Blue Ocean Strategy

What is a Blue Ocean Strategy?

A blue ocean strategy is a business approach where companies find ways to gain “uncontested market space” instead of competing with similar companies. 

The term comes from the book “Blue Ocean Strategy” (2005) by W. Chan Kim and Renée Mauborgne, which argues that cutthroat competition results in a bloody “red ocean,” where rivals fight over a shrinking profit pool. Instead, businesses should look for “blue oceans,” which represent untapped markets poised for growth.

The strategy involves five key components:

1. Value Innovation — The blue ocean strategy’s cornerstone: simultaneously pursuing differentiation and low cost, which creates greater value for buyers and the company.
2. Eliminate-Reduce-Raise-Create (ERRC) Grid — A tool businesses use to create new value curves by eliminating and reducing the factors an industry competes on and raising and creating elements the industry has never offered.
3. Four Actions Framework — This framework asks four questions to challenge an industry’s strategic logic and business model:
   • Which factors should the business reduce well below the industry’s standard?
   • Which factors has the industry taken for granted that the business should eliminate?
   • Which factors should the business raise well above the industry’s standard?
   • Which factors doesn’t the industry offer that the business should create?
4. Six Paths Framework — This framework looks across alternative industries, strategic groups within industries, the chain of buyers, complementary product and service offerings, an industry’s functional-emotional orientation, and across time to create new value curves.
5. Blue Ocean Idea (BOI) Index — This involves validating the blue ocean idea by applying four hurdles: whether it has a compelling tagline, whether it addresses a problem that exists, whether there is a leap in value for the buyer, and whether the idea is possible.

By applying these tools and frameworks, organizations can redefine industry boundaries. A blue ocean strategy is a move away from the zero-sum game of competing head-on with other companies. Instead, it makes the competition irrelevant by creating a new market through differentiation.

Synonyms

• Blue ocean sales strategy
• Uncontested market

Characteristics of a Blue Ocean in Marketing and Sales

A blue ocean is an entrepreneur’s dream: an untapped, growing market. As such, companies implementing a blue ocean strategy have unique characteristics (and ways of bringing their product to market).

Here’s a look at what a blue ocean GTM strategy looks like:

• Untapped market space. A blue ocean exists where there is no competition, allowing for uncontested market growth.
• Demand creation. Instead of fighting over existing demand, businesses create new demand through their marketing and outbound sales efforts.
• Unique value proposition. Companies in blue oceans offer a distinctive value proposition that’s unavailable in existing markets.
• Risk diversification. A blue ocean strategy typically involves exploring new areas that may not be directly related to the existing business lines, thus spreading and potentially reducing risk.
• Cost innovation. In a blue ocean, a company can achieve cost leadership while also offering differentiated products or services, thereby attracting a larger customer base.
• First-mover advantage. By being the first to explore a new market, a company can establish itself as the market leader. They can set standards and expectations, which followers will have to match.
• Sustainability. Over time, the goal is to create barriers to entry through brand loyalty and proprietary technology or content, thus turning the blue ocean into a sustainable competitive advantage.
• Customer focus. Companies must understand latent customer needs before developing a product that fulfills them, similar to the premise of the jobs-to-be-done framework.
• Strategic pricing. Companies might use penetration pricing to enter the market quickly or position the product as premium at a higher price point.
• Exploratory sales and marketing tactics. Businesses have to educate their market through thought leadership and top-of-funnel content that positions their new product as a new solution to existing or emerging problems.

Blue Ocean vs. Red Ocean Strategy

A red ocean strategy is the opposite of a blue ocean strategy. It refers to the conventional approach of competing within existing market boundaries, or “red oceans,” where businesses survive by outperforming others through product differentiation, operational efficiency, and customer segmentation.

The difference here is that a red ocean has well-defined industry boundaries and accepted rules of competitive engagement. These businesses might differentiate their product or offer something innovative, but the core solution they’re creating already exists on the market.

A red ocean strategy focuses on:

• Competing in existing market space
• Exploiting existing demand
• Beating the competition
• Expanding market share

In contrast, a blue ocean strategy focuses on:

• Creating new market space
• Making the competition irrelevant
• Capturing new demand
• Creating the market

Advantages of Blue Oceans

In theory, a blue ocean is an entrepreneur’s dream: an untapped, growing market. Compared to saturated markets, this offers a wealth of advantages:

• High profit margins
• First-mover advantage
• Lower risk of competition, at least initially
• Room for innovation without restrictions or industry norms
• Growing demand (especially with the rise of emerging markets)
• High barriers to entry

A blue ocean strategy maximizes opportunity while minimizing risk. It’s grounded in data and looks at win-win scenarios for you, your customers, and your partners. 

Perhaps most importantly, it makes the concept of building something innovative less intimidating by building execution into strategy. So, your product development, sales, and marketing strategy can be outcome-driven from the outset.

Disadvantages of Blue Oceans

It’s not all sunshine and rainbows in blue oceans. Businesses using a blue ocean strategy face challenges like:

• The upfront cost associated with creating a new market
• Untested or unknown business models
• No market validation (no guarantee enough people will need your product)
• The risk of failure if the market doesn’t grow quickly enough (or at all)
• No established industry norms to follow (which can be an advantage or disadvantage)
• Potential for excessive experimentation and lack of direction without a proven blueprint for success

It’s also worth mentioning that creating buyer demand in a new area will only work long-term if a big player in a red ocean can’t enter the market and beat you at your own game. If a company in a related space can easily add your product as a feature or complementary product, they can use their market power to beat you on price, efficiency, and customer acquisition.

Why Businesses Employ a Blue Ocean Strategy

If you can enter a blue ocean successfully, you can take a large market share and create a sustainable competitive advantage. You’d use a blue ocean strategy to see that growth and minimize the risks of building an innovative product.

Briefly, here are the reasons businesses might use a blue ocean strategy:

• To avoid highly saturated or oversaturated markets
• Decreasing customer needs (or perceived need) for current products
• Changing industry dynamics due to new technology or regulations
• Decline in product differentiation due to competitive pressures
• To diversify and grow a business beyond its current market offering or core competency
• Recognize latent customer needs and create innovative products to fulfill them.

The bottom line is it provides a step-by-step framework that helps innovators and entrepreneurs balance product innovation with utility and cost while creating value for their customers. In other words, it’s a way to innovate predictably.

Success Secrets of Blue Ocean Strategies

How to Implement a Successful Blue Ocean Strategy

Use this step-by-step framework to implement a blue ocean strategy and successfully bring your product to market:

1. Validate your idea using the BOI Index.

Before you move forward with a blue ocean strategy, you need to figure out if your product is actually feasible. The Blue Ocean Idea Index helps you understand whether your business idea meets the criteria for a blue ocean strategy.

The four main criteria are as follows:

• Utility — Does your product or service solve a problem or fulfill a need in a significantly different way from the existing solutions? The idea should make customers’ lives easier or better in some tangible way.
• Price — Is your pricing strategy attractive to the mass of target buyers? For scalability, you need your product to attract a large volume of customers who are willing to spend the money to use it.
• Cost — Can you achieve your cost targets to maintain your strategic price point? Price optimization is only half the equation. You need to be able to deliver your product at a cost that allows you to offer it at an attractive price for customers.
• Adoption — Do you address adoption hurdles upfront? These normally include customer reluctance and operational challenges in delivering the new value proposition. You should have strategies in place to overcome these hurdles.

To apply the BOI Index, you need to develop a series of metrics that are specific to your product, service, and market context. This may include customer surveys, expert interviews, prototype testing, and other market research methods to gather data on the four components mentioned. The goal is to objectively evaluate your strategy’s potential to create a new market space with growth opportunities.

2. Analyze the six paths to new market space.

Once you validate your idea using the BOI Index, you can move on to analyzing the six paths to creating a blue ocean by looking at how companies in other industries have successfully done it.

To use the Six Paths Framework, look across the following areas:

• Alternative industries
• Strategic groups within industries
• Your buyer group
• The sequence of complimentary systems or products that serve a market
• Functional-emotional orientation of an industry’s buyers
• Time (looking backward and forward)

3. Define your new market space.

The third step is the most crucial — defining your new market space. This means getting a clear understanding of how you can create value for your customers and differentiate yourself from existing solutions.

There are four key concepts to consider when defining your new market space:

• A unique selling proposition (USP) — What makes your product or service stand out from the competition? What is its unique value proposition?
• Trade-offs — What aspects of your product are you willing to forego in order to create something truly innovative and valuable for customers?
• The customer experience — How will the customer interact with your product, from initial awareness to purchase to ongoing use? Identify potential pain points and opportunities for improvement.
• The customer journey — How will the customer go from initial awareness to becoming a loyal user? What steps do you need to take to guide them through this process?

At this stage, it might also make sense to consider non-customers — those who don’t currently use a product similar to yours, but might be interested in its value.

4. Use the ERRC grid to redefine the factors your industry competes on.

Eliminate and reduce the factors that are taken for granted. Raise the factors that should be emphasized. And create factors that the industry has never offered.

This is where the Blue Ocean Strategy really starts to take shape. It’s all about creating a new value curve for your product that differentiates it from existing solutions and makes it more attractive to customers.

4. Develop your strategy canvas.

Create a visual depiction of your market space with the current state of play (the red ocean) and your proposed blue ocean strategy. This is what highlights the factors you will compete on and visually depicts how your strategy diverges from the competition.

Included in your strategy canvas should be:

• The key factors customers consider when choosing a product or service
• How your product currently performs on these factors
• You plan to change each factor’s offerings and performance levels
• Your go-to-market strategy

5. Develop your business model canvas.

This is where you outline the key elements of your business model, including revenue streams, cost structure, and customer segments. You can use this to identify potential challenges and opportunities in bringing your product to market.

6. Launch and test your product.

Once you have all the pieces in place, it’s time to launch your product and start testing it with customers. This is where you can really see if your strategy will be successful or if there are areas you still have to refine.

Examples of Blue Ocean Strategies

The following are some of the best examples of companies that have successfully used a blue ocean strategy:

Nintendo

Nintendo adopted a blue ocean strategy in 2006 when it launched the Wii. The goal was to target non-gamers with simple, interactive gameplay and intuitive controls. This move opened a new market and led the Wii to outsell Sony and Microsoft’s offerings.

Continuing this approach, Nintendo released the Switch —a versatile console that combined the portability of a handheld device with the power of a home console — in 2017. In doing so, they tapped into the demand for mobile and accessible gaming. By 2018, the Switch had become the fastest-selling console in the US.

Apple

Apple found a blue ocean when it developed iTunes in 2003. It was the first digital platform that allowed users to purchase music legally. And users could do so for only 99 cents per song.

This move revolutionized the music industry and opened up new possibilities for artists, listeners, and Apple as a brand. And, by offering convenient, legitimate, and affordable alternative, it won over millions of music listeners who were pirating the same music on sites like Napster.

Airbnb

Airbnb launched a blue ocean strategy by redefining the hospitality industry in 2008. Instead of competing with traditional hotels, it offered unique and affordable accommodations for short-term stays.

By tapping into the sharing economy and using existing resources (people’s homes), Airbnb created an entirely new market and business model that has since expanded into other travel-related areas like Experiences and Adventures.

Uber

Uber is one of the most famous examples of the blue ocean strategy. By identifying the pain points of traditional taxi services (such as long wait times and lack of price transparency), Uber created a new value curve with its ride-sharing platform.

This allowed it to create an entirely new market space, appealing to customers who were dissatisfied with traditional taxi services but wanted a similar transportation solution. Today, Uber has expanded not just into ride-sharing, but also into food delivery and other services.

Robinhood

Robinhood’s commission-free trading and ability to purchase fractional shares were completely unheard of when it launched in 2013. By targeting young, tech-savvy users who were interested in investing but put off by traditional brokerage fees and high upfront costs of purchasing shares in full, Robinhood created a blue ocean in the financial services industry.

Salesforce

The first SaaS platform and the de facto creator of the subscription economy, Salesforce adopted a blue ocean strategy by offering an affordable and innovative way for businesses to manage their customer relationships.

By doing so, it created a new market of customers who were tired of the traditional on-premises software model and looking for more flexible solutions. Today, Salesforce is one of the largest and most successful SaaS companies in the world.

Best Practices for Blue Ocean Selling

Identify Needs Not Being Met in the Marketplace

You don’t have to create an entirely new product that’s completely unfamiliar. In fact, that probably won’t work. Instead, look for gaps in the existing market and find ways to fill them with a new angle.

For example, Apple realized that people were pirating music on third-party platforms. In a way, this validates the demand for digital music and potential for profitable growth on a marketplace.

Focus on Hidden Pain Points

When there isn’t a specific product to solve a customer’s problem, they’re unaware of their specific pain points (or they know but can’t articulate it). A blue ocean seller identifies unspoken problems and creates a product to address them.

Salesforce is a great example of this. Larger businesses managed customer data with expensive on-premises software and smaller companies that couldn’t afford it simply didn’t have a solution at all. By developing a SaaS model, Salesforce solved this problem, made businesses more efficient, and made CRM accessible to small businesses through inexpensive subscriptions.

Define Your Unique Value Proposition

You can’t sell in a blue ocean without a strong way to communicate what your product does and how that makes a difference in your customers’ lives. There are very few (if any) people actively looking for your product, so you need to give them reasons to be interested in the first place.

This means identifying your unique value proposition (UVP) and making it clear through all of your sales and marketing materials. This is the promise of value that makes your offering different from competitors’ products.

Learn From Your Customers

When you’re selling a blue ocean product, you will likely face a learning curve when it comes to understanding your customer base. Not many people are familiar with your product, and they’ll have different needs than those who purchase similar products in the red ocean.

This is why it’s critical to gather as much information about your customers as possible. Understand their motivations, what attracted them to your product, and how they see it fitting into their lives. This will help you tailor your messaging and sales approach to better speak their language and address their unique needs.

Take a Consultative Approach

You’re selling something new, so chances are they don’t fully understand it yet. Your role as a salesperson is to guide them through this process, helping them identify pain points they may not have realized and showing how your product meets their needs in ways they may not have considered.

With solution selling — i.e., being an active listener, asking open-ended questions, and teaching them about their problems — you can help ease any concerns and get them excited about your product.

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