Introduction: The $300 Million Idea That Changed Business Strategy
In 2005, two business professors dropped a bombshell idea: Stop competing in bloody “red oceans” and create untapped “blue oceans” instead. Their book sold 4 million copies, and companies like Cirque du Soleil and Uber proved it works.
This is your complete guide to Blue Ocean Strategy – what it is, how it works, and how you can use it to escape competition and dominate new markets.
Red Ocean vs. Blue Ocean: What’s the Difference?
| Factor | Red Ocean Strategy | Blue Ocean Strategy |
|---|---|---|
| Competition | Fight rivals for market share | Make competition irrelevant |
| Customers | Exploit existing demand | Create new demand |
| Innovation | Incremental improvements | Breakthrough value innovation |
| Profit | Low margins (price wars) | High margins (no direct rivals) |
Real-World Analogy:
Netflix (Blue Ocean) didn’t try to out-rent Blockbuster (Red Ocean) – it made video rentals obsolete.
The 4 Actions Framework: How to Build Your Blue Ocean
To create uncontested markets, ask these 4 questions:
- ELIMINATE
- What industry standards can you remove?
- Example: Airbnb eliminated check-in desks and room keys.
- REDUCE
- What factors can you cut below industry norms?
- Example: IKEA reduced assembly costs by making customers DIY.
- RAISE
- What elements should you enhance?
- Example: Starbucks raised coffee shop ambiance to “third place” status.
- CREATE
- What entirely new offerings can you introduce?
- Example: Tesla created over-the-air car updates.
Visual Tool: [Insert ERRC Grid Template]
3 Legendary Blue Ocean Case Studies
1. Cirque du Soleil: Reinventing the Circus
🚫 Eliminated: Animal acts, star performers, multiple showings
🔻 Reduced: Tent size (intimate experience)
🔺 Raised: Artistic quality, adult appeal
➕ Created: “Circus as high art” category
Result:
• 150M+ tickets sold worldwide
• 10x higher ticket prices than Ringling Bros.
2. Yellow Tail Wine: Disrupting a Stuffy Industry
🚫 Eliminated: Wine snobbery, complex labels
🔻 Reduced: Varietals (just 2 options)
🔺 Raised: Approachability, fun branding
➕ Created: “Everyday wine for everyone” category
Result:
• #1 imported wine in U.S. within 2 years
• 8M cases sold annually at launch
3. Nintendo Wii: Gaming for the Unreachable Market
🚫 Eliminated: Graphics arms race
🔻 Reduced: Controller complexity (just 3 buttons)
🔺 Raised: Social/family play
➕ Created: Motion-controlled gaming
Result:
• Outsold Xbox 360 & PS3 combined in 2007
• 45% buyers were first-time gamers
5-Step Process to Find Your Blue Ocean
- Map Your Industry’s Assumptions
- List all “rules” everyone follows (e.g., “Hotels need front desks”)
- Identify Non-Customers
- Why don’t they buy? (Too expensive? Too complex?)
- Brainstorm Eliminate/Reduce Opportunities
- What costs can you slash without hurting value?
- Design Raise/Create Innovations
- What could make non-customers say “I need this”?
- Test Your Value Innovation
- Pilot with real users before full launch
Pro Tip: Use the Strategy Canvas Tool to visualize your position vs. competitors.
Why Most Blue Ocean Attempts Fail (And How to Avoid It)
❌ Mistake 1: Confusing innovation with technology
- Fix: Value innovation ≠ tech innovation (See: Wii’s simple motion controls)
❌ Mistake 2: Not aligning the whole organization
- Fix: Your business model must support the strategy (Netflix’s shift from DVDs required new skills/systems)
❌ Mistake 3: Letting competitors copy you
- Fix: Build ecosystem advantages (Apple’s App Store lock-in)
Align teams using the McKinsey 7S model
Before executing your Blue Ocean shift, audit internal capabilities using the McKinsey 7S Framework. For example, Cirque du Soleil’s success required aligning its Staff (acrobats vs. animal trainers) and Shared Values (artistry over spectacle) with its new market position.
