Blue Ocean Strategy

Blue ocean strategyBlue ocean strategy refers to the search and conquest by companies of new markets where competition does not exist, becoming the undisputed leader and ensuring business success.

Since its inception strategy has taken competitors as a point of reference to carry out the necessary actions to overcome them and become the market leaders. Multitude of strategic tools such as the SWOT analysis, the model of the 5 Porter´s forces, BCG Matrix ... take the competition as a key datum to design and execute the strategy that will define the future of the company.

In 2005, strategic thinking took a 180 degree turn following the publication by Renee Mauborgne and W. Chan Kim (both professors of the prestigious INSEAD business school) of their book "Blue ocean strategy".

For both teachers for years most of the companies have focused their efforts on fighting competitors present in markets with little prospect of growth, only those who decided to abandon this battle for market leadership and concentrated their efforts on finding and creating new spaces of market have achieved business success.

In the blue ocean strategy the market is like an immense ocean made up of red oceans and blue oceans.

Red ocean represents all the companies that compete within the same sector in which the efforts and strategies are based on how to beat the competition to win customers within a fixed and exploited demand, in this situation whenever a company wins another loses, changing the balance when the losing company reacts to recover and win new customers, in this situation of zero sum (no one wins) the bloody business battles that take place to start some market share give name to the red color of the ocean.

Blue ocean represents new and unknown markets for companies, in which the absence of competitors ensures a new growing demand and exclusive leadership over these new markets. The key to finding or developing this coveted blue ocean lies in the concept of value innovation

Value innovation

Traditional strategies assume that customers are willing to pay more for a product with some added value compared to the competition, while products with little added value will be attractive only because of their low price. The concept of value innovation leads companies to give a new proposal of original and different value at a simultaneously low price.

We will better understand the concept of value innovation with the following examples;

Airbnb is a global company that has used the concept of value innovation as a means to achieve its blue ocean, redefining the hospitality market offering customers a large selection of houses and rooms at much cheaper prices compared to traditional hotels and hostels , becoming the undisputed leader of this new market by expanding the border and the number of regular customers within the traditional market.

The multinational The Body Shop redefined the market of cosmetics traditionally focused on a certain age and certain purchasing power, towards a new market where it offers cosmetics made with natural products for all types of audiences and ages at a much cheaper price.

Spotify has transformed the music market by offering a huge music library available directly on any smartphone or electronic device through very cheap subscription plans.

Amazon has achieved business success becoming the global leader in the distribution and sale of products, offering its customers the convenience of buying any item from anywhere with just a few clicks, all with very fast delivery times to a very competitive price.

With all this we can summarize that the concept of value innovation has associated 2 basic principles:

Principles of blue ocean strategy

Long before Renee Mauborgne and W. Chan Kim published their book, many companies had applied this philosophy discovering new markets, the contribution of the book is the presentation of a methodology analyzed and contrasted with cases of successes linked to the development of new strategic tools, allowing any company to more likely reach the desired blue ocean.

For this the authors developed the following 4 principles that will allow us to formulate our blue ocean strategy:

Once our blue ocean strategy has been formulated, we will have to carry it out, for which the authors propose the following 2 principles of execution:

In the next article we will analyze with real examples the development of each of these principles, understanding in depth the dimensions and the power of this new strategic model.

 

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