Blue ocean strategy

What it means

Blue ocean strategy is an approach in which a company, instead of fighting competitors for the same customers in a crowded market, creates new market space. The concept was popularised by W. Chan Kim and Renée Mauborgne and rests on the idea that competition can be made irrelevant.

A red ocean is a market where firms compete with the same weapons, usually price, and margins steadily shrink. A blue ocean arises from a different combination of value and cost: the company drops or reduces some standard features of the industry and adds or strengthens others the market has not offered before, reshaping its value proposition.

The method uses simple tools such as the four actions framework: what to eliminate, reduce, raise and create. It complements classic analyses such as Porter’s five forces or SWOT, which describe the existing market, with the question of how to step outside it.

How it works in practice

We use this line of thinking in planning with small businesses that are being pushed into a price war. The question is: what do customers pay for even though they would rather not, and what would they value that nobody offers? A service that removes paperwork, for example, may be worth more than a lower price.

Financially, the new offer must have a healthy margin. A blue ocean is not a more expensive product but a different structure of cost and value. Together with management, we therefore calculate which costs fall away, which are added and what price the market will pay.

It is wise to test the new offer on a small scale, for example with a limited customer segment, before reorienting the whole company. A go-to-market plan then determines how customers will learn about it.

What to watch out for

A blue ocean does not last forever. If the idea succeeds, competitors will copy it sooner or later and the blue ocean turns red. The company must therefore build barriers to imitation, such as brand, know-how or customer relationships, and keep innovating.

Another risk is mistaking for a blue ocean a product nobody wants. An empty market may be empty because there is no demand. Without testing with real customers, a strategic idea can easily become an expensive mistake.