Organizations can create new demand in a previously unexplored market spaces, or “blue ocean,” rather than compete in existing industries for the same customers. The authors use red and blue oceans as metaphors to describe the market universe.
Red oceans are existing markets. In red oceans, the rules of business and boundaries of markets are considered constant. Red ocean companies try to outperform their competitors to grab a greater share of the market. As the number of competitors increase, shares get smaller. In mature markets, products become ordinary, and it becomes difficult to find new strengths with which to compete.
Blue oceans are like new continents, full of new possibilities and potential. America was the blue ocean of the 16th century and Europe the red ocean. In blue oceans, demand is totally new but in read oceans, supply is high and minute details are used to try to gain a competitive advantage.
In blue oceans, competition is irrelevant because there is nothing similar to a given product or service offered by a company. The first case considered in the book is that of Cirque du Soleil from Canada. Traditional circuses have animals and animal trainers, and this is characteristic of circuses. The costs of transporting and feeding animals such as elephants and lions are high. Besides, animals do not provide any competitive advantage; they only make a circus ordinary. Cirque du Soleil decided to create a circus show performed only by humans. The shows include not only physically dangerous performances by professionals but also tell stories, falling somewhere between Broadway and Olympiads. What Cirque du Soleil did is totally different from traditional circus companies, making them an attractive new option for potential audiences. Tickets are more expensive and production costs are lower.
Value innovation is one of the key aspects the authors underline. The blue ocean strategy is value innovation. A blue ocean is created when a company creates value for both the buyer and the company. This product or service innovation must create value by reducing or eliminating features or services that are less valued by the market.
The authors criticize the acclaimed book “Built to Last.” There is no permanent formula or rules for success; success is contextual. If one company can innovate in the right context, it can be successful.
In the 1990s and early 2000s, different books underlined the importance of innovation. Gary Hamel’s “Leading the Revolution,” Constantinos Markides’ “All The Right Moves,” Kjell Nordström’s “Funky Business,” Guy Kawasaki’s “Rules for the Revolutionaries,” Tom Peters’ “The Circle of Innovation” and Clayton M. Christensen’s “Innovator’s Dilemma” are a few books that popularized the concept of innovation.
“Blue Ocean Strategy” elaborates on the choice between product/service differentiation and lower cost, suggesting that both differentiation and lower costs are achievable in the same time.