Say you have your sights set on a new enterprise—perhaps one in the ever-growing digital communications, health-care, or dining industry. But as you craft your business plan, you encounter some significant warning signs that you’re in for a bruising battle, fighting tooth and nail for market share, running down costs, and pumping funds into marketing just to gain a foothold in this crowded field.

But what if instead of contending for a small slice of that pie, you bake a completely new one? Chasing such tantalizing alternatives is at the heart of the blue ocean strategy: creating uncontested market space and making the competition largely irrelevant. For business owners, understanding and applying blue ocean thinking (and red, its alternative) can be a critical framework for generating sustainable growth.

The genesis of the tactic

The concept of red and blue ocean strategies burst onto the business scene when strategic thinkers W. Chan Kim and Renée Mauborgne published their groundbreaking book Blue Ocean Strategy in 2005 (and updated it in 2015). This culmination of a decade-long study of business schemes across over thirty industries challenged conventional wisdom that success hinged primarily on beating one’s rivals. Such traditional thinking, they argued, operated from an overly militaristic perspective of seeking competitive advantages within existing industries.

Through their work, Kim and Mauborgne proposed a paradigm shift. Instead of focusing on competition, leaders should turn to value innovation: the simultaneous pursuit of superior value for customers and lower costs for the company. Their research highlighted businesses that had succeeded not by winning battles but by avoiding them altogether—and opening vast new market spaces in the process.

Defining the oceans

To effectively navigate these strategies, it’s crucial to understand the distinct characteristics of each “ocean” that entrepreneurs can wade into.

The red ocean: competing in known markets
Businesses that take this approach, named for blood in the water, occupy popular market space and strive to earn their own share of existing demand and outdo competitors. To succeed, they must typically choose between offering a highly differentiated product at a premium or a low-cost product with standard features. The result is price wars, aggressive advertising campaigns that directly compare products, and research into incremental product improvements.

Leaders must also diligently suppress operational costs and hyper-differentiate their organization with unique branding. A prime example is the intensely competitive and saturated telecommunications market, where a few major companies are constantly vying to persuade the same customers.

The blue ocean: exploring new market spaces
While it’s possible to succeed in a red ocean, Kim and Mauborgne’s alternative may be more lucrative: shifting to the clear waters of a blue one. Here, you leverage innovation to effectively make the competition irrelevant. To pursue this path, you offer the market something fundamentally new and more valuable, the likes of which potential consumers haven’t seen.

However, because markets may be unfamiliar with your products or services (or at least your company’s unique approach to them), creating and capturing new demand may require that you initially sell your offerings at low costs. You will be asking prospects to take a leap and try something unfamiliar, so succeeding in blue oceans means successfully convincing them that you not only are worth the risk but also offer a value proposition that no one else does. Additionally, you’ll need to continue innovating should competitors imitate your ideas or otherwise enter your space. Continually pushing new ideas further and introducing new ones can help prevent a blue ocean from becoming a red one.

Many companies have taken such avenues to stellar success, including these examples:

Amazon
This megaretailer is an example of a company that consistently works to turn a red ocean into a blue one. While it already dominates the crowded field of e-commerce through competitive pricing and customer service, it continually forges ahead with creative initiatives like Amazon Web Services and drone deliveries (in a few states), thereby creating entirely new markets.

Cirque du Soleil
Instead of competing with traditional circuses that relied on star animal acts and expensive performers, Cirque du Soleil eliminated these high-cost elements in favor of a theatrical storytelling performance that appeals to adults and youth alike, making it a Las Vegas mainstay and international sensation.

Netflix
Initially, Netflix disrupted the video rental market by eliminating late fees and physical store visits (major customer pain points), instead creating a subscription-based, mail-order DVD service that offered unparalleled selection and convenience. Later, it executed another seemingly blue ocean move by leapfrogging into streaming media, further enhancing convenience and becoming content creators in their own right.

Finding your path

You may find that your route to success begins with market research, either independently (e.g., conducting social media polls) or via a third-party researcher. The results of said research can reveal which type of ocean lies before you should you follow this enterprise.

However, Kim and Mauborgne’s lesson is clear: don’t fight harder in red oceans; fight smarter in blue ones. Understand where the competition is fierce, and keep an eye out for unexplored opportunities. Should you sail with confidence and preparation into an innovative space, you can position your business to not only survive but also grow, profit, and lead.

For more info, visit blueoceanstrategy.com

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