Blue Ocean Strategy
Blue Ocean Strategy: Instead of competing harder in existing markets (red oceans, red with competitor blood), create new market space (blue oceans) where competition is irrelevant. Use the Four Actions Framework — Eliminate, Reduce, Raise, Create — to reconstruct industry boundaries and offer buyers a leap in value while reducing your costs.
What Is Blue Ocean Strategy?
Blue Ocean Strategy was developed by INSEAD professors W. Chan Kim and Renée Mauborgne, published in their 2005 book of the same name based on a study of 150 strategic moves across 30 industries over 100 years. Their central finding: the most profitable growth came not from beating competitors but from creating new market space where no competition existed.
The metaphor is straightforward. Red oceans are existing industries where companies compete for a fixed pool of demand. Competition is intense; margins compress; differentiation erodes; the water runs red with competitor blood. Blue oceans are new, uncontested market spaces — either entirely new industries (the internet, ride-sharing) or reconstructed industries (Cirque du Soleil reinventing the circus, Southwest Airlines reinventing short-haul travel). In blue oceans, demand is created rather than fought over.
The framework's key analytical tools are the Strategy Canvas (a visual diagram of how competitors allocate investment across industry factors) and the Four Actions Framework (Eliminate-Reduce-Raise-Create, or ERRC). Together they identify which industry assumptions can be challenged to deliver a new value proposition at lower cost — breaking the traditional trade-off between value and cost.
How It Works
Step 1: Draw the current Strategy Canvas
— List all factors the industry competes on (horizontal axis)
— Rate how each competitor invests in each factor (vertical axis)
— Competing strategies typically look similar ("convergence")
Step 2: Apply the Four Actions Framework (ERRC)
— ELIMINATE: Which factors taken for granted can be removed entirely?
— REDUCE: Which factors should be well below industry standard?
— RAISE: Which factors should be well above industry standard?
— CREATE: Which factors has the industry never offered?
Step 3: Reconstruct the value curve
— Your new strategy canvas should diverge from competitors
— Have a clear focus, divergence, and compelling tagline
Step 4: Test for "value innovation"
— Does the new offer create a leap in buyer value?
— Does it lower your costs by eliminating and reducing?
— If both: you have achieved value innovation (the hallmark of blue ocean)
Step 5: Validate with non-customers
— Blue oceans often serve non-customers — people not currently in the market
— The three tiers: soon-to-be non-customers, refusing non-customers, unexplored non-customers
Three Real-World Examples
Cirque du Soleil
By the mid-1980s, the circus industry was in terminal decline — competing with other entertainment forms it couldn't match on cost or spectacle. Cirque du Soleil's ERRC analysis:
- Eliminated: Animals (expensive, controversial), Star performers (expensive), Multiple show arenas (complex operations)
- Reduced: Fun/humour (secondary to artistry), Thrill/danger (aesthetic over adrenaline)
- Raised: Unique venue (purpose-built tent), Multiple productions, Artistic music and dance
- Created: Theme and story, Refined environment, Multiple productions annually
Revenue grew from near-zero in 1984 to over $800 million annually by the 2000s — not by out-competing Ringling Bros. but by creating a new category: theatrical circus for adult audiences.
Southwest Airlines
The traditional airline industry competed on meals, seating class, hub connectivity, and lounges. Southwest's ERRC:
- Eliminated: Meals, Seat class distinctions, Hub-and-spoke connections, Lounges
- Reduced: Price dramatically, Check-in complexity
- Raised: Departure frequency, Staff friendliness
- Created: Point-to-point routing (car-competitive on short trips), Same-day multiple departures
Southwest made airlines compete with car travel, not other airlines — a new value curve that produced consistent profitability for 47 consecutive years when most airlines were intermittently bankrupt.
Nintendo Wii
In 2006, the console gaming market was a hardware arms race: Sony and Microsoft competed on processing power, graphics, and game library depth for core gamers. Nintendo's ERRC:
- Eliminated: DVD playback, HD graphics processing
- Reduced: Processing power (far below PS3/Xbox 360), Game library complexity
- Raised: Physical interactivity (motion controls), Accessibility for non-gamers
- Created: Family game sessions, Fitness/sports games, Appeal to non-traditional demographics (women, seniors)
The Wii outsold both rivals in its launch year, reaching customers who had never previously bought a console — the classic blue ocean move of serving non-customers.
When to Use It
✅ Blue Ocean Strategy is valuable when:
- Your industry is commoditising and margins are compressing
- You're looking for growth beyond existing customer segments
- You want to find new market space rather than compete for existing share
- Your organisation is capable of sustained strategic reinvention
❌ Less applicable when:
- Market timing favours aggressive competition (early, fast-growing markets)
- You have strong structural advantages in an existing market worth defending
- The organisation lacks the capability to execute on a new value curve
- Regulatory environment prevents reconstructing industry boundaries
| Pairs well with | Why |
|---|---|
| Jobs to Be Done | JTBD identifies non-customer needs that blue ocean strategies can address |
| First Principles | First principles thinking identifies which industry assumptions can be safely eliminated |
| Scenario Planning | Scenario planning tests whether a blue ocean will remain uncontested |
| Inversion | Inversion asks "what would make competition irrelevant?" — the core blue ocean question |
Common Misuses and Limitations
Treating it as a product differentiation exercise. Blue Ocean Strategy is not about adding features to an existing product; it's about reconstructing industry boundaries. A product "upgrade" that stays within existing competitive dimensions is red ocean thinking with a blue ocean label.
Ignoring execution risk. Creating a new market is genuinely hard. Blue oceans attract red ocean competition once they're proven. The window of uncontested operation may be shorter than expected — Cirque du Soleil faced copies within years; Southwest sparked an entire low-cost carrier industry.
Applying ERRC mechanically without customer insight. Eliminating and reducing factors requires deep understanding of which factors customers actually value vs. which they've simply gotten used to. Eliminating something customers genuinely care about produces a worse product, not a blue ocean.
Confusing first-mover advantage with blue ocean. Not all first movers create blue oceans. Being first in a competitive market is red ocean strategy with early timing. Blue ocean requires creating new demand, not just entering before competitors.
Related Models
| Model | Relationship |
|---|---|
| Jobs to Be Done | JTBD reveals the non-customer needs that blue ocean strategies serve |
| Red Queen Effect | Blue Ocean Strategy is the escape from Red Queen competitive dynamics |
| Disruptive Innovation | Blue oceans and disruptive innovation often overlap; both create new market space |
Frequently Asked Questions
How do you find blue ocean opportunities systematically?
The book outlines six paths for reconstructing market boundaries: (1) look across alternative industries (not just direct competitors); (2) look across strategic groups within an industry; (3) look across the chain of buyers (influencers, users, purchasers); (4) look across complementary products and services; (5) look across functional or emotional appeal to buyers; (6) look across time (what trends are forming?). Each path suggests a different class of ERRC opportunities.
How long does a blue ocean stay blue?
Typically 3–10 years before significant competitive imitation. The speed of reddening depends on: imitation barriers (intellectual property, brand, network effects), market size (larger markets attract faster imitation), and how visible the strategy is (Cirque du Soleil's strategy was highly visible; it was imitated within 5 years). Sustaining blue ocean advantage requires continuous strategy renewal — Cirque du Soleil produced multiple simultaneous productions to maintain freshness and raise the imitation cost.
Can small companies create blue oceans, or is it only for large firms?
Small companies often find blue ocean strategy easier — they're not defending existing revenue streams and can pursue novel strategies without cannibalising current business. The most famous early examples (Cirque du Soleil, Southwest Airlines, Curves fitness) were started by small teams with limited capital precisely because they couldn't compete on the existing terms. The constraint of limited resources frequently produces blue ocean thinking: you can't out-resource incumbents, so you must redefine what you're competing on.
Further Reading
- Kim, W.C. & Mauborgne, R. (2005). Blue Ocean Strategy — the foundational book
- Kim, W.C. & Mauborgne, R. (2017). Blue Ocean Shift — the follow-up with implementation focus
- Christensen, C. (1997). The Innovator's Dilemma — complementary framework on market creation
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