Blue Ocean Strategy

Business Creativity & Innovation

Creating uncontested market space and make the competition irrelevant

Two worlds

Red Ocean Compete in crowded markets Blue Ocean Create and capture new market space

Creating Blue Oceans

Two types of markets:
Red Oceans all industries in existence today (known market space)

Blue Oceans all industries not in existence today (unknown market space)

New Market Space

There is a fairly good understanding of how to compete in Red Oceans Blue Oceans are known to exist, however, there is little practical guidance on how to create them

New Market Space

In Red Oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known In Blue Oceans, there exists untapped market space, demand creation, and the opportunity for highly profitable growth Most Blue Oceans are created from within red oceans by expanding industry boundaries

The Continuing Creation of Blue Oceans

How many of todays industries were unknown 100 years ago? Blue Oceans have continuously been created over time The key to strength in the business world is to create new, uncontested market space

Two worlds
Red Ocean Strategy
Compete in existing market space. Beat the competition. Exploit existing demand.

Blue Ocean Strategy

Create uncontested market space. Make the competition irrelevant. Create and capture new demand.

Make the value-cost trade-off.

Align the whole system of a strategic firm's activities with its choice of differentiation or low cost.

Break the value-cost trade-off.

Align the whole system of a firm's activities in pursuit of differentiation and low cost. VALUE INNOVATION

The rising Imperative of Creating Blue Oceans

Supply exceeds demand Accelerated commoditization of products and services Increasing price wars Shrinking profit margins Brands are becoming more similar select based on price

The Rising Imperative of Creating Blue Oceans

Globalism has made many brands become increasingly similar and more of a commodity

Technological improvement has caused

supply to outweigh demand

It is now harder than ever to differentiate

among brands

The Impact of Creating Blue Oceans

In a study of the launches of 108 companies, 86% were line extensions (Red Ocean) However, these only accounted for 62% of total revenues and 39% of total profits The other 14% of launches were aimed at creating blue oceans and accounted for 38% of revenue and 61% of total profit

The Profit and Growth Consequences of Blue Oceans

Launches With Red Oceans

Launches With Blue Oceans

Business Launch

86%

14%

revenue impact

62%

38%

Profit Impact

39%

61%

Value Innovation: The Cornerstone of Blue Ocean Strategy

Value creation alone improves value but is not sufficient to make you stand out in the marketplace Innovation alone will often create a product that buyers are not willing to pay for Value innovation occurs only when companies align innovation with utility, price, and cost positions

Value innovation:
Make the competition irrelevant Create a leap in value for both buyers and your company Open up new and uncontested market space

Unlocking non-customer demand

Value Innovation Utility
Create new buyer utilities

Price
Set a price that attracts a mass of buyers

Cost
Set the structure based on a target

BOS Logic: The Core Principles

Reconstruct Market Boundaries overcome believes.
Reach beyond existing Demand go for uncontested space. Get the strategic sequence right value [innovation] first.

COST

VI VI
VALUE

BOS Logic: Reach beyond existing demand

Core Customer

Noncustumer

Soon-to-be-NC

Refusing Customer

Three Tiers of Customers

There is a universe of noncustomers which can be turned into customers to offer a big blue ocean market. 1st tier: Soon-to-be noncustomers who are on the edge of your market 2nd tier: Refusing noncustomers who consciously choose against your market 3rd tier: Unexplored noncustomers who are in markets distant from yours
1st

3rd

2nd

BOS Logic: Get the Strategic Sequence right

Buyer utility
Is there exceptional buyer utility in your business idea?

No Rethink YES
Price Is your price easily accessible to the mass of buyers?

No Rethink

YES
Cost Can you attain your cost target to profit at your strategic price?

No Rethink

YES
Adoption What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?

No Rethink

YES

A commercially viable Blue Ocean Strategy

Thank you