A market can be described as either a red ocean or a blue ocean depending on whether the industry of the market is in existence or not. To be specific, red oceans denote the already known market space where all the industries in it are existent. In the red oceans, boundary lines between industries are well-defined. Here, companies are endeavor to have a greater market share against their competitors. However, expected earnings and growth become low due to fierce competition as more and more market participants enter into the market. On the contrary, blue oceans are defined as unexplored market space where all the industries in it are not existent. In the blue oceans, not only the market is ...view middle of the document...
By contrast, blue ocean creators do not benchmark or compete with their competitors but adopt a strategic approach that the authors call value innovation. They name it value innovation since a company aims to make the competition pointless by means of rise in value for both the company and customers instead of struggling to win the intense competition. Value innovation is realized by differentiated value to customers and cost reduction for companies. Customers can additionally acquire differentiated value by creating and raising certain factors that have never been offered. Companies can cut down their cost by reducing and eliminating the elements that the industry unnecessarily contend for.
The strategy canvas is a diagnostic tool and an implementation framework to construct a blue ocean strategy. It plays a pivotal role in value innovation and creation of blue ocean market space. The Strategy canvas has two main uses. First, it allows a company to understand the current state of the participants in the known market space. Second, it represents what values customers acquire from the competitive goods in the established market. By looking at the strategy canvas, one can perceive where the competitors are currently investing in and what the elements of competition are in the market. In order to fundamentally alter the strategy canvas of an industry, a company should redefine its strategy direction from customers to non-customers, and from competitors to alternatives. In pursuit of both value and low cost, a company should go against the conventional logic of choosing between cost leadership and differentiation.
Four important questions suggested to break the trade-off between low cost and differentiation and to offer new values to customers:
1. Which of the elements that the industry takes for granted should be eliminated?
2. Which elements should be reduced well below the industry’s standard?
3. Which elements should be raised well above the industry’s standard?
4. Which elements should be created that the industry has never provided?
The first two questions give insight into a method to slash the cost structure compare to competitors, and the rest of the questions offer insight for new demand and value improvement for customers. When these four critical questions are carefully considered, the cost structure can be maintained lower than competitors and, at the same time, buyers can be provided with additional differentiated values.
The six steps of successful blue ocean strategy should be always taken into account to create a new uncongested blue ocean market place and make the competition irrelevant. Reconstruction of market boundary lines is the first step of blue ocean strategy. There are six primary factors, named six paths for framework, to reconstruct the premises of a market: alternative industries, strategic groups within industries, the chain of buyers, complementary product and service offerings, functional or emotional appeal to...