Modern markets are classified by their high volatility and increasing rates of competition. To successfully claim market share in a “red ocean,” utilizing a conventional product, many companies are forced to provide it at an impressive quality for a small price, to remain competitive (Yardley 2015). This is associated with the necessity to outsource workplaces to cut costs, spend large amounts of resources on research and development, and conduct aggressive advertising and promotion campaigns to sway customers to your side (Yardley, 2015). The majority of starting businesses do not have chances of growing large and strong without significant corporate backing in such an environment. One of the possible solutions for new startups is the Blue Ocean strategy, which suggests the formulation and creation of completely new services and products in order to create market share by answering an unmet demand rather than struggling for a piece of an already existing market (Kim & Mauborgne 2005). The purpose of this paper is to describe the Blue Ocean strategy and explain its applicability in the modern market environment.
The idea of Blue Ocean strategy is relatively antique – from the creation of the first markets individuals who were able to produce something new and unique before everyone else enjoyed a strong position in the market, as the competition was not able to catch up. However, the modern views and paradigms of Blue Ocean as a marketing strategy was first described in a book by W. Chan Kim and Renee Mauborgne (2005), who analyzed over 150 case studies of successful and failed companies representing 30 industries, over the span of the last 100 years. Their research discovered that the most successful companies are those that try generating new market spaces rather than trying to merely improve on practices devised by someone else. The theory suggests that innovation in value creation is the only plausible long-term self-sustaining strategy, and provides ample examples of why the opposite is not true. The theory went at odds with the popular theory of modern competition heralded by Michael Porter (2016). That theory suggested a separation of businesses into niche players and low-cost providers. Instead, Kim and Mauborgne (2005) suggested that value could be found in crossing conventional market segmentation by offering innovation at a lower cost. Some of the ideas systematized in the book were first introduced by Charles Hill in 1988, who criticized, Porter’s model and emphasized differentiation of products as a means of reducing costs (Hill et al., 2017). His emphasis was on providing a variety of products in combination with reduced expenditures in order to secure the advantage (Hill et al., 2017). Kim and Mauborgne (2014) built up on those ideas and provided academic support based on numerous case studies.
The Blue Ocean methodology, as defined by Kim and Mauborgne (2005), relies on value innovation in order to create, use, and hold new market share. The idea is that a company or an individual can create a sovereign marketspace that would attract customers and exclude any competition, due to a lack of comparative products on the market. By the time potential competitors catch on, the company already dominates the “Blue Sea” and its brand strength is unmatched due to being the first in business. Such a methodology strongly relies on the capacity to create and innovate in order to surpass the limitations of the existing market.
The conceptual tools utilized in the scope of the Blue Ocean strategy are available for both for-profit enterprises, non-profits, and public sector organizations, as the primary mechanism utilized in the methodology revolve around the identification of unmet needs. According to Kim and Mauborgne (2005), creating new products to match customer needs already met by other companies would not be efficient for both the smaller and the larger companies, as it would mean losing resources and momentum just to match the competition, who would be doing the same. Instead, the strategy focuses on capitalizing on marketing opportunities and claiming non-competitive markets.
A major motif in Blue Ocean strategy is its reconstructionist view on market and industry boundaries. Kim and Mauborgne (2014) state that these boundaries are created artificially, either by managers’ own fears and biases, economic reviews, and popular misconceptions. The methodology covers expanded ways of thinking outside of the market boundaries, in order to locate and tap into the extra demand. Finally, the methodology addresses the core of the problem around value innovation – the ability to create extra demand. This is achieved by emphasizing value innovation over traditional views of supply and demand. Blue Ocean seeks to identify not just the demand for products and services already known, but the need for a new approach that has never existed before. The theory, thus, prophesizes a change to the existing market structure by breaking the traditional competitive values and costs, as well as the majority of the rules of the game, as the new product would either surpass the competition and make them irrelevant. Such an approach promises great rewards and payoffs, making it attractive to startups and new companies.
In regards to usages and usefulness, the theory comes with a set of preset conditions and assumptions. Although, technically, innovation and extra value creation could happen in any industry, some are more predisposed to the generation of new products and ideas than others. This is true for the younger areas of service, such as traditional technology, cybertechnology, and the Internet (Lee & Trimi, 2018). These areas have plenty of untapped potential that can be used by creators to get an advantage. Other areas, such as food production, textiles, and other industries are much slower to innovate due to the existing levels of technological progress or high levels of professional testing and scrutiny (healthcare).
Blue Ocean can be used by both large and small companies, but in different ways. Small companies and startups can use Blue Ocean in order to make a name for themselves by presenting a product nobody ever created before, thus buying themselves time to establish presence, brand, and customer visibility. Typically, these companies offer only one or two products, due to being unable to diversify any further. Large companies, on the other hand, could use Blue Ocean to their advantage by using their research and development departments to create new products and services to diversify and variate the number of products offered to the general populace. In so doing, the company would be able to increase its profits without necessarily engaging other companies on their turf. An example of using Blue Ocean strategy in a large company would be the invention of the smartphone by Apple, which revolutionized the market of mobile devices by providing a ubiquitous gadget that combined the functions of a telephone, computer, musical player, radio, and camera in a single piece of technology (Joshi, Saxena & Tarkas, 2015).
As it was already stated, Blue Ocean strategy opens the door to big and small countries to enter the market while avoiding direct contests of supply and demand, which result in the majority of new businesses closing due to a misjudgment of their own capabilities and the inability to compete with entities already on the market (Agnihotri, 2016). Additional advantages of the strategy include a relatively low reliance on material resources. As demonstrated by Apple during their initial pitch with the Apple I computer in the 1970s, it is possible to promote an innovative idea on one’s own to achieve success, so long as the potential of the creation and its creators have promise (Campbell-Kelly, 2018). For large companies, Blue Ocean strategy offers potential venues for expansion and evolution, as the market where they started is overflowed with strong competitors and products (Agnihotri, 2016). Instead of conceding to the zero-sum game in an effort to win a small fraction of the red market, large companies can instead invest in the development of new products, services, and technology to address the customers’ unmet needs.
The primary major limitation of the Blue Ocean strategy lies in its capacity to generate new products to appease the market. Creation is a very fickle process that does not guarantee results (Randall, 2015). Risk values in Blue Ocean are relatively high, if the R&D department cannot provide a product that can revolutionize the market. Groundbreaking creations are rare in every industry, meaning that both large and small companies are at risk of wasting time and money either creating something that does not work as intended and does not carry any significant potential in the market (Randall, 2015).
The second limitation is connected to the first one – before any invention is to be created, Blue Ocean requires the company to identify an unsatisfied customer need the object in question is meant to answer (Randall, 2015). If the need was not correctly identified, the developed product will not break ground and remain in obscurity as a seemingly innovative but ultimately useless project. Finally, Blue Ocean strategy requires relatively high levels of technological acumen. It is not suitable for businesses that provide the majority of services and some products – a retail shop is unlikely to break ground by inventing a revolutionary way to serve customers beyond what was already achieved.
The third limitation is the relativity of the results received. All blue oceans eventually become red oceans (Randall, 2015). If a company fails to capitalize on their groundbreaking product during the first few years of enjoying a relative lack of opposition, either due to lapses in quality of production, the slow process of educating the customer base about the benefits of the project, or the inability to produce enough to answer the demand – bigger companies are likely to develop their own products based on the original technology and claim the company’s market share (Randall, 2015).
Blue Ocean is a relatively novel strategy that utilizes the generation of extra value through innovation rather than the continuous race for reducing costs and perfecting the process to cut as many corners as possible. Instead, it is meant to drive progress forward and enable companies, big and small, to find their place in the new market. Technology will never stand still, meaning that the demands, necessities, and needs of humankind will evolve, making Blue Ocean a valid strategy. The strategy offers a long-term perspective as well. What are the unmet demands of the customers now? What would they be in ten years? How will the company address these needs? Can it address them now? The potential is limited only by one’s ability to create.
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