What is the Blue Ocean Strategy?

The Blue Ocean Strategy argues that businesses should not focus on outperforming competitors, but on making them irrelevant by creating an entirely new market space. According to this approach, market boundaries and industry structures are not fixed; they can be reshaped through innovative actions, new demand generation, and differentiation strategies. 

Blue oceans denote all the industries not in existence today, representing untapped potential and opportunities. This concept is about doing business with no competitors or rivals, allowing companies to innovate freely without the pressure of direct rivalry.

As an entrepreneurship industry term, the blue ocean reflects the strategic shift from traditional, overcrowded markets (or “red oceans”) to new, uncharted territories where businesses can thrive by creating unique value and capturing new demand.

These ideas were developed and published for the first time in 2005 by professors W. Chan Kim and Renée Mauborgne in a namesake bestseller. The book was upgraded and expanded ten years later, and it has already exceeded 4 million copies sold and has been published in 46 languages. Let’s get to know this theory better.

What is the Blue Ocean?

First, according to the theory, there is a blue ocean because there is also its antagonist, the red ocean. And both of them will be used to explain the marketing universe:

• Red Ocean: it’s the already known market, with all the current companies. In this environment, the industry borders are established, known, and accepted by all the participating agents. This is a space with fierce competition. Because all the companies compete for the same market, each takes its share. In this scenario, as new entrants show up, every participant has a share, so its profits are reduced. The term red ocean derives precisely from this “bloody war” scenario;
• Blue Ocean: it’s the opposite of the red ocean. In this ocean, the market is unknown. There is no competition, and there is no war. Because the companies don’t exist in this environment yet, the new business will create demand, with no competitors, in an abundant space, plenty of growth, and profit. Therefore, it’s a vast, deep, and unexplored ocean.

Blue Ocean Strategy Goals

Unlike many other theories, the Blue Ocean Strategy was born from a study that lasted over a decade. This research analyzed both successful and failed businesses in more than 30 different fields. Thus, it’s based on data, not ideas.

The Blue Ocean Strategy suggests companies avoid face-to-face competition for the same old and well-known market. Instead, they should focus on inventing a brand new one or reinventing their own. Adopting the Blue Ocean Strategy is about focusing on innovation — not on being the best among its peers. Therefore, it advises companies to escape from overcrowded red oceans by looking for undisputed blue oceans with more opportunities and fewer risks.

Blue Ocean Strategy Canvas

The Blue Ocean Strategy Canvas is a visual tool for helping businesses map out their current strategic position within an industry and explore opportunities for creating new market spaces. It compares a company’s offerings to those of its competitors across key factors influencing customer decisions.

The canvas highlights areas where businesses can reduce, eliminate, raise, or create new value propositions to differentiate themselves and tap into untapped demand. By using this tool, companies can identify ways to shift from highly competitive markets, or “red oceans,” to uncontested markets, “blue oceans,” where competition becomes irrelevant.

Key Elements of the Strategy Canvas

• Horizontal Axis (Competitive Factors): The horizontal axis represents the factors on which businesses in the industry compete, such as price, quality, features, or customer service. These are the traditional aspects on which companies typically focus their efforts to outperform one another.

• Vertical Axis (Performance): The vertical axis measures a company’s level of performance in each competitive factor, ranging from low to high. By mapping their position, businesses can see how they compare to competitors across various market elements.

• Value Curves: The core of the canvas is the “value curve,” which is a graphical depiction of a company’s performance across competitive factors. Each competitor’s unique value curve will show where they invest their efforts and resources. The Blue Ocean Strategy aims to create a value curve that stands apart by focusing on innovation, creating new demand, and stepping outside traditional market boundaries.

Blue Ocean Strategy Challenges

To swim in the Blue Ocean, the business must overcome three core challenges:

1. Recognize a blue ocean against a red ocean. Most companies have a hard time identifying both. To do it, you have to start by watching what your market has and, more than that, what it doesn’t have. Observe the businesses already sharing the market and try to find out how to differentiate against them.
2. Change the mindset. That’s another problematic barrier to the overpass. Changing the company’s mindset is the only way to broaden mental horizons, put down imaginary market borders, and maximize possible opportunities. This is also imperative when you realize that the Blue Ocean Strategy is not temporary. It’s not about attractive, sporadic offers, but about adopting innovative thinking systematically.
3. Develop an inspirational value. Most blue ocean companies have been able to create a human differential feature, targeting inspiring people by making them rely on their products, services, brand, or operation model.

How to swim in the Blue Ocean

The key to thriving in the Blue Ocean lies in recognizing untapped demand. The challenge is to shift focus from supply to demand by moving away from competition and embracing value innovation. This innovation is driven by how customers perceive and evaluate your product or service’s utility, price, and cost. When these three factors align — offering a standout product or service with a low perceived cost — an uncontested market is created, making competition irrelevant.

It’s important to note that “low cost” doesn’t necessarily mean “low price.” Instead, it refers to how customers perceive the costs relative to the value they receive. Companies must redefine the elements that influence customer value perception to differentiate themselves. To establish a new value curve, businesses can use the Four-Action Framework, which consists of the Eliminate-Reduce-Raise-Create matrix. Companies can break free from traditional market boundaries by answering critical questions about these actions and offering something unique.

1. Eliminate: what features have been used as competitive resources for a while but can already be eliminated (reducing costs)?
2. Reduce: What features have been developed just to face competition, but are no longer completely necessary and may be reduced?
3. Raise: what features can be raised over the current standard (product, price, service, quality, etc.)?

Create: what features have never been used as competitive resources but are already in time to be created, thus producing a new market?

Examples of businesses that are in the Blue Ocean

• Cirque du Soleil: While most circuses traditionally focus on clowns and animal acts, catering mainly to children, this Canadian company from the 1980s revolutionized the modern circus. Cirque du Soleil hired some of the world’s top performers and created a sophisticated show featuring acrobatics and unique attractions, unlike conventional circuses. This allowed the company to raise ticket prices and appeal to a more adult audience.

• National Youth Orchestra of Iraq (NYOI): The NYOI broke away from the traditional approach of focusing on European works of technical excellence and instead embraced Iraq’s rich musical heritage. The orchestra now features young musicians from diverse ethnic and religious backgrounds across the country, performing music rooted in their culture without relying on expensive conductors or soloists.

• iTunes: Apple introduced iTunes as a groundbreaking platform for buying and selling music. It allowed customers to purchase individual songs as digital files, rather than being forced to buy entire albums, offering a more affordable option. At the same time, artists could avoid financial losses caused by illegal downloads. iTunes played a pivotal role in the growth of the digital music industry.

• Uber: Rather than following the traditional taxi business model, Uber created a new market by offering ride-hailing services through a mobile app. This allowed people to request rides from their smartphones, making transportation more convenient, while creating income opportunities for independent drivers.

• Airbnb: Airbnb redefined the hospitality industry by allowing homeowners to rent their properties directly to travelers. This created an alternative to hotels, offering unique accommodations at varying price points and providing hosts with a new way to monetize their homes.

• Netflix:Netflix transformed the entertainment industry by shifting from DVD rentals to streaming services, allowing users to watch movies and TV shows on demand. Instead of competing with traditional cable networks or movie theaters, Netflix created a new market where viewers could access a vast library of content from the comfort of their homes anytime. This innovation disrupted the home entertainment sector and paved the way for the rise of global digital streaming platforms.

In short

Blue Ocean Strategy states that most businesses survive in a limited space, basically in a competitive war among their peers. In this environment, they typically search for products, customer segments, or sectors in which they may capture more significant market shares.

Nonetheless, the focus of businesses — new or not — should be to discover and capture new demands, opening a new market through an innovative product/service/value that makes any competitor completely irrelevant, no matter its brand, history, or size. In short, companies, stop competing and start creating!