RED OCEAN VS BLUE OCEAN STRATEGY
Red oceans refer to industries that are well established and highly competitive, where companies battle it out for a larger share of the market. The intense competition leads to a literal ‘bloody’ ocean, hence the term 'red' oceans. On the other hand, blue oceans are those industries that are not yet established, which means they are untapped, uncharted, and unblemished by competition. This ocean is virtually limitless in terms of potential growth and profitability.
VALUE INNOVATION
Value innovation is a strategy that takes into account both value and innovation simultaneously. It seeks to create greater value for customers without incurring higher costs. This differs from the traditional view of strategy, which typically involves a choice between pursuing differentiation or low cost. Value innovation allows companies to differentiate from the competition, create more value for customers, and do so at a lower cost. This approach helps companies break into ‘blue oceans’ – uncontested market spaces – where they can find higher profits and increased customer loyalty. Furthermore, value innovation can drive companies to develop innovative products and services that set them apart from their competitors and make them stand out in the market.
THREE TIERS OF NONCUSTOMERS
Companies that wish to tap into new markets and unlock latent demand need to have a clear understanding of noncustomers. The three tiers of noncustomers provides an analytic framework to help companies gain insight into this untapped potential.
The first tier of noncustomers are those who never before considered buying the company’s product or service. These brand new customers have no awareness of the company and do not even realize they have a need to fulfill. The second tier of noncustomers are those who have previously considered the company’s offering, but never purchased it. This could be due to a lack of knowledge about the product’s features and benefits or a lack of trust in the company. The third tier of noncustomers are former customers who stopped buying the company’s products or services for some reason.
By uncovering the motivations, needs, and preferences of each tier of noncustomers, companies can identify opportunities to create new, attractive value propositions that will make it easier for noncustomers to become customers. This is the key to unlocking latent demand and creating blue oceans.
STRATEGY CANVAS
The Strategy Canvas is an intuitive and powerful analytic tool that provides a snapshot of an organization's competitive position. It breaks down the competitive landscape into four key elements: factors of competition, offering levels, strategic profiles, and cost structures. It allows viewers to quickly understand their own and competitors' investments, competitive features, and what customers receive from existing competitive offerings. This one-page visual provides insight into where an organization stands in relation to its competitors, giving strategic teams the ability to make informed decisions about their own strategy and offerings.
FOUR ACTIONS FRAMEWORK
The Four Actions Framework is a powerful tool used to break the trade-off between differentiation and low cost in crafting a new value curve or strategic profile. By posing four key questions, this framework challenges an industry’s strategic logic and helps to create unique, blue ocean strategies.
The first question asks which factors the industry takes for granted that should be eliminated. These are factors that are deemed essential by the industry, but are not necessarily required for success. The second question asks which factors should be reduced well below the industry’s standard. In many cases, costs can be lowered by cutting out unnecessary features or services. The third question asks which factors should be raised well above the industry’s standard. These are factors that can set a company apart from their competition and make them stand out. The fourth and final question asks which factors the industry has never offered should be created. This is a great way to create something entirely new and create a competitive advantage.
By challenging the industry’s logic and business model, the Four Actions Framework can help companies unlock new sources of value and create blue ocean strategies that break the trade-off between differentiation and low cost.
ELIMINATE-REDUCE-RAISE-CREATE GRID
This analytic tool allows companies to ask strategic questions and helps them identify potential opportunities to gain a competitive advantage.
The grid allows companies to pursue both differentiation and low costs, providing an immediate flag for companies that are only focused on raising and creating costs. The grid is easy to understand, engaging for managers at any level, and provides a challenging task for companies to thoroughly examine the factors used to compete in their industry. This allows companies to uncover a range of implicit assumptions that are unconsciously made in the competition. By using the Four Actions Framework, companies can unlock a new blue ocean and create a unique value curve that will put them ahead of the competition.
SIX PATHS FRAMEWORK
The Six Paths Framework provides a powerful tool for discovering new ways to create value in the marketplace. It allows you to look outside of the boundaries that have been self-imposed in an industry, and instead look across to uncover potential blue ocean opportunities. This way of thinking encourages companies to break away from traditional competitive strategies and shift their perspectives in order to gain insights and create new demand.
The framework is organized into six paths, each of which provides a different way for looking at the industry and uncovering possibilities for creating value. These paths are looking across alternative industries, strategic groups, buyer groups, complementary products and services, the functional-emotional orientation of an industry, and even across time. By considering all of these factors, the Six Paths Framework provides an effective way of creating new value in the market and creating blue ocean opportunities.
PIONEER MIGRATOR SETTLER MAP
Evaluating your product or service offerings according to the amount of innovative value they offer can provide insight into the strategic strength of your portfolio. The pioneer-migrator-setter map is divided into three sections: pioneers, migrators, and settlers. Settlers are considered to be businesses that are similar to others in the market, while migrators offer something better than the typical offerings. Companies that are considered pioneers are those that provide unprecedented value. These are the most powerful sources of profitable growth and tend to have a large following of customers. The pioneer-migrator-settler map helps to identify where the most potential profit could be gained from a blue ocean journey, and it provides guidance on the scope of the blue ocean initiative.
SEQUENCE OF CREATING A BLUE OCEAN
Buyer utility is the starting point for any successful business model. Your offering needs to unlock a unique and exceptional utility that will attract the mass of potential buyers. At the same time, it must be priced in such a way that those potential buyers will find it compelling and affordable.
The third element of a great business model is cost. You need to be able to produce your offering at the target cost while still earning a healthy profit margin. It is not wise to sacrifice utility because of high costs, as this will prevent you from achieving your strategic pricing goal. If production costs are too high, you either need to come up with an innovative business model to hit the target cost or forgo the idea altogether.
Finally, you must consider any adoption hurdles that may arise when rolling out your idea. Make sure to address the issues up front to ensure a successful launch. When all of these elements are taken into consideration, you have a complete blue ocean strategy that is sure to succeed.
BUYER UTILITY MAP
The Buyer Experience Cycle (BEC) and Utility Levers are two dimensions that can be used to assess how customers interact with a product or service. The BEC is a cycle of six stages, beginning with the purchase of a product or service and ending with its disposal. Utility levers are used to unlock customer utility, creating a unique proposition that can draw new customers in. By focusing on utility levers and the buyer experience cycle, managers can craft a strategy that stands apart from the competition, inviting potential new customers while removing the obstacles that stand in the way of converting them. This approach can be particularly effective in existing industries, allowing companies to shape the market with a blue ocean strategy.
FOUR HURDLES TO STRATEGY EXECUTION
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Companies may encounter four major challenges related to strategy execution, as highlighted by Chan Kim and Renée Mauborgne. Knowing how to overcome these organizational obstacles is essential for a successful strategy implementation.
The Cognitive Hurdle is about waking up employees to the need for change. Red oceans may have been fruitful in the past; however, they cannot guarantee a successful future. Hence, it is essential to take risks and to steer away from traditional approaches.
The Resource Hurdle implies that the more drastic the shift in strategy, the more resources it requires. This means that more investments and effort are necessary in order to achieve the desired results.
The Motivational Hurdle is all about getting key players to act promptly and persistently in order to break through the status quo. It is a challenge to find the right incentive to motivate them and to put them in a positive mindset.
Lastly, the Political Hurdle can be summed up in one phrase: “you get shut down before you stand up.” A manager needs to find the right way to advocate for the proposed change, despite the potential resistance from the rest of the organization.
FAIR PROCESS
Fair process is an important concept that helps ensure success when implementing a strategy. By engaging people early on and giving them an explanation of the strategy along with clear expectations of what is expected of them, buy-in is created up front. This helps to create trust that a level playing field exists, which in turn encourages voluntary cooperation during the execution phase.
There are three essential elements to fulfill a fair process: engagement, explanation, and clarity of expectation. These three principles must be met together in order for people to deem the process fair. Whether it's senior executives or shop floor workers, understanding these elements is key to ensuring a successful strategy.
PRICE CORRIDOR OF THE MASS
To effectively set the strategic price, managers must first understand the price sensitivity of potential buyers. This involves identifying the price corridor of the target mass, or the range of prices that will attract the desired number of buyers. It is important to consider products or services outside of the industry that can be compared to the new offering. These can either be products or services that serve the same function but have different forms, or those that have different forms and functions but achieve the same end.
Once the price corridor is identified, the next step is to determine the strategic price point within the range. Companies must consider factors such as the level of legal and resource protection of the product or service, as well as any exclusive assets or core capabilities that can block imitation. The higher the protection against imitation, the higher the strategic price can be, allowing for a higher return on investment. On the other hand, if a manager is uncertain of their legal and asset protection, pricing somewhere in the middle to lower end of the corridor is ideal. By doing so, they are ensuring that they will still attract the mass of target buyers while limiting their risk.
FIVE STEPS TO MAKING A BLUE OCEAN SHIFT
Creating a blue ocean initiative can be overwhelming, but with the right guidance, you can be sure to land in the right place. Step 1 helps you to choose the right place to start by guiding you towards focusing on areas that are most suitable, considering organizational constraints.
Step 2 encourages a collective wake-up call to understand the current state of the competitive landscape, while Step 3 works to identify pain points and unlock value for buyers. Step 4 shows you how to create commercially compelling new market space and formulate well-constructed strategies, while Step 5 helps you decide on which blue ocean move to pursue, allowing for alignment and top management to select the right option.
Overall, the five-step process of creating a blue ocean initiative ensures that you have the right guidance and support to not only choose the right place to start but also make the right moves to ensure success.
THREE KEY COMPONENTS OF A SUCCESSFUL BLUE OCEAN SHIFT
Organizations striving to become market creators, instead of just competing in existing markets, must adopt a blue ocean perspective, equipping themselves with practical tools and guidance to make a successful shift, and developing the confidence to own and drive the process. With the right mix of creative competence, the right questions, and the confidence to act, organizations can propel themselves from market competitors to market creators. Step-by-step, they can guide themselves through the central questions necessary for making the blue ocean shift, and build the confidence to drive the process from start to finish. With the right combination of perspective, tools, guidance, and confidence, organizations can set themselves up for success and make the jump from market competing to market creating.
THREE COMPONENTS OF HUMANNESS
Constructing a blue ocean shift process with an emphasis on humanness and helping people build the confidence to act starts with three components: atomization, firsthand discovery, and a fair process.
Atomization involves breaking down the challenge into more manageable, achievable objectives. This allows people to move forward in small steps, with each one giving them the motivation and the assurance to develop their self-belief. By not presenting pre-determined conclusions, and instead offering tools to think in new and creative ways, they can gain a better understanding of the need (or lack thereof) for a blue ocean transformation.
Firsthand discovery enables people to identify the need for change for themselves. By allowing them to directly interact with the market, they will gain clarity about the facts of the situation and the need for a shift. This can take them from a feeling of worry and vulnerability to one of knowledge and confidence.
Fair process showcases the importance of people and their intellectual and emotional worth. This builds trust and encourages voluntary involvement in the process.
When atomization, firsthand discovery, and fair process are woven together in the blue ocean shift process, humanness and assurance to act become a part of the process. Execution is no longer an afterthought and people are more likely to embrace and trust in the results.
