The Blue Ocean Strategy: beat the competition once and for all

There are countless strategies, methods and tactics you can use in trading, but today we're going to introduce you to the blue ocean strategy. Maybe you've heard of it, maybe you haven't, but it's definitely worth reading about, it will only take you a few minutes, but it might change your business approach completely. 

It all started with the book 

Blue Ocean Strategy is a concept created by two professors at the prestigious INSEAD Institute - W. Chan Kim and Renee Mauborgne - which they described in their 2005 book of the same name. This strategy represents a revolutionary approach to business where the goal is not to compete in an existing competitive space (a red ocean - an oversaturated market) but to create a new market or target an existing market in a completely new way (blue oceans - unsaturated markets). 

The priority is therefore not to compete with competitors, but to innovate - to explore completely new and unexplored territory. It makes no sense to fish with others on the shore. You have to go out to sea. Kim and Mauborgne have spent more than 15 years studying hundreds of companies and how some of them are achieving extraordinary success by abandoning competition in traditional markets and heading out to dominate the "blue oceans." The insights they present are therefore not "impressionology", but honest, grounded research. 

Copying versus originality 

You've probably faced the question many times in your business strategy whether it's enough to imitate a successful competitor's product or whether you need to invent something completely new. After all, copying is not necessarily a bad tactic. You know the product customers want, you have an idea of your target audience, you can learn from the mistakes your predecessors made... but you'll have competition from the start.  

On the one hand, it can motivate you to improve the product and be better than it. Rarely is the person who is first to market with something also the one who becomes the industry leader. Maybe you can produce a product cheaper, better quality or in larger quantities. It's possible. But in time, someone will probably overtake you, just as you overtook someone else before. You'll be swimming in a red ocean full of predatory sharks. 

So the only way to permanently differentiate yourself and not lose your position in the market is to keep innovating, to sail out into the blue ocean where there is no other predator far and wide. The key is to come up with an original product that solves the problems of a specific group of people, in a way that no one else is doing yet. When you're the only seller of anti-gravity shoes in the world, you don't have to compete for the lowest prices and beg customers to buy from you. If they want the boots, they have to buy from you. 

Hint: Speaking of competition, read also about Robert C's Camp's benchmarking.  

Create, don't search 

According to the authors of the Blue Ocean Strategy, there is no point in looking for a blue ocean, but to create one. Often it can emerge from an existing red ocean. That is to say, from a competitive industry in which you are present, but you will innovate in such a way that you will completely set yourself apart from the other companies.  

Apple, for example, based on a good understanding of technology and people's needs, was able to create a smartphone that became a completely revolutionary product. Although the smartphone had been designed by IBM and produced by Microsoft and many others, Apple took the concept to a whole new level and managed to produce it at affordable prices. It has earned its blue ocean. 

Value innovation 

In their book, Kim and Mauborgne report that companies that focus on new innovative blue ocean projects account for about 14% of the market. However, they have a 61% share of total profits in this market. 

They use the term value innovation, which forms the basis of the blue ocean strategy. It means that you have to provide significant to leapfrog value addition to your customers with your product. The red ocean has its clearly defined terms and boundaries, but hоdnоtоva inоvаcе iѕ pоstаvеd оn thе idea thаt thе market and industry structure саn bе changed аt rеkоnstruоvаt. 

To create a value curve, you can answer the following questions, which the authors state as follows: 

• Which factors should be valued at a lower level than the industry stаndаrd? 
• Which of the factors that have never been developed by the sector as a whole should be newly developed? 
• Which factors should be developed at a higher level than the industry's stаndаrd? 
• Which of the factors that are used in the industry should be eliminated? 

Segment the market and customers 

A blue ocean strategy helps you find a niche in the market. However, this loophole must not be too small, otherwise it will not provide you with enough profit. It is therefore necessary to segment your market first, this is primarily the job of marketing. The company first needs to estimate the current and future size of the market and its various segments.

It is important to enter a market that has growth prospects but is unsaturated. Define this market and focus on it. In the same way, define which customers you want to target. Then focus your efforts on a specific market and a specific target group. Offer them a product that meets their needs in an innovative way.  

Creating a blue ocean strategy in practice 

If a brilliant idea doesn't light you up on its own, you need to take the time to actively create it. The work of building a blue ocean strategy can be summarised in the following steps: 

Constantly analyse the market 

Start by analysing the current market in which you operate. Find out who your competitors are, what the trends are and what your customers' needs and preferences are. Keep doing this even after you've discovered your blue ocean - you probably won't be alone in it for long, but through analysis and innovation you can maintain your leadership position. 

Identify opportunities 

Define areas where competitors are not providing enough value to customers or where products are outdated and there is an opportunity to innovate. Try to look at them from a different perspective and come up with something that could meet customer needs even better. Different. Or even satisfy more of them at once. 

Or first identify a need that people currently have and think of an innovative way to meet it. 

Ex: Humans are social creatures and need to interact with others, they like to socialize, but often fail to do so. At the same time, he needs recognition from other people and the possibility of self-presentation. All this is satisfied by social networks nowadays, and Facebook (now Meta) has long basked in its blue ocean.

Test what you can 

Just as you would when launching any new product or service, test the new product or service on a small group of customers and get feedback. Modify and improve based on this feedback. If you have a great, yet poorly developed and implemented idea, you will drown in the ocean.  

Communicate value 

Once you find and develop that desired product, it's important to clearly explain to people what problems you solve and what benefits you offer. Show them why they can't be without you. Why they can't do without the internet and phone, or why picking up a package at whatever store is nearest them is better than going to the post office.  

Develop your market space 

Create a market that is sustainable for your product or service and difficult for competitors to replicate. As we mentioned, keep an eye on people's needs and innovate products in a timely manner. Build strong relationships with customers, strive to become a lovebrand that customers will loyally stand behind. Once you are established in the market, diversify and come up with new products within your ocean to strengthen your position. 

A good example of this is the aforementioned Apple, which has become a lovebrand, innovating and inventing new products (although we have recently witnessed its gradual evolution rather than technological revolutions as during Jobs' "reign of cruelty").  

Blue Ocean Strategy: examples 

Examples are what pull, so not to just theorize, let's show other companies that have found their blue ocean and kept it (or are still keeping it) for a long time. 

• Enric Bernato and the lollipop - an invention over 65 years old and as conventional and banal as it sounds, it is a classic case of innovation and entering the blue ocean. The problem? Children of the "pre-licker era" were constantly sticky and messy from chocolate and sweets. The solution? Place the candy on a wooden stick. The result? Unmuddled kids, happy parents, and an even happier innovator. 
• Cirque du Soleil - this company decided to combine elements of circus with elements of theatre to create a new kind of entertainment. This allowed it to avoid competing with traditional circuses and create its own market (and ultimately take an established art form to a new level). 
• Nintendo Wii - Nintendo set out to create a game console that would appeal not only to traditional gamers, but also to a wider audience, including families and the elderly. The company innovated the control interface with new features such as accelerometers and developed a corresponding portfolio of computer games, which allowed them to create a new market and achieve huge success. 
• Netflix - before the discovery of its blue ocean, this company was a DVD movie rental company. By making VOD (video on demand) streaming services available, it made movies legally available online to a huge mass of customers, first in the US, then virtually worldwide. 

At Algotech, we can't help you directly with developing your own innovations, but we can free up your time and resources so you can focus on your business. With IT outsourcing, you can free your hands and put your ICT worries behind you, and if you need really proper and scalable computing power to develop without the need for extreme acquisition costs, our dedicated GPU server farm is at your disposal. We've been here for you for over 25 years, give us a call.