Searching for Your Blue Ocean Opportunities
Many new businesses revolve around upstart competitors bent on carving out a piece of an existing market with a slightly differentiated product or service, or one that’s cheaper or easier to access. The focus is on capturing customers from the competition to get your piece of the pie. A Blue Ocean Strategy, on the other hand, focuses on the simultaneous pursuit of differentiation and low cost to actually create new demand.
In their book by the same name, two business professors make the case that it’s possible to offer an innovative new product at a low price when you sail into new areas not already saturated with fierce competition. Their research into 108 new businesses across 30 industries found it was this small percentage of “blue ocean businesses” that drove the majority of profit.
Sailing past red waters into blue oceans
When a new business enters a well-established industry, owners typically take the existing market structure as a given, build their strategies around it and enter into the fray with efforts to win over current customers, according to the authors of Blue Ocean Strategy, Renee Maubourgne and W. Chan Kim. The battle to outperform rivals and gain a larger share of existing demand turns the “water” blood red from battle.
Red oceans are characterized by numerous well-established competitors, shrinking margins and greater difficulty in securing investments. By contrast, blue oceans represent all those industries and markets that don’t even exist today – a sea of opportunity not fraught with competition. Businesses that can discover, or create, untapped markets can sail past red oceans for the open blue waters that increase chances for survival and profit.
A reimagined circus
Maubourgne and Kim argue that competition becomes irrelevant in blue ocean strategies because the rules of the game have not even been established yet and the market space is uncontested. Blue ocean strategists shift their thinking from supply to demand; focusing the entire organization on discovering untapped opportunities where lower costs and differentiation can be used to actually create new customers.
Consider your typical circus. If you’re like many people, you probably have not been to one in many years. Ticket sales have been decreasing for decades due to competition from other forms of entertainment, such as video games, and the public’s growing discomfort with the use of animal acts. While audiences continued to shrink, costs rose related to fees for star performers, venues and transportation. Then came a whole new kind of circus.
Just 20 years after its founding, Cirque du Soleil hit revenues that Ringling Bros. and Barnum & Bailey had taken more than a century to reach, according to the Blue Ocean Strategy authors. In 2018, the brand realized $850 million in revenue with productions performed in cities all around the world. And yet there’s not an elephant, tiger or seal in site. Each show highlights the unique talents of human performers along with a strong theatrical theme, original music and a more adult aesthetic. The shows attract people very unlikely to attend a three-ring circus and eliminates or decreases many of the costs associated with one.
Another high-profile blue ocean example comes from Yellow Tail Wines. In an industry often seen as intimidating and pretentious, Yellow Tail chose to offer wines that were fun and easy to drink. Going for a lighter taste also reduced costs of wine aging. Vibrant labels sent the message of fun and the product range was kept deliberately narrow so as not to overwhelm. The strategy pulled in new wine drinkers who previously found the space intimidating, and attracted trade-up drinkers to switch from cheap box wines to something they felt more comfortable placing on the table.
Swimming into the open
While the greatest opportunities lie in swimming into open waters, even existing, deep-pocketed organizations are often fearful of straying too far from shore. In Maubourgne and Kim’s research of 108 business launches, they found 86% of the new ventures were actually only line extensions or simply incremental improvements to existing offerings. While those offerings drove significant revenue, they returned much lower total profits.
Interestingly, the authors assert that much of the reason for this focus on existing lines of business is due to the influence of military strategy in business. Viewing a corporation like a military unit with “officers,” “headquarters,” and “front lines,” executives are accustomed to thinking in terms of battling for limited territory. But a blue ocean strategy is “about creating new land, not dividing up existing land,” they write.
The blue ocean mindset
Their research identifies several key characteristics common to creating new, blue ocean opportunities. But note, it’s not necessarily easier than a traditional approach; designing a blue ocean strategy requires entirely new ways of thinking (that’s really the point). But getting into those open waters can have huge payoffs. Key components to focus on include:
- Searching for/creating uncontested market space
- Making the competition irrelevant (at least until copycats arrive)
- Creating new demand (rather than focusing on supply)
- Marrying high value with low cost
- Focusing the entire enterprise on decreasing costs while pursuing differentiation