[ad_1]
What Is Blue Ocean?
The term “blue ocean” was coined in 2005 to describe markets with little competition or barriers for innovators. The term refers to the vast “empty ocean” of market options and opportunities that occur when a new or unknown industry or innovation appears.
A red ocean is a market where there is stiff competition and companies fight for market share. A blue ocean strategy is a plan to identify and capitalize on an opportunity in an untapped market. Apple, Netflix, and Ford are examples of companies that have found blue oceans in their quests for success.
The term “blue ocean” was coined 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 describe blue oceans as markets with high potential profits.
Key Takeaways
- Blue ocean strategy involves finding or creating market spaces with little to no competition, allowing businesses to innovate and set their own pricing without competitive pressures.
- Chan Kim and Renee Mauborgne introduced the concept of blue oceans in their book “Blue Ocean Strategy” in 2005, describing them as markets with high potential for profits and minimal competition.
- In contrast to red oceans, where businesses compete in saturated markets, blue oceans offer first-mover advantages, a rare opportunity for significant market share, and the potential to change industry paradigms.
- Examples of successful blue ocean strategies include Ford’s Model T and Apple’s iTunes, which both demonstrated how innovation can open new market spaces with vast potential.
- The process of executing a blue ocean strategy is challenging, requiring innovation, market creation, and risk-taking, but offers substantial rewards for pioneers who succeed.
Understanding the Dynamics of Blue Ocean Markets
In established industries, companies compete aggressively for market share. The competition is often so intense that some firms cannot sustain themselves. This type of industry describes a red ocean, representing a saturated market bloodied by competition.
Blue oceans represent the opposite, where firms aim to find uncontested markets through innovation or expansion. Blue ocean markets are also of high interest to entrepreneurs.
Overall, blue ocean markets have several characteristics that innovators and entrepreneurs love. A pure blue ocean market has no competitors. A blue ocean market business leader has first-mover advantages, cost advantages in marketing with no competition, the ability to set prices without competitive constraints, and the flexibility to take its offering in various directions.
Important
Business leaders with innovative products and services who can identify blue ocean markets have endless opportunities.
Comparing Blue Ocean and Red Ocean Strategies
A red ocean is an environment of cutthroat competition among numerous industry players. Because the marketplace is crowded with rivals, new companies must fight fiercely for a share of any profits.
Companies in a red ocean business environment will use very different business strategies than those that have a marketplace to themselves. Rather than try to create demand, red ocean companies try to attract existing consumers through marketing, lower prices, or improved products. In the car insurance market, most insurers sell similar products and compete by offering better deals.
Case Studies of Successful Blue Ocean Companies
A blue ocean is specific to a time and place. Ford and Apple are two examples of leading companies that created their blue oceans by pursuing high product differentiation at a relatively low cost, which also raised the barriers for competition. They also were paradigmatic of burgeoning industries at the time that were later exemplified and emulated by others.
Ford Motor Co.
In 1908, Ford Motor Co. introduced the Model T as the car for the masses. It only came in one color and one model, but it was reliable, durable, and affordable.
At the time, about 500 automakers were producing custom cars, which were costly and less reliable. Ford created a new manufacturing process for mass-producing standardized cars at a fraction of the price of its competitors.
The Model T’s market share jumped from 9% in 1908 to 61% in 1921, officially replacing the horse-drawn carriage as the principal mode of transportation.
Apple Inc.
Apple Inc. found a blue ocean with its iTunes music download service. While billions of music files were being downloaded each month illegally, Apple created the first legal format for downloading music in 2003.
It was easy to use, providing users with the ability to buy individual songs at a reasonable price. Apple attracted music listeners by providing higher-quality sound and easy search and navigation. Apple made iTunes a win-win-win for the music producers, music listeners, and Apple by creating a new stream of revenue from a new market while providing more convenient access to music.
Netflix
Another example of a blue ocean firm is Netflix, a company that reinvented the entertainment industry in the 2000s. Instead of competing in video rental stores, Netflix created mail-order rentals and later pioneered streaming video subscriptions.
Following their success, many other companies have followed in Netflix’s footsteps. As a result, any new company trying to launch a video subscription model will find itself facing a red ocean rather than a blue one.
What Are the Steps to Implement a Blue Ocean Strategy?
In “Blue Ocean Shift”, Kim and Mauborgne lay out a five-step process for a company seeking to pivot to a blue ocean strategy. In short, they are:
- Start the process: choose a starting point and create the right team.
- Understand where you are now: identify the current state of play for your team, including strengths and weaknesses.
- Imagine where you could be: determine hidden pain points, and identify the non-customers you would like to reach.
- Find how you get there: develop alternative options and start reconstructing market boundaries.
- Make your move: formalize a big-picture model and rapidly test your blue-ocean move.
Why Is a Blue Ocean Strategy Difficult to Implement?
Blue ocean strategies are difficult to implement for a simple reason: if it were easy, someone probably would have already done it. Since blue ocean strategies require identifying untapped markets, and sometimes reinventing the market itself, a blue ocean strategy is a high-risk play that does not always pay off. When it succeeds, however, the rewards are considerable.
What Was JCPenney’s Failed Blue Ocean Strategy?
In 2011, JCPenney made a spectacular strategic blunder under its new CEO, Ron Johnson, who attempted to pivot the company towards a blue ocean strategy. At the time, JCPenney had some financial struggles but was still regarded as an industry leader for value shopping. Johnson attempted to differentiate JCPenney to a more upscale clientele, with in-store boutiques and exclusive merchandise. At the same time, he did away with the clearance racks and coupons that attracted the company’s most loyal customers.
To make matters worse, rather than testing the changes on a small group of experimental stores, Johnson implemented them in all 1800 JCPenney stores. After less than 18 months at the helm, JCPenney fell out of the S&P 500 Index and Johnson was fired.
The Bottom Line
A blue ocean market represents untapped opportunities, allowing businesses to innovate without the constraints of competition. Businesses that identify blue oceans are generally rewarded with first-mover advantages like price setting and defining market boundaries.
Conversely, red oceans are markets that are crowded with competitors, each vying for a competitive advantage and seeking to increase their market share.
Blue oceans are generally more risky than red oceans, because they have never been navigated before. Businesses must spend large amounts of capital learning about the new markets, their consumer bases, and creating awareness.
Prime examples of companies that have identified and capitalized on blue oceans are Apple, Netflix, and Ford.
[ad_2]
Source link
