Blue Ocean Strategy
Overview
Blue Ocean Strategy is a thinking model for breaking out of the “Red Ocean” — the crowded existing market where cutthroat competition turns the ocean bloody — and opening up a “Blue Ocean,” a new market space where there are no competitors. Its core is “Value Innovation,” which simultaneously pursues differentiation and low cost, creating a leap in value for both the customer and the company.
Rating (1–5)
- Applicability: 4
- Effectiveness: 5
- Complexity: 3
- Misuse Risk: 3
Evaluation Comment
This is an essential model for new business development, providing a concrete methodology to “win without fighting.” However, because new markets eventually attract followers, a simultaneous perspective on how to build entry barriers for sustainability is required.
The First Question
“By eliminating ‘Something’ that is considered common sense in the industry, can I create ‘Unknown Value’ that customers are dying for?”
Objectives
- To break the “Trade-off” between low cost and high differentiation.
- To capture “Non-customers” who did not previously use the company’s (or the industry’s) products or services.
- To avoid the erosion of profitability caused by price wars and secure high profit margins.
Poor Questions
- “Can we make it slightly cheaper and with more features than the competitors?” (Leads to a quagmire of competition in the Red Ocean)
- “Will it sell if we use the most cutting-edge technology?” (Confusing technological innovation with value innovation)
- “Will we get new ideas if we survey current customers?” (Requests from existing customers tend to remain extensions of the existing market)
How to Use (Step-by-Step)
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Apply the Action Matrix (ERRC)
- Eliminate: Remove factors that the industry has long competed on but which actually provide little value.
- Reduce: Boldly cut specific factors well below the industry standard.
- Raise: Strengthen specific factors well above the industry standard.
- Create: Invent entirely new factors that the industry has never offered.
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Draw the Strategy Canvas
- Plot competition factors on the horizontal axis and the level of value on the vertical axis. Compare your company’s curve with competitors’ to see if you have drawn a unique “Value Curve.”
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Focus on Tiers of Non-customers
- Identify the pain points of those who are dissatisfied with the existing market or those who have never even considered using the industry’s services.
Output Examples
- Example: Low-Cost Haircut Shops (e.g., QB House)
- Eliminate: Reservations, shampoo, shaving, excessive hospitality (slashing costs).
- Raise: Convenience of location.
- Create: Overwhelming time efficiency (10-minute cuts).
- Example: Cirque du Soleil
- Eliminate: Animal shows (avoiding high costs and criticism), star performers.
- Raise: Unique venue production.
- Create: Storytelling and artistic music (blending circus with theater).
Use Cases
- Business: Developing concepts for new products, redefining existing businesses, and escaping price competition.
- Daily Life: Career differentiation (e.g., creating a rare position by combining “IT Skills × Accounting Knowledge × English Proficiency”).
- Decision Making / Thinking: Identifying companies with unique advantages when selecting investment targets by avoiding overheated markets.
Typical Misuses
- Confusion with Niche Strategy: While a niche strategy targets a narrow segment, Blue Ocean Strategy aims to broaden the market significantly by involving “Non-customers.”
- Lack of Value Innovation: Focusing only on “Eliminate/Reduce” for cost-cutting without providing the “Raise/Create” value for the customer.
- Technology Worship: Assuming that “Great Technology” automatically equals a Blue Ocean. Value ultimately resides in the “Customer Experience.”
Relationship with Other Models
- Complementary: ERRC Grid (Action Matrix), Strategy Canvas.
- Related: Disruptive Innovation, Jobs-to-be-Done (JTBD), 3C Analysis.
- Opposing: Five Forces Analysis (A model based on the premise of competing within existing market structures).