Explaining the blue ocean strategy

The phrase “blue ocean strategy” describes a market strategy that differs from the conventional approach of entering an established market and attempting to compete with existing players. The concept of the blue ocean strategy was set out in a book of the same name, by W. Chan Kim and Renee Mauborgne in 2005. The book set out an approach to business that was in sharp contrast to the “red ocean strategy” more traditionally pursued. 

How the blue ocean strategy works

The established red ocean strategy is named after the striking visual metaphor of an ocean that has been stained with the blood of competitors engaged in fierce and violent battle. Adopting this strategy involves taking on established forces within a market, and might involve doing something like launching a new soft drink to compete with Coke and Pepsi, or an online auction site as an alternative to eBay. 

The blue ocean strategy, on the other hand, involves finding, developing or creating new and uncontested markets. Rather than competing for a slice of an increasingly shrinking pie – the red ocean strategy – a blue ocean strategy sees a business creating a pie of its own or increasing the size of an existing pie. As a strategy, it combines reduced risk with higher profits, and emphasizes innovation over competition. 

Practical application of the blue ocean strategy

Unlike many strategic business theories, the blue ocean strategy has firm roots in the real world, with the original theory being the result of market analysis that covered more than 30 industries for a period of longer than 10 years. It starts with the belief that the competition in your field is irrelevant, because rather than trying to outperform them, your business innovates in a manner that redraws the boundaries of the industry as a whole, and then operates exclusively with the new space.  

Examples of companies which have pursued a blue ocean strategy

Ford

One of the earliest and most successful proponents was the Ford motor company, which, in 1908, created the world’s first production line for the manufacturing of standardized cars. The dominant model in the industry at the time was for cars to be custom-made, and the creation of a new manufacturing process enabled Ford to massively undercut the prices charged by competitors, as well as producing more reliable vehicles. 

Apple

Apple created its own blue ocean in 2003, when iTunes service became the first legal means of downloading music. Having created the market through technological innovation, Apple was able to offer consumers much improved sound quality allied to reasonable prices. It also provided a revenue stream for the music industry as a whole, which until then had been struggling to cope with the advent of illegal downloading. 

How to pursue a blue ocean strategy

There are two ways in which a company can create a blue ocean strategy. The first of these is to launch a product or service which is completely new, as with the launch of the iTunes service. The second technique is to move from a red ocean into a blue one by expanding the nature of what is being offered. 

The example often cited for this approach is that of Cirque du Soleil, which, finding itself working within a declining market – due largely to concerns about animal welfare in traditional circuses – switched the focus of their show to create something with high production values. By aiming their circus at higher-paying adults as well as children, the company was able to create a new market for circuses that belonged exclusively to them.    

We can help

Pursuing a blue ocean strategy can revolutionize the way your business operates, and working with GoCardless can do the same. We can help with issues like ad hoc payments or recurring payments.