One the best points in Blue Ocean Strategy relates to how to compete. Head to head competition can be costly and bloody. They call it “Red Ocean” strategy for good reason. The book promotes the financial advantage of creating new markets through expand your customer base and render competition irrelevant. That is “Blue Ocean” strategy. Authors W. Chan Kim and Renee Mauborgne provide a compelling argument why this explains superior performance in both start-ups and existing companies.
As a former racing sailor, the analogy made sense. My first race in San Francisco Bay, in a competitive Soling fleet, found us tacking to port when the fleet all started to starboard. We found fresh wind and the early tide shift. Starting last, we passed the fleet and won. We sailed in a blue ocean that day and beat some newer boats and more talented crews.
The whole key to their findings requires the planner to look at their market with a new set of eyes. Traditional eyes focus on the existing industry structure and the rivals within the structure. Blue Ocean suggests you look first at your customers and then refocus on who’s missing. When you compete for the same customer, life can get bloody unprofitable in a hurry. Trying to out “WOW” or underprice your competition either adds costs to your structure or operating risk to your production.
What if you asked three questions when devising your strategy?
1) What were your customer’s alternatives, in their mind, when they chose to spend their resources on you?
2) Which of these alternative industries capture more of your customer’s dollars?
3) Which related industry currently serves customer segments you currently don’t serve?
Southwest Airlines competed against cars, not other airlines; [yellow tail] wines competed against beer drinking and not Francia Wines; and Cirque du Soleil competed against theatre and not Barnum and Bailey. All of them expanded their markets rather than taking market share while lowering their operating costs. Smart.
When you can identify your blue ocean, two great things happen. You throw overboard much of your costs that were necessary to compete with existing competition. And you can charge a premium over the traditional price because of your new value proposition.
You still have to execute and deliver on your brand promise. And as Seth Godin and Malcolm Gladwell point out, you need connectors and sneezers to transition the strategy from early adopters to early majority market. Yet the early majority market always yields superior returns. And when competition catches up, you will already know how to look ahead to your next blue ocean. Happy sailing!