The concept of "blue ocean strategy" first took the business world by storm in 2005 when authors W. Chan Kim and Renee Mauborgne wrote a bestselling book, "Blue Ocean Strategy," which has been translated into 43 languages. The authors discuss the benefits for business owners to leave the red ocean, characterized by the bloody, shark-infested waters of competition, and enter the blue ocean, where there is no competition and limitless space to create something new. It is important to evaluate your business to determine whether you should rethink your market strategy and enter the "blue ocean."
In the Red Ocean
If your market strategy consists of fighting for a piece of finite sales, you are in the red ocean. Your business plan probably involves competing with rivals to increase your market share. Your business becomes more cutthroat as more competitors enter, and your profits likely decrease. It's important for you to leave the red ocean and go to the blue ocean if you want to make your competition irrelevant. Once in the blue ocean, you need to only create demand for your product. Cirque du Soleil, for example, marketed itself as something new. Its tag line was, "We reinvent the circus." It targeted a different audience than do traditional circuses -- of those interested in theater, opera and ballet.
Supply Exceeds Demand
It's easier for many companies to produce more of their product because of technological innovations. However, just because they can produce more doesn't mean there's a demand for the increased supply. If you are in the red ocean with other companies that also have too much supply, the competition and fighting over profit will grow. It becomes important for companies to enter the blue ocean to find new opportunities. Apple, for example, wasn't an effective competitor in the PC industry, but it became a success story when it entered the blue ocean with iPod, iPhone and iPad.
When an industry is very competitive, it is unattractive. The most a new company can hope for when entering an unattractive industry would be to take a share of the pie, dividing the potential profits with other firms already in the red ocean. Kim and Mauborgne explain that Yellow Tail, an Australian wine brand, used blue ocean strategy when it decided not to compete in the red ocean with complex French and Italian wines. It instead marketed its wine to everyone, not just wine drinkers, as a fun, everyday drink that tastes good.
Other Companies Imitate You
Once you've proven to be successful in the blue ocean, you might attract other companies. That turns your blue ocean space to a red one. It's important for you to differentiate yourself if that happens. Telling potential customers that you were the original works only so long, and then it generally doesn't matter anymore. Kim and Mauborgne use Salesforce.com, a customer relationship management system, as an example of a company that adapted in the blue ocean when others came. Salesforce.com entered the blue ocean by offering a CRM system to small businesses, but when other CRM companies followed suit, Salesforce.com developed an app to customize the CRM offerings, allowing the company to drift to the blue ocean again.