Such strategic thinking leads firms to divide industries into attractive and unattractive ones and to decide accordingly whether or not to enter. Casella Winery’s Yellow Tail – or yellow tail as it’s written – is often cited as a classic example of blue ocean strategy. Let’s look at how the company created a blue ocean in the highly competitive US wine industry. Price corridor of the target mass is a tool managers used to determine the right price to unlock the mass of target buyers. The process of discovering and creating blue is a structured process of reordering market realities in a fundamentally new way.
Step 1: Define your current market space
Ford’s Model T, introduced in 1908, is a classic example of a market-creating blue ocean strategic move that challenged the conventions of the automotive industry. Though BOS is a new term, it has been a feature of business for a very long time. A hundred years ago, some of the most basic industries of today didn’t exist.
The role of UI/UX design in successful IoT projects: how user experience affects the effectiveness of IoT solutions
Lastly, adoption points to addressing the adoption hurdles in actualizing the business idea. This step is about going into the field to explore the six paths to create blue oceans. By observing the distinctive advantages of alternative products and services, businesses can realize what factors to eliminate, create, or change. Blue ocean strategy is a business theory that aims to create new market spaces with little or no competition by providing value innovation. This strategy identifies and explores untapped areas where demand is high, and competition is irrelevant. By doing so, businesses can differentiate themselves from competitors.
- A hundred years ago, some of the most basic industries of today didn’t exist.
- BOS provides a four-step strategy visualization tool that serves to unlock people’s creativity.
- With the right tools, businesses can innovate and achieve growth without negatively impacting society.
- Addressing a new audience Part of creating the new market is identifying a new customer segment that has been approached with your product category.
Step 2: Assess the Current Market Conditions
Johnson attempted to differentiate JCPenney to a more upscale clientele, with in-store boutiques and exclusive merchandise. At the same time, he did away with the clearance racks and coupons that attracted the company’s most loyal customers. In contrast to a blue ocean, a red ocean describes an environment of cutthroat competition among many industry players. Because the marketplace is crowded with rivals, new companies must fight fiercely for a share of any profits.
Nintendo, the Japanese video game company created its first console in 1977 and became internationally famous with the release of games Donkey Kong in 1981 and Super Mario Bros. in 1985. However, by the early 2000s, Nintendo was struggling as industry giants Sony and Microsoft dominated the market. Unless you’ve been living under a rock for the last 50 years, you have certainly heard of Marvel, or at least, you’ll be familiar with Marvel characters such as Spiderman, The Hulk, and many others. What you may not know is that Marvel is an example of one of the great red ocean to blue ocean transformations in modern business history. We’ll also take an in-depth look at how one company made the spectacular transformation from the red ocean to the blue ocean.
The early years of Marvel
The strategy is specifically a marketing theory and thus, a marketing strategy. It asserts that for businesses to win in the future, they must stop competing. Chan Kim and Renée Mauborgne introduced the difference between a red ocean and a blue ocean, both of which are metaphors for market spaces. Use the Six Paths Framework to identify unmet customer needs and create new market space.
- NetJets, for example, changed the pricing model of jets from complete ownership to time-share based to profitably deliver on its strategic price.
- As globalization shrinks trade barriers between nations and regions, information on products and prices become instantly available.
- Recognized for their ground-breaking research journey, which seeks to understand how to go beyond zero-sum, win-lose paradigms to achieve positive-sum outcomes that create a larger economic pie for all.
- In 2011, JCPenney made a spectacular strategic blunder under its new CEO, Ron Johnson, who attempted to pivot the company towards a blue ocean strategy.
- Moreover, it includes untapped market spaces that offer prospects for higher profitability.
- American automobile company Ford Motors is one of the perfect examples of the blue ocean technique.
This also led to higher prices, typically between 3,000 to 5,000 yen ($27 to $45). Some industries compete principally on price and function largely on calculations of utility – their appeal is rational. Other industries compete largely on feelings; their appeal is emotional. For example, in the airline industry, ground transportation time after flight can affect customer’s choice of whether to fly or to drive. For example, Southwest pioneered point-to-point travel between midsize cities in an industry that mainly operated through hub-and-spoke model.
This allowed the company to dramatically reduce or eliminate all the factors the wine industry had long competed on – tannins, complexity, and aging. With the need for aging reduced, the working capital required was also reduced. The wine industry criticized the sweet fruitiness of yellow tail but consumers loved the wine. Casella also made selection easy by offering only two choices of yellow tail – Chardonnay, the most popular white wine in the US; and red Shiraz.
Five Key Insights for Positive-Sum Innovation
Identify key factors of competition and assess how your offerings compare. Plot these factors on the Strategy Canvas to visualize your current position. Once a company creates a blue ocean and its powerful performance consequences are known, imitators appear on the horizon. If the imitators succeed and expand the blue ocean, competition intensifies and eventually turns the ocean red. A company needs to invoke the most fundamental base of action – the attitudes and behavior of its people. This creates a culture of trust and commitment that motivates people to execute the agreed strategy not just in letter, but in spirit.
Let’s jump right in, starting with one of the most extraordinary blue ocean turnarounds in corporate history. Esploro Company is a research and consultancy firm catering to markets in Asia-Pacific, Europe, Middle East, Latin America, and North America. We strongly believe that research and consultancy form the backbone of informed decisions and actions. Note that all of these four are steps and as such, one cannot simply jump from the first step to the third or fourth step. This also means that failure within a particular step would call for a rethinking and repositioning of the steps it preceded. For example, failure in cost will require a reconsideration of the established pricing strategy.
A second reason is that to a buyer, the value of a product or service may be closely tied to the total number of people using it. First, companies discover that volume generates higher returns than it used to. For knowledge-intensive products (like software), companies bear most of their costs in product development than in manufacturing which blue ocean strategy meaning makes volume the key. Simplicity, fun and image, and environmental friendliness are self-explanatory. A product must reduce a customer’s financial, physical, or credibility risks.