Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant

Chapter 1 explains what blue oceans are and how they are created. It begins with Cirque du Soleil as an example of a successful case of blue ocean creation. The company broke out of a red ocean by expanding the existing boundaries of the declining circus industry. At a time where alternate sources of live entertainment were on the rise and animal rights activists decried the mistreatment of circus animals, Cirque du Soleil created a blue ocean by merging traditional circus acts with theater. Unlike the traditional business model pursued by circus groups such as the Ringling Bros. and Barnum & Bailey, Cirque du Soleil’s model did not employ animals, did not fight to hire more renowned circus actors, and did not cater to children as their primary audience. By targeting adults, theatergoers, and corporate clients, they could sell tickets at a markup and keep their costs down while still capturing the traditional circus market. 

Red oceans are defined as industries whose boundaries and competitive rules are known and accepted. Companies caught in cutthroat competition in these spaces attempt to gather a greater share of the market by using traditional strategies, such as cost reduction, to outperform rivals. The dominant business strategy in the last 30 years has focused on how to survive in these red oceans.

Blue oceans, on the other hand, are defined as untapped market spaces whose boundaries are unknown but offer greater opportunity for profit growth. These spaces can be entirely new, or they can be made from expanding the boundaries of red oceans, as Cirque du Soleil did. The dominant focus on competing in red oceans in the past 30 years has resulted in a dearth of information on how to create and practice blue ocean strategies. Without the means to measure risk and templates to create practical frameworks, most businesses have opted to avoid tapping into these uncharted waters.

However, this single-minded focus on red oceans is ultimately detrimental to growth: History shows that the world and industries are constantly changing. Cars, the internet, and electricity, for example, although considered commonplace now, were industries that first sprung from blue oceans. There is no reason to believe, therefore, that the future will remain static. In other words, whereas red oceans encourage businesses to fight over a finite amount of space, blue oceans encourage the innovation and redefinition of the industry itself—a process that generates uncontested space and can be repeated ad infinitum.

Creating blue oceans is more relevant today than ever before because technological advancements have allowed businesses to create an unprecedented number of products and services, resulting in an excess of supply over demand. This is exacerbated by globalization, which intensifies competition without generating a proportional increase in demand. For example, as businesses fight for the greater share of the same market, they tend to utilize similar strategies to reduce costs, resulting in a lack of product differentiation between brands. Customers are therefore encouraged to purchase based on price rather than brand, further exacerbating competition.

W. Chan Kim & Renée Mauborgne explain what businesses can do to break free from red oceans and what makes a successful blue ocean strategy. The common factor in all successful captures of blue oceans lies in the strategic move taken by the company. In other words, a good approach to strategy is the key to success, while the size, influence, and origin of the business, as well as the state of the industry it occupies, are largely irrelevant.

Successful blue ocean captures revolve around the concept of “value innovation,” defined as the capacity to generate a leap in value for customers using strategic innovation. It is unlike technology innovation because it does not focus on using cutting-edge technology for its futuristic appeal, which can often alienate customers due to the product’s steep pricing and unfamiliar functions. Value innovation is also different from market pioneering because it does not focus on timing for optimal market entry.

Value innovation allows businesses to bypass the “value-cost trade-off,” which in red oceans dictates that generating greater value for customers incurs a proportionally high cost. In blue oceans, however, innovating and product differentiation need not be costly, because the space is uncontested and demand increased. This was the case for the Cirque du Soleil: It did not rely on hiring increasingly renowned and expensive clowns to attract the same customers, but rather injected intellectual richness, music and dance, and profound storytelling into their shows. Their focus on multiple productions also encouraged clients to return more frequently, thereby increasing demand. In other words, their use of value innovation increased demand and redefined the industry without increasing cost.

Value innovation requires a company to properly balance its production cost, the price of the goods and services produced, and the utility they bring so that there is a leap in value for both their clients and themselves. Although no strategy is riskless, the authors conclude the chapter by reminding readers that businesses overestimate the risk in venturing outside red oceans.