Blue Ocean Strategy

Blue Ocean Strategy is an endeavor by an organization to charter into unknown market space, untainted by competition. Blue Ocean is different from Red Ocean—the industries in existence today. In red oceans, companies try to outperform their rivals in order to grab a greater share of “existing” demand.

Blue ocean strategy is accomplished by either creating new industries or by altering the boundaries of an existing industry within a red ocean. Blue ocean strategy can be driven by either technology pioneering or by value pioneering. Although leading-edge technology is sometimes involved in the creation of blue oceans, the majority of blue oceans are created by linking technology to what buyers valued (value pioneering).

A blue ocean strategy is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates. In contrast, a red ocean strategy is essentially a choice between differentiation and low cost.

A blue ocean strategy also creates considerable economic and cognitive barriers to imitation. Thus, the companies that create blue oceans usually reap the benefits without credible challenges for ten to 15 years, as was the case with Home Depot, FedEx, Southwest Airlines etc. Because blue ocean creators immediately attract customers in large volumes, they are able to generate scale economies very rapidly, putting would-be imitators at an immediate and continuing cost disadvantage. It is even tougher for established organizations to imitate a blue ocean creator’s strategies as few established organizations have the flexibility to make extensive organizational and operating changes overnight.

The cognitive barriers are just as effective because a company rapidly earns brand buzz and loyal following by offering customers a leap in value. Even the most extensive marketing campaigns struggle to unseat a blue ocean creator.  

In new product development, identifying opportunities to create blue oceans would require shunning the reactive strategies created in response to competition. Blue ocean strategy is created in uncontested market space by making the competition irrelevant. To identify blue ocean opportunities, it is necessary to find cost-effective value solutions to current customer problems that will not only increase the value to customers but also decrease their costs. The most effective way to find blue oceans is by looking at industries that fail to either provide a high value to customers or deliver those at a very high cost.