Blue Ocean Strategy

What if you didn’t have to worry about competitors because you created a demand that didn’t previously exist?

1. Red versus Blue Oceans: The Market Dichotomy

Markets can be visualized as two contrasting oceans: red and blue. Red oceans represent existing industries, crowded with competitors fighting over the same pool of customers. In such an environment, growth is limited by intense competition, often leading to a downward spiral in profits as companies try to undercut each other.

Blue oceans, on the other hand, are untapped market spaces. They represent unexplored opportunities, where demand is created rather than fought over. Here, businesses don’t have to compete because they reshape the market itself. The focus shifts from outpacing others to unlocking massive growth through innovation and creativity.

Cirque du Soleil is a perfect example of a business navigating a blue ocean. By removing animal acts and introducing live music and intricate storytelling, the company didn’t just improve traditional circuses—it redefined what a circus could be, creating an entirely new customer base.

Examples

• Red oceans: streaming services like Hulu and Disney+ competing over existing viewers
• Blue oceans: the invention of the smartphone created a demand nobody previously knew existed
• Cirque du Soleil: blending theater with acrobatics to craft an innovative entertainment arena

2. Compete by Not Competing

The blue ocean strategy involves moving away from conventional competition. Rather than fighting for better pricing, promotion, or production, the goal is to make the competition irrelevant.

This is achieved by shifting focus to what customers truly value and creating solutions that go beyond standard market expectations. By daring to be different, businesses unlock new spaces for growth. In blue oceans, companies set their rules instead of following outdated industry norms.

Take Southwest Airlines. It didn’t aim to compete directly with major airlines. Instead, it simplified air travel and offered less expensive flights for domestic routes. Southwest didn’t engage in the same rulebook as traditional carriers but created a demand for a new, cost-effective service.

Examples

• Airbnb: created a market space by offering unique stays, not competing head-to-head with hotels
• Netflix: moved first into DVD delivery and then into on-demand streaming
• Southwest Airlines: focused on affordable travel for everyday people

3. The Four Actions Framework

Discovering blue oceans isn’t guesswork; it requires structured thinking. The Four Actions Framework guides businesses in four powerful ways to reshape offerings: Raise, Eliminate, Reduce, and Create.

By leveraging these four actions thoughtfully, companies can craft unique positions. They redefine markets by changing what’s expected, simplifying offerings, and introducing innovative features. Businesses can lower costs and improve differentiation, making them stand out without needing additional resources.

Yellow Tail wines used this framework effectively. It reduced complexity by offering a shorter wine selection and eliminated pretentious wine language, creating an accessible brand that appealed to casual drinkers.

Examples

• Raise: Nespresso raised convenience standards with its instant-coffee machines
• Eliminate: Cirque du Soleil cut expensive animal acts
• Create: Netflix pioneered on-demand viewing technology

4. Redefining Customer Value

People aren’t always seeking the cheapest or most obvious choice; they want offerings that resonate with their desires and lifestyles. Businesses tapping into unmet customer needs can carve out entirely new markets.

This requires asking deeper questions about what people truly value. For example, do all wine drinkers care about vineyard prestige, or do many just want an approachable drink with friends? By honing in on these overlooked desires, companies can become essential to previously untapped audiences.

Australian wine brand Yellow Tail succeeded because it ignored traditional wine trends. Instead of sophisticated marketing, it focused on bold flavors, simplicity, and affordability that appealed to a casual crowd.

Examples

• Yellow Tail made wine accessible for younger, first-time drinkers
• Nintendo Wii valued fun and inclusivity over advanced graphics
• The Body Shop emphasized ethical sourcing and cruelty-free products for eco-conscious buyers

5. Innovation is Not Optional

Blue oceans are created through innovation—not always technological but conceptual. The goal is to rethink how products, services, or industries operate. Innovation unlocks customer demand that no one previously imagined.

This type of innovation usually arises by combining existing concepts, thinking creatively about solutions, and identifying gaps in traditional offerings. These ideas revolutionize the experience customers expect from a product.

Netflix disrupted traditional movie rental businesses by shifting to an innovative online model. Then it broke even more boundaries by introducing streaming services, allowing customers instant access to thousands of movies.

Examples

• Tesla redefined the automotive industry with electric vehicles
• Netflix anticipated viewers' needs with streaming services
• Nintendo Wii created gaming experiences for non-gamers

6. Pursue Value While Reducing Costs

Blue oceans are not about expensive overhauls but about delivering exceptional value at lower costs. Companies achieve this by breaking away from traditional processes and eliminating excess production steps that don’t add anything meaningful for customers.

Southwest Airlines is a prime example. It reduced costs by cutting out extras like in-flight meals but raised value by ensuring affordability and convenience for passengers. This focus kept customers happy without breaking the bank.

Examples

• Ford reduced production cost via assembly lines, making vehicles affordable
• Southwest eliminated frills while improving convenience
• Yellow Tail bypassed aging processes, making wines faster to produce and cheaper for buyers

7. Rewrite the Industry Rules

Setting the ground rules for a market is the ultimate indicator of success in blue oceans. Companies that define their space make competitors virtually irrelevant and set the baseline for their industry, effectively locking themselves ahead.

Netflix rewrote entertainment rules by removing rental penalties and delivery delays. As streaming grew, they were already ahead of the curve while competitors scrambled to catch up.

Examples

• Netflix removed late return fees and delays
• Uber rewrote the taxi industry's rules with ride-hailing apps
• Cirque du Soleil reshaped live entertainment into immersive storytelling

8. Small Tweaks, Big Gains

Transforming an industry doesn’t always mean starting from scratch. Small adjustments that align with customer needs can have tremendous effects. These changes need only be meaningful enough to set your offerings apart.

Nintendo Wii made one subtle change. Instead of competing on graphics quality, they pivoted to simple controllers and inclusive games, opening up gaming for families and non-gamers.

Examples

• Nespresso offered convenience while retaining coffee quality
• Nintendo strayed from hardware wars by innovating controls
• Zoom simplified video conferencing, making it user-friendly

9. Stay Ahead by Constantly Reassessing

Creating a blue ocean isn’t the end—it’s the beginning of staying innovative and miles ahead of the competition. By consistently asking how to raise, eliminate, reduce, or create, businesses can continue innovating their markets. The key is the refusal to grow complacent.

Netflix exemplifies this philosophy. After launching streaming, they evolved into content creators with original shows. They kept adapting instead of resting on the success of their first blue ocean.

Examples

• Netflix pivoted from rentals to production
• Tesla expanded innovations into energy storage
• Amazon introduced speedy advancements like same-day delivery

Takeaways

1. Apply the Four Actions Framework systematically: brainstorm what elements to Raise, Eliminate, Reduce, and Create in your industry to pivot towards fresh markets.
2. Never fight to be the best in crowded spaces—shift your focus to where demand can be created through unique value.
3. Continuously reassess and adapt to ensure your business stays ahead by refining offerings and responding to unmet customer needs.