Blue Ocean Strategy
Blue Ocean Strategy is referred to a market for a product where there is no competition or very less competition.
This strategy revolves around searching for a business in which very few firms operate and where there is no pricing pressure.
‘Blue Ocean’ meaning :
“Blue ocean” is a slang term for the uncontested market space for an unknown industry or innovation. Coined by professors W. Chan Kim and Renee Mauborgne in their book “Blue Ocean Strategy.
a. Actually Blue Ocean strategy can be applied to various sectors of business, but here we will see Blue ocean strategy in detail and check how it is different from the Red Ocean strategy .
b. In today’s environment most firms operate under intense competition and try to do everything to gain market share.
c. When the product comes under pricing pressure there is always a possibility that a firm’s operations could well come under threat.
d. This situation usually comes when the business is operating in a saturated market, also known as ‘Red Ocean’.
e. When there is limited room/space to grow, businesses try and look for verticals or avenues of finding new business where they can enjoy uncontested market share or ‘Blue Ocean’.
f. A blue ocean exists when there is potential for higher profits, as there is now competition or irrelevant competition.
g. Blue Ocean Strategy aims to capture new demand, and to make competition irrelevant by introducing a product with superior features.
h. It helps the company in make huge profits as the product can be priced a little steep because of its unique features from others.
We can better understand above explanation through various example :
- iTunes :
a. With the launch of iTunes, Apple unlocked a blue ocean of new market space in digital music that it has now dominated for more than a decade.
b. Apple observed the flood of illegal music file sharing that began in the late 1990s, enabled by file sharing programs such as Napster, Kazaa, and LimeWire. By 2003 more than two billion illegal music files were being traded every month.
c. While the recording industry fought to stop the cannibalization of physical CD's, illegal digital music downloading continued to grow.
d. With the technology out there for anyone to digitally download music free, the trend toward digital music was clear.
e. This trend was underscored by the fast-growing demand for MP3 players that played mobile digital music, such as Apple’s hit iPod.
f. Apple capitalized on this decisive trend with a clear trajectory with the creation of iTunes in 2003.
g. In agreement with five major music companies — BMG, EMI Group, Sony, Universal Music Group, and Warner Brothers Records — iTunes offered legal, easy-to-use, and flexible song downloads.
h. By allowing people to buy individual songs and strategically pricing them far more reasonably, iTunes broke a key customer annoyance factor: the need to purchase an entire CD when they wanted only one or two songs on it.
i. iTunes also provided a leap in value beyond free downloading services via sound quality as well as intuitive navigation, search and browsing functions.
j. The unprecedented value iTunes offered triggered customers the world over to flock to iTunes with recording companies and artists also winning.
k. Under iTunes they receive some 70 percent of the purchase price of digitally downloaded songs, at last financially benefiting from the digital downloading craze.
l. In addition, Apple further protected recording companies by devising copyright protection that would not inconvenience users — who had grown accustomed to the freedom of digital music in the post-Napster world — but would satisfy the music industry.
m. Today iTunes offers more than 37 million songs as well as movies, TV shows, books and podcasts.
n. It has now sold more than 25 billion songs, with users downloading on average fifteen thousand songs per minute.
o. iTunes is estimated to account for more than 60 percent of the global digital music download market.
2. Canon :
a. Canon’s strategic move, which created the personal desktop copier industry, is a classic example of blue ocean strategy.
b. Traditional copy machine manufacturers targeted office purchasing managers, who wanted machines that were large, durable, fast, and required minimal maintenance.
c. Defying the industry logic, the Japanese company Canon created a blue ocean of new market space by shifting the target customer of the copier industry from corporate purchasers to users.
d. With their small, easy-to-use desktop copiers and printers Canon created new market space by focusing on the key competitive factors that the mass of non-customers — the secretaries that used copiers — wanted.
e. By questioning conventional definitions of who can and should be the target buyer, companies can often see fundamentally new ways to unlock value.
f. Path three of blue ocean strategy’s six paths framework pushes companies to look across the chain of buyers in their industry.
g. By shifting focus to a previously overlooked set of buyers, companies can unlock new value and create uncontested market space.
Value Innovation — The Cornerstone of Blue Ocean Strategy :
- Value innovation places equal emphasis on value and innovation.
- Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean.
- The creation of blue oceans is about driving costs down while simultaneously driving value up for buyers.
In above figure of value innovation
Cost saving — Eliminate and reduce competing factors
Buyer value lifted — Raise and create new elements