Business Strategy

Creating Blue Ocean from Red Ocean

Written by Richard San Juan for Gaebler Ventures

We take a look at Blue Ocean Strategy, a strategic framework developed by W. Chan Kim and Renée Mauborgne.

As an entrepreneur, imagine sitting at a beach and gazing towards to the seemingly limitless blue ocean. What comes to mind?

Hopefully, the prospect of having unlimited boundaries to sail boats comes up.

Now, apply that same thinking to a particular market sector.

An aspiring entrepreneur should see it as a potential limitless consumer base where one can market their product or service. More often than not, however, there are sailboats that populate the ocean.

Let's say the boats are colored red. If there are too many red boats milling around in the ocean, then it almost becomes like a red ocean.

The goal of the blue ocean strategy is to stay clear of the red ocean market and head into blue waters. This strategy, developed by W. Chan Kim and Renée Mauborgne, is a form of business strategy that tries to make competition (the sailboats) irrelevant by creating new markets (blue ocean).

Putting the metaphors aside, it is important to define what exactly is blue ocean and red ocean.

Blue oceans are markets or industries that have not been discovered yet and have not been marketed to. In blue oceans, there is no competition and demand can be created. Therefore, there is the potential for exponential growth once it is tapped into.

In contrast, a red ocean market is heavily competitive and saturated with competitors that fight each other to grab a bigger slice of existing demand. Oftentimes in this type of market, profits shrink due to dwindling market shares as a result of price reductions. In addition, with the market already having been explored for a long time, there is no more new demand left to market to. Consequently, the goods and services become commodities.

The Path to the Blue Oceans

Now that you know that blue oceans are better, you are probably asking: How do I, as an entrepreneur, get there?

Great question! How does one get out of the red ocean market where there is very little existing demand and make ones way to more profitable waters?

One word: innovation.

Innovation is indeed the central focus of the blue ocean strategy and one that entrepreneurs and small business owners should be aware of. There have been numerous companies that have utilized this strategy to achieve success.

Past examples have shown that blue ocean strategy usually emerges within an industry saturated with red ocean thinking.

An example of this is AMC Theaters. It was an ingenious move due to the fact that the theater industry was already full of entrenched competitors. AMC Theaters was already established as a market leader in the theater industry, but still enabled itself to create growth and new demand by introducing the megaplexes concept, which sometimes consists of thirty screens in one location.

Another example of blue ocean strategy was the formation of Cirque du Soleil. The major focus of its strategy was to reduce its cost structure by getting rid of traditional costly circus acts such as animal acts and aisle concessions. This paved the way for Cirque du Soleil to provide a unique and profitable circus experience to many customers where they fused ballet and circus acts.

Richard San Juan is currently pursuing an MBA degree with an emphasis in Finance from DePaul University in Chicago. He is particularly interested in writing about business news and strategies.

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