Blue Ocean: Creating New Market Space

In the overwhelming majority of established global industries, companies are locked into what strategists grimly refer to as the “Red Ocean”—a saturated, fiercely competitive environment characterized by intense rivalry, continuous price wars, shrinking profit margins, and a perpetual, bloody struggle to capture a marginally larger share of a limited, already well-defined market demand.

Within this exhausting arena, where the strategic choices revolve almost entirely around incremental improvements, minor product differentiation, or ruthless cost-cutting to undercut competitors, success is inevitably achieved at the expense of others, fundamentally creating a zero-sum game where innovation is stifled by the need for immediate, short-term competitive reaction.

The Blue Ocean Strategy, conceptualized by W. Chan Kim and Renée Mauborgne, represents a radically different, far more optimistic, and potentially much more profitable strategic approach, demanding that leaders shift their focus entirely from competing within known market boundaries to actively creating vast, uncontested new market spaces where competition becomes utterly irrelevant.

This pioneering framework encourages organizations to simultaneously pursue differentiation and low cost, fundamentally challenging the long-held strategic axiom that a company must always choose between offering superior value or achieving low-cost production, thereby opening up entirely new streams of demand that were previously nonexistent or simply overlooked by industry incumbents.

Pillar 1: Understanding the Red Ocean vs. Blue Ocean Dynamic

The first step in adopting the Blue Ocean mindset is recognizing the fundamental differences between competing in known markets and creating new ones.

A. Characteristics of the Red Ocean

Defining the environment of cutthroat, conventional competition.

1. Market Structure: Red Oceans are characterized by well-defined, mature industries with clear boundaries, established rules, and universally accepted key success factors.

2. Strategic Focus: Companies focus on beating rivals and exploiting existing demand, often through marginal product improvements or aggressive, zero-sum market share battles.

3. Profitability Driver: Profits decline as competition intensifies, forcing companies to focus rigidly on cost reduction or minor, short-lived differentiation that is quickly copied by competitors.

B. Defining the Blue Ocean

The strategic space of rapid, profitable, and uncontested growth.

1. Market Creation: Blue Oceans create entirely new market spaces and generate new demand, often by redefining what the industry actually is or by combining elements from previously disparate sectors.

2. Strategic Focus: The goal is to make the competition irrelevant by providing a monumental leap in value that competitors cannot easily match, often leading to temporary monopolies.

3. Profitability Driver: Profits are driven by simultaneous pursuit of both differentiation and low cost, leading to rapid growth and high profit margins for a prolonged period before imitators arrive.

C. Value Innovation: The Cornerstone of Blue Ocean

The unique process required to create a new market space.

1. Simultaneous Pursuit: Value Innovation is achieved when the company aligns utility, price, and cost positions. It is not about maximizing value for cost, but maximizing the perceived value for customers while minimizing the cost to deliver it.

2. Making the Trade-Off Obsolete: It rejects the conventional strategic trade-off where increasing value requires increasing cost (e.g., luxury car vs. economy car). The goal is to raise value at a lower cost.

3. The New Curve: The result is a fundamentally new value curve—a graphical representation of a company’s performance across key competitive factors—that looks radically different from that of the industry average.

Pillar 2: The Analytical Tools of Blue Ocean Strategy

The framework provides specific, actionable tools to help leaders shift their perspective and reconstruct market boundaries.

A. The Strategy Canvas

A diagnostic and action framework that captures the current state of play.

1. Diagnostic Value: The Strategy Canvas graphically plots the offering level that buyers receive across all key competing factors (e.g., price, variety, complexity) recognized by the industry.

2. Identifying Gaps: It allows leaders to visually compare their company’s offering curve against that of their competitors, immediately revealing where they are over-investing in non-value-adding areas or under-delivering on customer needs.

3. Defining the New Curve: The ultimate goal is to draw a new, unique value curve on the canvas that diverges significantly from the industry curve, representing the blueprint for the Blue Ocean offering.

B. The Four Actions Framework

The core mechanism used to reconstruct the value curve and achieve Value Innovation.

1. Eliminate: Identify which factors the industry takes for granted that can be completely removed because they add little or no value to the core customer (e.g., Cirque du Soleil eliminated expensive animal acts).

2. Reduce: Determine which factors should be reduced well below the industry standard because they are over-designed or over-served by competitors (e.g., IKEA reduced the need for immediate assembly and customer service).

3. Raise: Discover which factors should be raised well above the industry standard because they are current limitations or friction points for customers (e.g., Southwest Airlines raised the frequency of flights).

4. Create: Identify entirely new factors that the industry has never offered that fundamentally change the customer experience and tap into latent demand (e.g., iTunes created the easy, single-song digital download).

C. Reconstructing Market Boundaries

Expanding the strategic focus beyond the direct industry competitors.

1. Look Across Alternative Industries: Study products or services that perform the same function but have a different form (e.g., considering cinema as an alternative to watching a sporting event), learning what buyers value in those alternatives.

2. Look Across Strategic Groups: Analyze companies within the same industry that pursue different strategies(e.g., luxury segment vs. budget segment), identifying what causes customers to move between these groups.

3. Look Across the Chain of Buyers: Understand that different users in the purchasing process often have different motivations (e.g., the purchaser, the user, the influencer). Focus on the group currently being neglected by the industry.

Pillar 3: The Principles of Execution and Focus

A brilliant Blue Ocean idea is worthless without a disciplined, organization-wide execution plan to make the change a reality.

A. Focusing on the Big Picture, Not the Numbers

Shifting the planning process from tactical budgeting to visual strategic alignment.

1. Visual Awakening: Use the Strategy Canvas as a communication tool throughout the organization, visually illustrating the current state and the radical new value curve being pursued.

2. Visual Exploration: Instead of relying only on spreadsheets, send teams out into the field to observe customersand non-customers interacting with the product and alternatives, encouraging them to sketch their observations and potential new curves.

3. Visual Communication: Once the new strategy is agreed upon, distribute the new Strategy Canvas widely to all employees, making the new strategic direction clear, accessible, and easily understood by everyone.

B. Overcoming Organizational Hurdles

Addressing the internal politics and resistance that naturally arise during radical change.

1. Tipping Point Leadership: Focus on influencing the key people, acts, and activities that exert a disproportionately positive effect on the overall performance (the “tipping point”) rather than attempting massive, slow change across the entire organization simultaneously.

2. Fair Process: Ensure that the strategy creation process is perceived as transparent, inclusive, and equitable by those affected. Employees must understand the reason behind the new strategy and have a voice in its execution.

3. Addressing Political Resistance: Identify and neutralize internal opponents (the “blockers”) early by involving them in the decision-making process, demonstrating the need for change with irrefutable data, and creating alliances with respected figures.

C. Sequencing the Strategic Move

Ensuring the Blue Ocean move is commercially viable and scalable.

1. Buyer Utility: First, ensure the new offering provides exceptional, uncompromised utility that delights the target buyers and non-customers, solving a major friction point.

2. Pricing: Set a strategic price that is both attractive to the mass of target buyers and allows the company to rapidly capture the market and discourage immediate imitation.

3. Cost and Profit: Ensure the new cost structure, achieved through the Eliminate-Reduce actions, allows the company to profit handsomely at the strategic price point, locking in the profit margin from the start.

Pillar 4: The Psychology of the Non-Customer

Blue Ocean moves generate massive new demand by strategically converting “non-customers” into devoted new customers.

A. Targeting the Three Tiers of Non-Customers

Expanding the market boundary by understanding who is currently avoiding the industry.

1. First Tier (Soon-to-Be Non-Customers): These are buyers who minimally use the current market offerings and are actively looking to jump ship as soon as a better alternative appears. They are close to leaving out of frustration.

2. Second Tier (Refusing Non-Customers): These buyers consciously choose against the current industry offerings, either finding alternatives in other industries or finding no satisfactory option at all. They see current offerings as too complex or too expensive.

3. Third Tier (Unexplored Non-Customers): This is the farthest tier, comprised of buyers who have never considered the industry’s offerings because they see the products as completely irrelevant to their needs. Tapping this tier represents the deepest well of new demand.

B. The Mass-Market Appeal

Designing the new value curve to resonate with the largest possible base of non-customers.

1. Simplicity and Ease: Blue Ocean products often succeed by removing the complexity and specialized requirements that kept non-customers away (e.g., removing the need for technical skill or specialized training).

2. Emotional Accessibility: The new product should be emotionally and psychologically accessible, removing any feeling of intimidation or high barrier to entry that prevented mass adoption in the Red Ocean (e.g., making the product feel fun or easy).

3. Focusing on Commonalities: The strategic team should look for commonalities across all three tiers of non-customers, designing the new offering around the universal needs that span all these diverse groups.

C. The Example of Yellow Tail Wine

A classic example of creating a Blue Ocean by targeting the third tier of non-customers.

1. Identifying the Frictions: The traditional wine industry was intimidating, focusing on confusing terminology, complex processes (tasting notes, aging), and high-end marketing—all factors that alienated the mass of non-drinkers.

2. Applying Four Actions: Yellow Tail Eliminated wine aging complexity and sophisticated marketing. They Reduced the wine selection (only two types initially). They Raised the ease of drinking and fun appeal. They Created a simple, approachable, and fun brand identity with mass appeal.

3. Result: They bypassed the established wine drinkers entirely, converting beer and cocktail drinkers into wine customers, creating a massive, new market space in the process.

Pillar 5: Sustainability and Renewal of Blue Oceans

Even the most successful Blue Ocean eventually attracts imitators; therefore, defense and renewal are necessary.

A. The Deterrents to Imitation

Why Blue Oceans often enjoy a decade or more of uncontested profitability.

1. Alignment and Cost Barrier: Imitators often find it nearly impossible to copy the move because the new value curve is based on an entire new system of aligned activities (e.g., IKEA’s global logistics combined with in-house design) that are hard to replicate individually.

2. Brand Equity and Non-Customers: The Blue Ocean originator often builds such strong brand equity and goodwill with the mass of non-customers they converted that late followers find it difficult to gain equal loyalty.

3. Economies of Scale: Because the Blue Ocean move captured massive new demand rapidly, the originator enjoys unmatched economies of scale, making it impossible for a competitor to match the simultaneous low-cost and high-value offering without losing money.

B. Monitoring the Value Curve Over Time

Recognizing when the Blue Ocean is starting to turn “Red.”

1. Tracking Competitor Curves: Continuously monitor the Strategy Canvas to see if competitors’ value curves begin to converge with your own, indicating that they are attempting to replicate the successful strategy.

2. Customer Leakage: Look for signs that the first tier of non-customers is beginning to leave or show dissatisfaction, signaling that the initial utility provided by the Blue Ocean move is beginning to wear off.

3. Internal Drifts: Guard against internal drift, where the company slowly begins to add back the very factors it previously eliminated or reduced in a misguided attempt to compete with imitators, thereby sacrificing the core value innovation.

C. The Necessity of Subsequent Blue Oceans

Creating a cycle of strategic renewal to maintain leadership.

1. Serial Innovation: Successful companies understand that the Blue Ocean is not a final destination; they must continuously search for subsequent Blue Oceans to remain ahead of the convergence curve.

2. Institutionalizing the Process: The organization must embed the Blue Ocean mindset and the Four Actions Framework into its permanent strategic planning process, making the search for value innovation an ongoing, continuous effort rather than a one-time project.

3. Example of Apple: Apple consistently created Blue Oceans—first with the iPod/iTunes (digital music distribution), then with the iPhone (smartphone/mobile internet), and later with the iPad (tablet computing)—avoiding Red Ocean competition for decades by systematically redefining adjacent market boundaries.

Conclusion: The Path to Uncontested Market Growth

The Blue Ocean Strategy offers a compelling, powerful alternative to the exhausted competition endemic in the saturated markets of today.

The core objective is to cease competing for existing, limited demand and instead focus the entire organization’s energy on the creation and capture of vast, untapped new market space.

This is achieved through Value Innovation, which brilliantly refutes the long-held strategic notion that a company must make a trade-off between providing premium differentiation and maintaining a low-cost structure.

The analytical process relies heavily on the Strategy Canvas and the rigorous application of the Four Actions Framework, specifically identifying what to eliminate, reduce, raise, and create in the new offering.

The greatest potential for new demand lies in converting non-customers—those currently ignored or repelled by the industry’s complex and high-cost offerings—into enthusiastic new buyers.

Successful execution requires overcoming organizational inertia and political resistance through visual communication and the principle of Fair Process, ensuring the entire team is aligned with the radical new value curve.

By embracing this paradigm shift, businesses can move beyond incremental improvements, securing a dominant, profitable, and uncontested market position that makes industry competition functionally irrelevant for years to come.