Red Ocean vs Blue Ocean

*Key Determining Factors:

Red Ocean Strategy

Compete in existing market space.

Blue Ocean Strategy

Create uncontested market space.

Beat the competition.

Make the competition irrelevant.

Exploit existing demand.

Create and capture new demand.

Make the value-cost trade-off.

Break the value-cost trade-off.

Align the whole system of a firms Align the whole system of a firms activities with its strategic choice of activities in pursuit of differentiation or low cost. differentiation and low cost.

Structuralist view

Reconstructionist view

Value Innovation
Value innovation places equal emphasis on value and innovation. Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean. The creation of blue oceans is about driving costs down while simultaneously driving value up for buyers.

Cost savings are made by eliminating and reducing the factors an industry competes on.

Costs

Value Innovation

Buyer Value

Buyer value is lifted by raising and creating elements the industry has never offered.

Six Principles of Blue Ocean Strategy

Formulation Principles Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right Execution Principles Overcome key organizational hurdles Build execution into strategy Risk Factor each Principle Attenuates Lowers Search risk Lowers Planning risk Lowers Scale risk Lowers Business model risk Risk Factor each Principle Attenuates Lowers Organizational Risk Lowers Management Risk

Strategy Canvas
The strategy canvas is both a diagnostic and an action framework for building a blue ocean strategy. 1. Allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, service, and delivery, and what customers receive from the existing competitive offerings on the market.

2.
3.

The horizontal axis captures the range of factors the industry competes on and invests in.
The vertical axis captures the offering level that buyers receive across all these key competing factors. A high score means that a company offers buyers more, and invests more, in that factor.

Example of strategy canvas for Curves:

Reading the Value Curves

The 6 Paths
Old Way of Thinking
Define their industry similarly and focus on being the best within it
Look at their industries through the lens of generally accepted strategic groups and strive to stand out in the strategic group they play in Focus on the same buyer group, be it the purchaser, the user, or the influencer Define the scope of the products and services offered by their industry similarly Accept their industrys functional or emotional orientation Focus on the same point in timeand often on current competitive threatsin formulating strategy
* These 6 assumptions, on which most companies build their strategies, keep companies trapped competing in red oceans.

The New 6 Paths

Look across alternative industries
Look across strategic groups within industries

Look across the chain of buyers

Look across complementary product and service offerings Look across functional or emotional appeal to buyers Look across time

* These 6 paths give companies insight into how to reconstruct market realities to open up blue oceans.

Conceiving New Market Space

Through reconstructing existing elements across industry and market boundaries,

companies can free themselves from head-to-head competition in the red oceans.
This table summarizes the six-path framework:

1. Visual Awakening

Four Steps of Visualizing Strategy

2. Visual Exploration
Compare your business with your competitors by drawing your as is strategy canvas. See where your strategy needs to change.

Go into the field to explore the six paths to creating blue oceans.

3. Visual Strategy Fair 4. Visual Communication

Draw your to be strategy canvas based on insights from field observations.

Observe the distinctive advantages of alternative products and services.

See which factors you should eliminate, create, or change.

Distribute your before-andafter strategic profiles on one page for easy comparison.

The process which builds on the six paths of creating blue oceans and involves a lot of visual stimulation in order to unlock peoples creativity has four major steps.

Get feedback on alternative strategy canvases from customers, competitors customers, and noncustomers. Use feedback to build the best to be future strategy.

Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.

Four Actions Framework

To break the trade-off between differentiation and low cost and to create a new value curve, there are four key questions to challenge an industrys strategic logic and business model This question forces you to consider eliminating factors that companies in your industry have long competed on.
Use these to determine how to drop your cost structure

Reduce Which factors should be reduced well below the industrys standard?

This question forces you to determine whether products or services have been over designed in the race to match and beat the competition.

Eliminate Which of the factors that the industry takes for granted should be eliminated?

A New Value Curve

Create Which factors should be created that the industry has never offered?

This question pushes you to uncover and eliminate the compromises your industry forces customers to make.

Raise Which factors should be raised well above the industrys standard?

This question helps you to discover entirely new sources of value for buyers and to create new demand, and shift the strategic pricing of the industry.

The EliminateReduce-Raise-Create Grid

Eliminate Raise

Reduce

Create

Pioneer, Migrator, Settler Map

Pioneers: businesses that offer unprecedented value. These are the blue ocean strategists, and they are the most powerful sources of profitable growth. Migrators: businesses offer improved value, but not innovative value. These are the businesses whose strategies fall on the margin between red and All the companies that created blue oceans have been pioneers in their industries, not necessarily in developing new technologies but in pushing the value they offer customers to new frontiers.

blue oceans.
Settlers: businesses whose value curves conform to the basic shape of the industrys. Settlers will not generally contribute much to a companys future growth. They are stuck within the red oceans.

Three Tiers of Noncustomers

First Tier Noncustomers These soon-to-be noncustomers are those who minimally use the current market offerings to get by as they

search for something better.

Second-Tier Noncustomers This tier of noncustomers are people who refuse to use industrys offerings as an option to fulfill their needs but have voted against them. Third-Tier Noncustomers These noncustomers have never thought of market offerings as an option. By focusing on key commonalities across these noncustomers and existing customers, can help to understand how to pull these customers into the market.

Sequence of Blue Ocean Strategy

1.
1. Is there a compelling reason for the mass of people to buy it? If not, park the idea, or rethink it until you reach an affirmative answer. 2. Is your offering priced to attract the mass of target buyers so that they have a compelling ability to pay for your offering? If it is not, they cannot buy it. 3. Can you produce your offering at the target cost and still earn a healthy profit margin? Can you profit at the price easily accessible to the mass of target buyers? When the target cost cannot be met, you must either forgo the idea because the blue ocean wont be profitable, or you must innovate your business model to hit the target cost.

2.

3.

4.

4. What are the adoption hurdles in rolling out your idea? Adoption hurdles include potential resistance to the idea by retailers or partners. It is
key to address adoption hurdles up front.

The Buyer Utility Map: outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a product or service.

The Six Stages of the Buyer Experience Cycle

1. Purchase Customer productivity 2. Delivery 3. Use 4. 5. 6. Disposal

Supplements Maintenance

The Six Utility Levers

Simplicity

Convenience

Risk

Fun and Image Environmental friendliness

Buyer Experience Cycle

At each stage, managers can ask a set of questions to gauge the quality of buyers experience. Each stage encompasses a wide variety of specific experiences.

Uncovering Blocks to Buyer Utility

To test for exceptional utility, companies should check whether their offering has removed the greatest blocks to utility across the entire buyer experience cycle for customers and noncustomers. The greatest blocks to utility often represent the greatest and most pressing opportunities to unlock exceptional value. This shows how a company can identify the most compelling hot spots to unlock exceptional utility:

Price Corridor of the Mass

In setting a price, all companies look first at the products and services that most closely resemble their idea in terms of form. The second step helps managers determine how high a price they can afford to set within the corridor without inviting competition from imitation products or services.

Profit Model of Blue Ocean Strategy

A company begins with its strategic price, from which it deducts its target profit margin to arrive at its target cost. To hit the cost target that supports that profit, companies have two key levers: One is streamlining and cost innovations, and the other is partnering. When the target cost cannot be met despite all efforts to build a low-cost business model, the company can use a third lever, pricing innovation, to profitably meet the strategic price.

This shows how value innovation typically maximizes profit by using the foregoing three levers.

Blue Ocean Idea Index (BOI)

Companies should build their blue ocean strategy in the sequence of utility, price, cost, and adoption, these criteria form an integral whole to ensure commercial success. The blue ocean idea index provides a simple but robust test of this system view.

Other companies

Having passed the blue ocean idea index, companies are ready to shift gears from the formulation side of blue ocean strategy to its execution.