Blue Ocean Strategy
Prof. W. Chan Kim and Prof. Renee Mauborgne
Dvir@simplesolutions.co.il

Background
Red ocean = strong competition
Blue Ocean Strategy (BOS) aims to create a new market space, by
challenging the conventional assumptions about how to compete
(business innovation)
14%
38% 39%
62% 61%
86%Sales
New products Sales Profits
* According to survey of 108 large firms in USA
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Example - Cirque du Soleil
The circus industry in North America - a declining industry,
mainly for children (low prices), “once in a life time”, stars,
alternative forms of entertainment.
Declining revenue and profits, unattractive market
Cirque du Soleil –
– Theater show with circus format
– Adults and corporate clients
(higher price), several times
– Created in 1984 by a group of street performers.
Achieved revenues that took the global champion of the
circus industry more than one hundred years to attain
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Value Innovation
Traditional strategy process - SWOT analysis, firms try to
compete better in their business environment
Blue Ocean Strategy reconstructs market boundaries in order
to reach beyond existing demand
Establish it through business innovation and new values for
customers
Align the whole system – values, price, cost
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Example – US wine industry
Strong competition (from domestic
and imported wines). Price pressure,
high advertisement costs, high power
of buyers, steady demand
High
Fine wine
Commodities
Low
Price Terms Sales Aging Reputation Complexity Variety
and effort
awards
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Four actions to create a new value curve
New values that have never been
offered Create new values to
create a new market space
Raise existing values well above
market standards
Eliminate Values
Cost reduction
Reduce existing values well below
market standards
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Example cont. - Australia's Casella Winery
Small and unknown. In 2001 started to market wine to customers who
used to drink beer and cocktails. Most customers didn’t care about
complexity or aging.
They decreased the aging (fast incomes) and the variety (less inventory),
created simple and designed labels (easy understanding), suggested
adventure feeling.
Number one imported wine, fastest growing brand in the history
High
Fine wine
Commodities
Casella
Low
Price Terms Sales Aging Reputation Complexity Variety Soft Easy to Adventure
and effort drink choose
awards
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Good strategy
Unique and efficient business profile
New values that reconstruct market boundaries
Large market that interests in these values
Adjust all other parameters to strategy
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Reconstructing market boundaries
Firms tend to:
Define their industry similarly
Look at their industries through the lens of generally accepted
strategic groups
Focus on the same buyer group
Focus on the same point in time
To swim out from the red ocean - you should examine six paths
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Path 1- Look Across Alternative Industries
Products or services may have different forms but offer same
functionality
Customers have alternative solutions from different industries
Yet, firms don’t examine other industry’s customers
You should analyse why custemrs chose one alternative over
the other
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Example – Netjets
The most lucrative customers in the aviation industry are corporate travelers.
Executives can fly business/first class or purchase a private aircraft.
NetJets offers its customers one-sixteenth ownership
of an aircraft , each one entitled to fifty hours of flight
time per year. A jet is available with four hours’ notice
Seventy thousand flights, a multibillion-dollar business
High
Private airplane
Netjets
Business flight
Low
Investment On going Cost per Time Easiness Flexibility Service
cost flight
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Path 2 - Look Across Strategic Groups
within Industries
Each branch has strategic groups which distinct in two
dimensions:
– Price
– Performance
You should understand which factors determine customers’
decisions to trade up or down between groups
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Example: Curves - women’s fitness company
Redefining market boundaries between health clubs (12% of the entire
population) and home exercise programs for women
Smaller spaces in nonprime locations, Low price,
Simple machines for women, circle,
nonjudgmental atmosphere
Two million members, revenues of US$ 1 billion
High Traditional health clubs
Curves
Low Home exercise
Price Services Equipment Trainers Discipline Non Arrival Women
judgmental time company
atmosphere 13

Path 3 - Look Across the Chain of Buyers
Many people are involved in the purchase decision (buyers,
end users, consultants, market leaders and more)
An industry typically converges on a single buyer group
(pharmaceutical industry – doctors, Office equipment -
purchasing departments, Computers – IT departments)
Challenging which buyer group to target can lead to the
discovery of a blue ocean
Example - Novo Nordisk
– Insulin producer
– The industry focused on doctors, who wanted pure insulin
– Novo Nordisk examined patients’ needs and developed
NovoPen, the first user-friendly insulin delivery solution
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Path 4 – Complementary services
Most products require complementary service in order to be
effective
A firm should understand the connection between its product
to these services, what do customers do before and after
using its product and to offer other values
Examples –
– Barnes & Noble - lounges and coffee bars to
create an environment that celebrates reading.
In six years, emerged as one of the two largest
bookstore chains in the United States
– Movie theaters – offered baby sitting services
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Path 5 - Functional or emotional orientation
Usually there is major functional or emotional factor that drives
the purchasing decision
Firm should think if it can supply values that will change the
relevant factor
Examples:
– Swatch – changed the low end watches market
from functional to emotional one
– Body Shop made the opposite for the cosmetics products
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Path 6 – Looking across the time
Companies should understand trends and their influence
Examples –
– Apple - Observed the flood of illegal music file sharing.
Launching iTunes in 2003.
Agreement with five major music. Offered
legal individual song downloads.
– Cisco – Observed the need for high speed data transfer
– HBO – Saw the trend of unmarried women and developed
“Sex and the city”
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Six paths to blue ocean
The six conventional boundaries of competition
Industry (Netjets)
Strategic group (Curves)
Buyer group (Novo Nordisk)
From
To creating
competing
Scope of product or service across
within
(B&N)
Functional – emotional (Swatch)
Time (Apple)
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Create new market space
We want to find an ocean and not a puddle
We need to find markets of “non customers”
"Refusing” non
customers- Soon to be non
chose against customers –
your market waiting to jump
ship
2nd 1st
3rd Our
"Unexplored” tier tier
tier market
non customers
– in markets
distant from
yours
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Three tiers of noncustomers
Tier Characteristics Example
Soon to be non Minimally purchase an Pret a Manger – Healthy
customers industry’s offering out of sandwiches for office workers
necessity
Refusing non Saw your industry’s JCDecaux - street facilities
customers offerings, but voted (in 1964) for advertisers that
against them didn’t like bus commercials
Unexplored Never thought of your Toothpaste producer - offer
non customers market’s offerings as an whitening products, which
option were regarded as dentists’
business
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Target Price
Target price should be attractive and to bring
fast conquering of the market
Two parameters:
– Customer’s alternatives (including not to buy anything)
– Entering of new competitors
Refine the whole system to support that price
– Increasing efficiency
– Cancellation of unimportant values
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Pioneer-Migrator-Settler (PMS) Map
Pioneer
Migrator
Settler
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Strategy Implementation
Company LOB’s
level level
Managerial Our markets,
workshop, PMS Map, Current value
Market Trends, curve, six paths
Technology … ………
…...............................
Change management
Different Effective
solution features
“Big ideas”
Not in the road map
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Other Blue Oceans
Ford Chrysler IBM Microsoft Ralph
GM Viagra
Model T Mini Van PC Office Lauren
Canon Quicken
iPhone UPS Simple Dell Bloomberg Google
90$ finance
copiers SW
Bagir
ECI
Checkpoint Fox Tiv Taam Washable
CDMA
suites
Nintendo Kodak Akzo Nobel Samsung Total Universiti
Wii Traceless Paint pot Petrochemicals Sain Malaysia
Microsoft Nokia McDonald's SAS Carlsberg Raytheon
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FAQ’s
Risks (today)?
Strategy – it’s
coming from
Management /
part of bigger
Standards or
organization
list of “must”
features
We are already
have a new
innovative idea
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Summary
Most firms invest their efforts in the red
ocean battle
Structure and market boundaries exist
only in managers’ minds
Many firms (from various industries)
found their blue ocean
Business innovation (in our business)
Profits are high (even from BOS analysis)
Next step – Implementation session,
team, LOB
Start. Time is running
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