What is Blue Ocean?
Blue ocean is an entrepreneurship and industry term used to describe a new market with minimal competition or barriers for innovators. It refers to the vast, uncrowded space where fresh market opportunities and substantial growth can emerge.
Created by Chan Kim and Renee Mauborgne in their book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, blue oceans are markets associated with high potential profits and little resistance.
Key Takeaways
- A blue ocean represents an unexplored or uncontested market space.
- Term originated from the book Blue Ocean Strategy by Chan Kim and Renee Mauborgne.
- Blue ocean companies are usually groundbreaking innovators.
- Contrasted with red oceans, which are defined by intense competition and saturation.
- Kim and Mauborgne analyzed 150 blue ocean strategies over approximately 100 years in their book.
How a Blue Ocean Works
In established industries, companies often battle intensely for market share, leading to a red ocean - a saturated, competitive market. In contrast, blue oceans offer opportunities free from direct competition. These markets are especially attractive to entrepreneurs due to their potential for first-mover advantages, cost-effective marketing, and pricing freedom.
Innovators identifying blue ocean markets have immense flexibility and vast opportunities to establish dominance. Creating such markets often leads to remarkable growth and profitability.
Blue Ocean vs. Red Ocean Strategies
Red oceans, characterized by fierce competition and crowded markets, require different strategies compared to blue oceans. Companies in red oceans compete for market share by improving existing products, cutting prices, or enhancing marketing efforts. For instance, car insurance firms often sell similar products and compete on deals and prices.
Examples of Blue Ocean Companies
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Ford Motor Co.: In 1908, Ford revolutionized the automobile industry with the affordable and reliable Model T. This innovation replaced over 500 custom auto manufacturers, making mass-produced cars accessible to the masses.
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Apple Inc.: Apple introduced iTunes in 2003, legalizing music downloads and capturing a market that previously relied on illegal downloads. It became an essential digital distribution platform, benefiting users with ease of use and trust.
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Netflix: Instead of competing in the existing video rental market, Netflix innovated with mail-order rentals and later pioneered streaming services. This shift created a new consumption model, avoiding the saturated traditional video rental space.
The Bottom Line
A blue ocean represents an untapped market with endless possibilities for innovation and minimal competition. However, creating such a market involves high risk, as it requires developing unprecedented products and solutions. Success can lead to substantial rewards, though opportunities here are infrequent and often challenging to identify.
What Are the Steps to Implement a Blue Ocean Strategy?
In Blue Ocean Shift, Kim and Mauborgne outline a five-step process to transition into a blue ocean strategy:
- Start the process: Choose a starting point and assemble the right team.
- Understand where you are now: Assess your current market standing, comprehending strengths and weaknesses.
- Imagine where you could be: Identify hidden pain points and new customer segments.
- Find how you get there: Develop innovative options and begin redefining market boundaries.
- Make your move: Create a comprehensive plan and rapidly test your blue-ocean initiative.
Why Is a Blue Ocean Strategy Difficult to Implement?
Finding a blue ocean is challenging because it involves venturing into unexplored markets. Such strategies are high-risk and require creating demand for entirely new products or services. The potential for failure is high, but successful implementation can result in significant benefits.
What Was JCPenney’s Failed Blue Ocean Strategy?
In 2011, JCPenney’s CEO Ron Johnson attempted a drastic transformation to capture a new market. Abandoning its core value-shopping appeal, JCPenney moved upscale, eliminating clearance racks and introducing exclusive merchandise. The abrupt shift without adequate testing led to significant losses and Johnson’s eventual termination. This example highlights the risks of transitioning to a blue ocean without thorough research and testing.
Related Terms: red ocean strategy, market share, market differentiation, entrepreneurship, innovation
References
- Blue Ocean Strategy. “What is Blue Ocean Strategy?”
- W. Chan Kim, Renee Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Harvard Business Review Press, 2005.
- Ford. “Company Timeline”.
- Blue Ocean Strategy. “Blue Ocean Strategic Moves”.
- Blue Ocean Strategy. “iTunes”.
- Blue Ocean Strategy. “Five Steps to Making Your Blue Ocean Shift”.
