Blue Ocean Strategy Essay

5611 words - 22 pages

STRATEG by W. Chan Kim and Renee Mauborgne AONETIME ACCORDION PLAYER, Stilt Walker, andfire-eater, Guy Lalibertd is now CEO of one ofi Canada's largest cultural exports. Cirque du
Soleil. Founded in 1984 by a group of street performers, Cirque has staged dozens of productions seen by some 40 million people in 90 cities around the world. In 20 years, Cirque has achieved revenues that Ringling Bros, and Barnum & Bailey-the world's leading circus-took more than a century to attain.
Cirque's rapid growth occurred in an unlikely setting. The circus business was (and still is) in long-term decline. Alternative forms of entertainment - sporting events, TV, and video games - were casting a growing shadow. Children, the mainstay of the circus audience, preferred PlayStations to circus acts. There was also rising sentiment.
76 HARVARD BUSINESS REVIEW

fueled by animal rights groups, against the use of animals, traditionally an integral part of the circus. On the supply side, the star performers that Ringling and the other cir- cuses relied on to draw in the crowds could often name their own terms. As a result, the industry was hit by steadily decreasing audiences and increasing costs. What's more, any new entrant to this business would be competing against a formidable incumbent that for most of the last century had set the industry standard.
How did Cirque profitably increase revenues by a fac- tor of 22 over the last ten years in such an unattractive environment? The tagline for one of the first Cirque pro- ductions is revealing: "We reinvent the circus."Cirque did not make its money by competing within the confines of the existing industry or by stealing customers from Ringling and the others. Instead it created uncontested market space that made the competition irrelevant. It pulled in a whole new group of customers who were tra- ditionally noncustomers of the industry-adults and cor-
porate clients who had turned to theater, opera, or ballet and were, therefore, prepared to pay several times more than the price of a conventional circus ticket for an un- precedented entertainment experience.
To understand the nature of Cirque's achievement, you have to realize that the business universe consists of two distinct kinds of space, which we think of as red and blue oceans. Red oceans represent all the industries in existence today-the known market space. In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are well understood. Here, companies try to outperform their rivals in order to grab a greater share of existing demand. As the space gets more and more crowded, prospects for profits and growth are reduced. Products turn into commodities, and in- creasing competition turns the water bloody.
Blue oceans denote all the industries not in existence today-the unknown market space, untainted by com- petition. In blue oceans, demand is created rather than
OCTOBER 2004 77

Blue Ocean Strategy
fought over. There...

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