What is the Blue Ocean Strategy?
Blue Ocean Strategy is a business approach that focuses on creating new markets, rather than competing in existing ones to avoid the red ocean.
The term “Red Ocean” refers to fiercely competing in an existing market space, trying to outperform their rivals by capturing a bigger share of the market. The problem with the red ocean is that it often leads to price wars, which can hurt the profitability of all players in that market.
W. Chan Kim and Renée Mauborgne suggest the Blue Ocean Strategy encourages businesses to create new market space by identifying unmet customer needs, developing innovative products or services that address those needs, and redefining the industry boundaries.
By doing so, businesses can create new demand, generate growth, capture untapped profit and growth opportunities, leading to sustainable competitive advantage and long-term success.
ERRC Framework
ERRC is a framework within the Blue Ocean Strategy approach that stands for Eliminate, Reduce, Raise, and Create. It is a four-step process that companies can use to identify opportunities to create a blue ocean.
- Eliminate: Identify factors in the industry that can be eliminated, such as products, services, or features that are no longer necessary or valued by customers.
- Reduce: Identify factors that can be reduced, such as cost, time, or complexity, without sacrificing value for the customer.
- Raise: Identify factors that can be raised above industry standards, such as quality, functionality, or customer service.
- Create: Identify factors that can be created that do not currently exist in the industry, such as new products or services, or new ways of delivering value to customers.
By using the ERRC framework, companies can systematically identify opportunities to create a blue ocean and differentiate themselves from their competitors.
Advantages of the Blue Ocean Strategy
The Blue Ocean Strategy can help companies create significant value for themselves and their customers by giving the company these advantages:
- Differentiation: The strategy helps businesses differentiate themselves from their competitors by creating a new market space and offering a unique value proposition that sets them apart from others. This differentiation can help businesses avoid price wars, build brand recognition, and generate new demand.
- Innovation: The Blue Ocean Strategy encourages businesses to think outside the box and innovate new products, services, or business models. By doing so, they can create new growth opportunities and stay ahead of the curve in their industry.
- Value Creation: The strategy is focused on creating value for customers by addressing their unmet needs or pain points. By doing so, businesses can build strong customer loyalty and capture a larger share of the market.
- Risk Mitigation: By creating a new market space, businesses can reduce their reliance on existing markets, which may be saturated or in decline. This can help mitigate risk and ensure long-term sustainability.
- Competitive Advantage: By creating a blue ocean of uncontested market space, businesses can establish a competitive advantage that is difficult for others to replicate. This can help them maintain their market position and profitability in the long run.
When to Execute the Blue Ocean Strategy?
The Blue Ocean Strategy is not suitable for every business or situation, and there are times when it may not be appropriate to use it.
When to Use the Blue Ocean Strategy:
- When there is a need to differentiate from competitors and create a new market space
- When the industry is facing intense competition and price wars
- When the existing market is saturated or in decline
- When there is a need to innovate and create new opportunities for growth
- When there is a need to address unmet customer needs or pain points
When Not to Use the Blue Ocean Strategy:
- When the existing market is growing and there is no need to create a new market space
- When the industry is highly regulated and difficult to disrupt
- When the business lacks the resources or capabilities to create a new market space
- When the business is already a market leader and has a strong competitive advantage
- When the business is focused on cost-cutting and efficiency rather than innovation and growth.
In summary, the Blue Ocean Strategy is most appropriate when there is a need to differentiate from competitors and create a new market space. However, businesses should carefully assess their situation and capabilities before deciding whether to use the strategy or not.
Example of the Blue Ocean Strategy
An example of the Blue Ocean Strategy in action is Nintendo and their launch of the Wii gaming console in 2006.
At the time, the gaming industry was dominated by Sony’s Playstation and Microsoft’s Xbox, with a focus on high-powered hardware and complex, graphics-intensive games that targeted hardcore gamers.
Nintendo saw an opportunity to create a new market space by focusing on a different type of gaming experience, one that was more accessible, intuitive, and family-friendly.
The Wii console was designed to be simple to use, with motion-based gameplay that could be enjoyed by players of all ages and skill levels. The console also included a range of non-gaming features, such as internet connectivity and media playback, that expanded its appeal beyond just gaming enthusiasts.
Nintendo’s Blue Ocean Strategy paid off, with the Wii becoming a massive success, selling over 100 million units worldwide and capturing a significant share of the gaming market. By creating a new market space and offering a unique gaming experience that differentiated itself from its competitors, Nintendo was able to generate new demand and reach a broader audience, while avoiding price wars and intense competition.
