the price of the product and many alternatives are available for the customer. As the profitability is low and hence the crucial thing to survive is to grab the market share. The businesses which are able to snatch substantial market share for them survive and the other companies may vanish from the market.
Blue ocean is opposite to this concept. In this strategy, the businesses find a marketplace for themselves having little competition. This may be done by several ways like discovering an unexplored market or making some innovative product or service. The entrepreneurs constantly strive for finding blue oceans as these are the high profitability markets and the business can play in almost monopolistic manner in these markets.
The blue ocean has several characteristics which are of interest for the entrepreneurs. Some of them are non- existence of competition, first mover advantage, high profitability and flexibility to operate. A comparison of blue ocean and red ocean strategies is given below in the tabular form:
|Red Ocean Strategy
|Blue Ocean Strategy
|Compete in the existing market
|Discover new market
|Beat the competition
|Make the completion irrelevant
|Exploit existing demand
|Create new demand
|Make the value-cost trade-off
|Break the value-cost trade-off
|Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost
|Align the whole system of a firm’s activities in pursuit of differentiation or low cost
How to Implement a Blue Ocean Strategy?
Kim and Mauborgne suggested a five step process to implement the blue ocean strategy which is given in their book ‘Blue Ocean Shift’. These five steps are as follows:
(1) Start the process: Figure out a starting point and create the right team who will help you build the brand identity.
(2) Understand where you are now: identify the strengths and weaknesses of your team and find the way to improve them.
(3) Imagine where you could be: determine hidden pain points, and identify the new customers you would like to reach.
(4) Find how you get there: develop products and services that can address these pain points in ways unlike any other business.
(5) Take action: make a formal plan to implement the strategy and test your products and services.
Advantages and Disadvantages of Blue Ocean Strategy:
In blue ocean strategy the organizations try to innovate new products and services. They collaborate with other players in the market to discover the new markets. In this process a new value and demand is created for the customers.
You avoid the structured market when you adopt this strategy and you also avoid completion with mega-corporations as you discover new market. As you create new demand for customers, you can produce value products with still affordable rates. It means that differentiation at low cost can exist. This provides you immense potential of growth as if the customer is getting the value product or service, word-of-mouth advertising can increase demand.
This strategy is based on the proven data rather than theories.
Creating the new demand and finding the new market require a lot of innovating thinking, hard work, patience and perseverance.
This move is risky as at the initial stage, the customer may not understand the product or service due to lack of fully developed technology.
Brands Which Have Adopted Blue Ocean Strategy
Netflix is another example of blue ocean firm. Netflix redefined the way to deliver DVDs. It utilized postal mails to deliver the DVDs rather than creating a brick and mortar stores. Its flat-fee monthly payment model solved two pain points, return deadlines and late fees. Netflix customers could keep the DVDs for any time they wanted and no late fee was charges from them. Another difference was that they had to browse and select the DVD with the comfort of their home. Later on Netflix switched from DVD to live streaming and then they started creating their own shows and movies. This was an innovative move which transformed their business entirely. They created new demand and in this way they actually implemented ‘blue ocean strategy’.
Meta (previously Facebook)
Meta is also an excellent example of firms who adopted ‘blue ocean strategy’. Before Mark Zuckereberg announced the new name of Facebook as Meta in 2021, it was already operating in a blue ocean, named social networking. When Face started its social networking business, it was new and innovative idea and Facebook created a new demand but later on with the popularity of social networking, many new players entered into this field and this field became the red ocean. Now as Mark Zuckereberg came up with the new idea, he has offered a new, innovative and exciting product in the form of ‘Metaverse’. In the metaverse, Meta pictures holograms, virtual reality, and digital worlds that feel like the physical world. This a completely different and innovative idea which if become successful will again create a new demand for the organization and will truly be a ‘blue ocean strategy for the company.
Uber is an excellent example of brands which have adopted blue ocean technology. It tapped the already existing demand of transit from one point to another and created its own market through its innovative solution for the pain point. Before the arrival of Uber in 2009, the taxi services were highly disintegrated and people had to make a lot of effort finding transit services form one point to another. Even if someone has found a taxi or cab, the prices were not regulated and sometimes resulted on people end up paying disproportionate price for the services. Similarly, it was difficult for the taxi service providers also to find the customers. Uber recognized the industry’s shortcomings including limited payment options, a lack of customer trust, and the absence of location tracking and created a new type of mobility service that would compete in a slightly different space. Uber simply used the technology and created a virtual platform where the customer and service provider can easily meet. Whenever a customer wants to transit from point A to B, he/ she can simply download the Uber software and feet the required data. He/ she can easily find the cabs available nearby. Similarly, the service providers who have already registered with the Uber, can have access to nearby customers. This was an innovative idea which solved the pain point of transit from one point to another with the help of technology and created new market for Uber. Presently, Uber has annual revenues of over $11 billion, and more than 19,000 employees.
Apple Inc. recognized that there is demand from music lovers to download the music, which was being downloaded mostly illegally before introduction of iTunes services in 2003. Apple created the first legal platform to download music. This platform was easy to use and enabled users to download single song in a reasonable price. Apple tapped that demand of millions of music lovers and created its own market by providing an innovative online platform. Apple was successful in creating an eco-system where the music producers find their interests fulfilled and at the same time the music listeners find the high quality music in affordable rates.
Blue Ocean Strategy is the way to sustain and survive seeing present competitive business environment. This strategy not only helps businesses to sustain but also to create value with cost differentiation. The organizations can create new demand and discover market for their products and services, provided these are innovative and providing value to the customer. There are many advantages of using this strategy like avoiding conventional markets and crating new markets, more profitability, creating value with cost differentiation, potential for growth, etc. At the same time there are some disadvantages of this strategy also, some of which are it requires a lot of patience and perseverance to create innovative products or services, implementation of this strategy is risky in a manner that the customer may not understand the product or service because of the involvement of new technology, etc. However difficult it is, the businesses always strive for operating in a competition free market and hence it is always a favorite strategy for entrepreneurs.