Blue Ocean Strategy
Blue Ocean Strategy
What is Blue Ocean Strategy?
- Create a new, uncontested market
- Steer clear of crowded, cutthroat markets (red oceans)
- Achieve differentiation and low cost at once
Adopting Blue Ocean Strategy means shifting the reference point of your strategy meetings. Most companies build a table of three or four competitors’ prices, specs, and market share and debate 'who should we catch up to?' This strategy sets that table aside and starts by listening to the people who don’t buy your product today. Its best-known tool, the strategy canvas, lays out the factors the industry competes on along the horizontal axis and plots your investment level against competitors’ as curves. If those curves nearly overlap, it is proof that the industry is already competing on price alone, not on differentiation.
The original work identifies three tiers of non-customers as paths to expanding the market: soon-to-be non-customers (those who use the product reluctantly), refusing non-customers (those who know it but chose not to buy), and unexplored non-customers (those never considered a target at all). The largest group is usually toward the end of that list. The six paths for reconstructing market boundaries — alternative industries, strategic groups, the buyer chain, complementary offerings, functional vs. emotional appeal, and time — are a checklist with the same purpose. This is where it parts ways with Michael Porter’s generic strategies. Porter treats low cost versus differentiation as an either/or choice, while Blue Ocean assumes that through ERRC you lower costs by eliminating and reducing and raise value by raising and creating, moving both axes at once.
The most common misconception in practice is the equation 'new business = blue ocean.' An empty market may hold undiscovered demand, but far more often it is empty because there is no demand. Another is using only half of ERRC. If you only eliminate and reduce and leave creation blank, the result is not a blue ocean but just a cheap, low-price line, and it can even drag down the price baseline of your existing products. At the execution stage, organizational barriers always surface first, such as pushback from dealers and the existing sales organization and fears of cannibalization, so bringing back numbers from a small pilot works far better than a declaration.
John KimInstructor John Kim, CEO of Nanum Consulting and author of “B2B Marketing Design”
Kwangdong MinExpert in business models, revenue models, and market researchA strategy framework that W. Chan Kim and Renée Mauborgne introduced in their 2005 book.
Let’s look at a hypothetical case. Company A makes office furniture, with 168 employees and annual revenue of about KRW 32 billion (≈ US$23,941,300). Over the past three years, competition in public-sector and corporate bids has intensified, average winning bids have dropped 12%, and operating margin has slid from 7.1% to 2.4%. When the CEO declared 'at this rate we’ll be in the red next year,' a three-month strategy workshop began.
- The head of sales drew value curves for the company and three competitors across 8 factors and pinned them to the wall. Seven of them, including finish grade and after-sales service period, nearly overlapped. The head of sales said, "So the only thing that sets us apart is price."
- When the head of planning phoned the 47 companies that had requested quotes but not signed over the past two years, 19 startups with fewer than 30 employees said, "It’s not that the furniture is expensive. It’s that we hate throwing it away every time we move offices."
- Working through the ERRC grid, they dropped the premium solid-wood finish and the 12 color options, which cut manufacturing cost by 9%. In their place, they designed a subscription product that adds a relocation and reinstallation service and a guaranteed residual value when the furniture is returned after 3 years.
- When the CEO worried, "Won’t our 38 dealerships nationwide push back?", the head of sales came back with a proposal: spin the subscription line off as a separate brand and pilot it for six months at just two Seoul-area branches.
- Twelve months later, subscription revenue reached KRW 3.8 (≈ US$1) billion, or 11.8% of the total. 64% of new contract customers were small companies that had never bought A’s furniture, and the line’s operating margin came in at 9.1%.