Competing in over crowded industries is no way to sustain competitive advantage. The real opportunity is to create blue oceans of uncontested market space that makes the competition irrelevant.
What are red and blue oceans?
Red oceans represent all the industries in existence today. In red oceans industry boundaries are defined and companies try to outperform their rivals to gain a greater market share. As the space gets more and more crowded, profits are reduced and products turn into commodities, and increasing competition turns the water bloody.
Blue oceans denote all the industries not in existence today – the unknown market space with no competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.
The classic example of blue ocean creation is Cirque du soleil who broke away from the highly competitive circus industry and created a new market that blurred the lines between circus and theatre.
Creating a blue ocean will allow rapid growth and high profits but eventually the space will invite competitors and erode profitability so a blue ocean strategy requires that a company continually search for new ways to break away from the crowd.
Achieving differentiation and low cost?
Contrary to Porter’s generic strategies blue ocean strategy argues that the simultaneous pursuit of differentiation and low cost is achievable. A blue ocean is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. Cost savings are made from eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates.
In my next post I will talk about how to create blue oceans.
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