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The Blue Ocean Strategy

The Blue Ocean Strategy is an innovative business theory that suggests companies to develop an uncontested market space rather than competing in traditional markets.

The term derives from the book “Blue Ocean Strategy”, written in 2005 by W. Chan Kim and Renée Mauborgne and it is used to represent a situation in which a company creates a new and previously unknown marketplace, where competition is irrelevant.

Firms usually work in the so called “Red Ocean”, that is an already established marketplace where they have to compete against each other in order to get a share of the market, so that the gains of one company correspond to the loss of another. Instead, according to the Blue Ocean theory, companies should go beyond competing: identifying a new market and generating a new demand, they can work in a marketplace without competitors. The Blue Ocean Strategy gives the company the opportunity for a rapid and profitable growth and brings considerable barriers to imitation.

It is possible to identify six main differences between Red and Blue Oceans:

  • Focus on current customers vs. Focus on non-customers

Many companies concentrate on their current purchasing customers, while those who operate in Blue Oceans try to attract people who are not traditional customers of the company.

  • Compete in existing markets vs. Create uncontested markets to serve

Red Ocean companies compete against each other to acquire new customers, while Blue Ocean companies work in a marketplace free of competitors.

  • Beat the competition vs. Make the competition irrelevant

In Blue Oceans the competition is irrelevant as the market is new and unknown and imitation  is discouraged.

  • Exploit existing demand vs. Create and capture new demand

Firms pursuing a Red Ocean Strategy compete to grab a share of the existing demand, while Blue Ocean companies aim to develop a new demand.

  • Make the value-cost trade-off vs. Break the value-cost trade-off

According to traditional competitive strategy theories, companies could only choose one of two strategies: high value or low cost. According to the Blue Ocean theory, firms can and should have both high value and low cost, which is the way to impede imitators to duplicate your business and make the ocean red again.

  • Align the organization with differentiation or low cost vs. Align the organization with differentiation and low cost

In order to have both differentiation and low cost, the entire company must be organized in order to eliminate any unnecessary costs.

Blue Ocean opportunities can be found in every branch of the market, be it attractive or unattractive, and they can be recognized by finding out more efficient and innovative approaches, breaking out the conventional ways of competing, expanding the boundaries of an existing industry, identifying non-consumers and the reason why they are not purchasing a product.

At the moment, there are not many successful companies pursuing a Blue Ocean Strategy. Anyway this theory has proved to be highly attractive, relevant and discussed in the corporate world, moreover it is at the forefront in the current scenario and it should be even more prevalent in the future.

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