In Blue Ocean Strategy, INSEAD business professors W. Chan Kim and Renée Mauborgne argue that the solution to business growth and success is to operate in an uncontested market. They use the metaphor of a blue ocean to represent an uncontested market, and they contrast it with a red ocean, a marketplace where fierce competition has stained the water with the blood of the combatants.
According to Kim and Mauborgne, crowded markets and red ocean strategies tend to produce minimal profit margins, while blue ocean strategies lead to more profitable growth.
In this guide, we’ll break down Kim and Mauborgne’s strategy for realizing your company’s blue-ocean potential into three key ingredients: innovation, strategic pricing, and successful execution.
Kim and Mauborgne assert that a blue ocean strategy starts with what they call “value innovation”—an innovation that makes your product so unique and superior to the competition (and thus more valuable to your customers) that you open up uncontested markets and leave your rivals behind. In this case, value is the benefit that your customers get for their money, while innovation is the uniqueness and originality of the benefit.
(Shortform note: In a similar vein, Seth Godin argues Purple Cow that only remarkable products are likely to succeed. He says that to be remarkable, a product must be both unique enough to stand out from the crowd, and also practical enough that people want to buy it. This is another way of looking at blue ocean innovation: It’s figuring out how to make your product unique enough in a good way that it stands out and people want it.)
To create a blue ocean, Kim and Mauborgne say you need new ideas that redefine the market. They propose several approaches for brainstorming new ideas:
Kim and Mauborgne advise you to first consider the alternatives that your customer has, especially if they could achieve the same goal through different means. For example, rock-climbing gear and video games are different in form and function, but they fulfill the same basic goal of connecting with friends in a thrilling environment. Ask yourself if you could combine desirable features from different alternatives to provide unique value.
(Shortform note: It’s also worth considering what other goals a person could achieve with a product that is similar in form and function. In Crossing the Chasm, marketing consultant Geoffrey Moore defines alternate products that are different in form or function but achieve the same goal as market alternatives, and he contrasts them with product alternatives, which are similar in form or underlying technology but serve a different purpose. For example, an electric egg beater and an electric drill are used for completely different things, but they are made up of essentially the same components: an electric motor, a power supply, a gearbox, a coupling mechanism to hold the drill bits or beaters, and so forth. So, in addition to considering your product’s market alternatives as Kim and Mauborgne suggest, you might consider its product alternatives as well. Maybe you can create unique value by applying your product’s core technology to solve a different problem.)
Kim and Mauborgne ask you to consider what characteristics motivate your customers to buy higher-quality products at higher prices versus lower quality at a lower price. Ask yourself if you can create a unique offering by focusing on the characteristics they are willing to pay extra for and eliminating the others.
(Shortform note: As you evaluate this, it may be helpful to rank your product and its features according to their technological maturity—the extent to which they’ve been proven. Then consider offering a premium model with all well-proven features, or an inexpensive minimalist model with only cutting-edge experimental features. This is potentially advantageous because technological maturity is one characteristic that often influences whether customers gravitate toward higher-priced or lower-priced models, as explained by marketing consultants Al Ries and Jack Trout in their book Positioning. They assert that people more readily embrace budget versions of new technology, because this allows them to try it out without risking as much money on it, but if the technology is mature, they are more receptive to premium versions.)
Kim and Mauborgne suggest appealing to under-served people in the purchasing chain. If the end user and the person with purchasing power are not one and the same, the end user may have pain points, or persistent problems, you can address to provide unique value.
(Shortform note: Moore differentiates between three types of buyers: The economic buyer is the person who pays for the product or authorizes the purchase. The technical buyer is the person who sets up the product so it can be used. The end user, or functional buyer, is the person who uses the product once it’s set up. Each of these three may have their own unique pain points.)
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In Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne argue that the solution to business growth and success is to operate in an uncontested market. They use the metaphor of a blue ocean to represent an uncontested market, and they contrast it with a red ocean, a marketplace where fierce competition has stained the water with the blood of the combatants. Their book provides a strategy for finding the blue ocean where your company can prosper.
W. Chan Kim is a professor of business strategy and international management at INSEAD. He is co-director of the Blue Ocean Strategy Institute within INSEAD and also a fellow of the World Economic Forum. Renee Mauborgne is Kim’s former student and now colleague at INSEAD. In 2019, Thinkers50 ranked them the #1 most influential thinkers in the field of business management.
Blue Ocean Strategy was published in 2004 by the [Harvard Business Review...
In Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne argue that the solution to business growth and success is to operate in an uncontested market, which they call a blue ocean, in contrast to a red ocean, a marketplace where fierce competition has stained the water with the blood of the combatants. They observe that much of the literature on business strategy focuses on red ocean strategies, that is, outperforming rivals to secure a greater share of a static market. However, they argue that red-ocean competition erodes profits so much that the key to building a successful business is to create a blue ocean.
(Shortform note: This spirit of direct competitiveness that Kim and Mauborgne’s theories grew out of is epitomized by an article by George Stalk and Rob Lachauer published the same year as Blue Ocean Strategy. In it, they argue that the key to success in business is crushing the competition, and they propose five strategies for doing so: Target your competitors’ “profit sanctuaries,” the products they make the most money on. Don’t hesitate to copy a good idea if you can get...
In Part 1, we introduced the concept of a blue ocean, as well as the concept of blue ocean innovation (or “value innovation”) and how it creates blue oceans through new ideas that redefine the market. To help you come up with new ideas, Kim and Mauborgne explore some different approaches you can take to brainstorming.
Kim and Mauborgne advise you to consider what alternatives your customers have for achieving the goal that your product fulfills. Especially consider alternatives that achieve the same end by different means. What are the key characteristics that might lead them to favor each alternative? How could you combine key characteristics from different options to create a new alternative that’s uniquely attractive?
For example, rock-climbing gear and video games are very different products that perform very different functions, but they are often used to fulfill the same basic goal of connecting with friends in a thrilling environment.
Considering Your Market Alternatives
In Crossing the Chasm, Moore approaches this subject from a slightly...
To begin brainstorming ideas for a blue ocean offering, think of a product or service your company already sells, to use as a starting point.
What alternatives do customers have to your product? Why do they use them? Could you combine these features into your offering?
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Now that you’ve brainstormed ideas for creating a blue ocean and you understand the tools at your disposal for exploring blue ocean strategies, let’s discuss the mechanics of developing your high-level strategy. Kim and Mauborgne break this process down into four phases, each of which uses visual tools or strategies to help you properly evaluate your options:
Before you can develop a strategy for transforming the market, you need to get a firm, clear understanding of the current state of the industry and how your company fits in. To do so, the authors advise you to draw a blue ocean strategy chart (discussed earlier) showing the current state of your product and the industry, and to fill out an action table to think through how you might formulate a plan to differentiate your product. They recommend appointing separate teams to investigate different opinions on the relevant characteristics of competition.
(Shortform note: This initial blue ocean strategy chart could be applicable to your marketing strategy as well as your product strategy. Al Ries and Jack Trout assert that understanding your current positioning, that is, how people...
Recall that Kim and Mauborgne’s action table consists of four boxes in which you record which characteristics of a product you would decrease, increase, eliminate, or create. In this exercise, you’ll create an action table for the blue ocean offering that you brainstormed in the last exercise, after Part 2.1.
What characteristics does your industry take for granted that could be eliminated? What would your customer not miss if it were gone?
By now you’ve brainstormed and vetted possible blue ocean strategies and you’re ready to get down to the nuts and bolts of what you’ll offer. Because your ultimate goal is a profitable business, Kim and Mauborgne propose developing your business plan in a strategic sequence:
The authors emphasize that these are sequential steps—you move to the next step only after it’s clear the current step is a success. Furthermore, no later step should strongly influence an earlier step.
For example, suppose you come up with an idea for a product that offers unique value, and you determine that your optimal retail price is $100. However, you assess your costs and find that it will cost $150 to produce each item. Kim and Mauborgne don’t recommend that you solve this problem by going back and adjusting the first step of the process (creating a product that offers value), as doing so will leave you with an inferior product that doesn’t stand...
Kim and Mauborgne caution that when you create a profitable blue ocean, imitators will inevitably arrive, eventually turning it into a red ocean. There are two ways you can respond:
In this chapter, we will consider each of these questions in turn.
To prolong the benefits of your blue ocean, Kim and Mauborgne advise you to pursue a two-fold strategy:
Let’s explore each of these strategic elements in more detail:
The authors identify a number of barriers that prevent companies from successfully imitating another company’s blue ocean strategy. You can leverage them to keep potential competitors out.
Legal barriers: Patents, permits, and other regulatory hurdles slow down competitors or exclude them entirely.
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Recall the five defensive barriers that protect your blue ocean from immediate competition: the legal barrier, the cognitive barrier, the organizational barrier, the image barrier, and the momentum barrier. Now think of the blue ocean offering you brainstormed in previous exercises, or think of another blue ocean offering that you are considering.
What aspects of your product could be protected by patent or copyright?
Now that you have a strategy, it’s time to execute it. In Part 3, we’ll discuss Kim and Mauborgne’s advice on executing blue ocean strategy within your organization, dealing with common hurdles, and achieving alignment with partner companies.
Kim and Mauborgne advise that you should keep your team informed of your blue ocean strategy as you develop it, because you need your team to mobilize your strategy. They emphasize that you need to communicate clearly, because everyone on the team needs to understand the strategy in order to do their part effectively.
The authors further advise that you need to communicate more with those who are less involved in the strategic decision making, to circumvent anxiety and distrust that could undermine execution of your strategy. They point out that when strategic decisions are made behind closed doors, and everybody knows something big is coming but nobody knows what it is, they tend to get scared. They may become anxious about job security, or the stability of their position within the organization. The authors warn that this anxiety can foster distrust and skepticism, which in turn fosters poor...