Blue ocean strategy offers startup owners a way to create a new market and fill it with their product. Startups using it enjoy a competitors-free market and when the copycats and competitors finally come, it’s harder for them to beat the predecessors since people don’t like changing their habits. The first step towards implementing blue ocean theory is finding your own blue ocean.
Blue and red oceans
Blue oceans are unknown and unoccupied markets. Red oceans are markets where existing companies are competing, often using pretty harsh methods (that’s why these oceans are red from “blood”). Since level of competition is high, not much can be done within the borders of the red oceans. For example, photo apps with filters compete using the red ocean strategy, that’s why the next Instagram is hardly possible. But Uber managed to create a blue ocean market when it first appeared.
A blue ocean is created by introducing value innovation, a new useful product that is based on the resources that are already available to the producer. Value innovation pays a lot of attention to both value and innovation aspects. Innovation without value is not solving user problems and if you create value without innovation you will end up in the red ocean. Value innovation helps you to answer the question “How to get rid of competitors?”. You simply stop playing by their rules.
An important effect of blue ocean innovation is cost reduction. It becomes possible by eliminating most of the factors companies compete by in red oceans. For example, Medium publication platform refused to provide customization options for blog and based its business strategy on content and its promotion within the community.
How to find a way into the blue ocean
W. Chan Kim and Renée Mauborgne recommend the following way to create a blue ocean for your business:
Reconstruct the market boundaries
Startup needs to widen the boundaries of its market and analyze the following to find new ways for business expansion:
1. Alternative industries. The same user problem can be solved by several products. For example, in 2006 when people wanted to watch something funny, they could go to the movies, rent a DVD or simply open YouTube. Those are all different products but they are satisfying the same need. Gaps between these products are the best place for finding blue ocean ideas. In 2007 it was occupied by Netflix, an online cinema service that offered a way to watch popular movies and TV series as easy as YouTube videos.
2. Strategic groups are groups of companies working in the same industry and competing based on the same factor (for example, a degree of rareness, number of organic components or simply low price). Companies belonging to different groups aren’t paying enough attention to the behavior within other groups since they are competing within their own group. For example, companies making boomboxes were trying to beat each other offering superior sound quality while those making radios were trying to create the most compact solutions. Sony has combined those two features and created a legendary Walkman player, both small and with high-quality sound.
3. Participants of the customer chain. Quite often the buyer is not the only person making decision about the purchase. And sometimes the actual user is not the one who buys your product. You need to analyze your customer chain and decide whether you blue ocean company can create a new value for its other participants. For example, photo printers for personal use appeared because the companies decided to offer something to private clients that used to go to the photo lab to print their family and vacation photos.
4. Additional products and services. Products are rarely used by themselves, there’s always a chance that your product is accompanied by other products and services traditionally offered by companies from another industries. Value is hidden is those accompanying services and products, yet they don’t get enough attention. Create your blue ocean products that have them built-in.
After that you’ve got to analyze functional and emotional attractiveness of the startup. Traditionally companies base their strategic planning on functional (consumer electronics) or emotional (vacations oversea) component. You’ve got to enrich your product with a component other companies have neglected. For example, Polaroid has created a Polaroid 300 Instant Camera that unlike traditional cameras uses bright colors and looks more like a cute toy than an actual piece of equipment. This way it has introduced an emotional component to its product.
Finally, you should look into the future. Most companies are passively waiting for changes and simply adjust their business when the future comes. But you should run the tide and identify how you can use emerging trends to drastically increase the value of your product. For example, Uber managed to foresee that smartphones will soon be used for everything and have created a unique service for taxi hailing that is also using on-demand economy principles.
Focus on the big picture, not the numbers
Numbers are important but they will tell little to somebody who doesn’t understand the bigger picture. To improve your strategic vision you can use business model canvas or lean canvas. Innovative ideas should be put in the center of your startup activity. Without it you will be forced to play by the rules of the red oceans. You will be involved in a non-stop race of improving the numerous parameters companies compete by. And your competitors will be doing exactly the same.
Here’s how the value curve of the company operating in the blue ocean (Southwest) compares to the value curves of red ocean solutions:
Startup that aspires to create a blue ocean doesn’t need to compete by all the parameters — some of them are only there because companies think that they are important for customers and don’t dare to exclude them. Startup needs to identify what is really important for users and concentrate on building value innovation for this parameter.
Going beyond the existing demand
A question that every startup needs to answer is where will we get the users? If you’re interested in retaining customers read our article on habit-building products. To maximize the size of the blue ocean you need to expand your audience and look towards those groups that don’t belong to your client list or simply non-customers. You shouldn’t be afraid of expanding your audience. Mass-oriented nature of startups like Uber and Instagram allowed them to win a crazy amount of users.
Every company has three levels of non-customers:
- Soon-to-be customers that are ready to change your product for a better alternative. Talk to them and identify the single common aspect of your product they aren’t happy with. Often it can be changed without much effort and that will allow you to win the clients that were ready to leave.
- Refusing customers are those who have chosen the product of your competitor. For example, it took companies some time to understand the benefits of a SnapChat app. Introduction of Our Stories (messages are available after 24 hours) and Discover (creating collections with content available for 24 hours) features really helped to attract them.
- Unexplored noncustomers haven’t considered your product at all. After identifying why your product doesn’t attract attention of this group you will be able to turn them into customers as well. For example Airbnb identified which housing conditions (Wi-Fi, smoke detectors, 24-hour check-in, etc.) will allow it to attract corporate customers and launched Airbnb for Business. Since 2015 this service was used by 5,000 companies and 50,000 employees.
Now, let’s summarize. To find your own blue ocean:
- Refuse to compete by all the parameters other companies in the industry are competing by and identify 1-2 factors that really matter to the end users. For example, Uber identified that moderate price and clean car are more important to customers than a certified taxi driver by the wheel.
- Reconstruct the market boundaries using blue ocean thinking and knowledge about alternative markets, strategic groups and all the participants of the customer chain.
- Instead of adjusting to trends, use them to increase the value of your product.
- Expand your market by including various groups of noncustomers.
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