Finding Uncontested Market Space

Blue Ocean Strategy in a Red Ocean Economy: Finding Uncontested Market Space

W A Chump & Sons: Business Strategy Toolkit

Edition 26

Introduction: Swimming Beyond the Bloodied Waters

Increasingly, many companies find themselves trapped in what W. Chan Kim and Renée Mauborgne call "red oceans" – markets saturated with competition where businesses battle for shrinking profit margins and diminishing market share. As consumer demand wavers and market uncertainty rises, the traditional approach of outperforming rivals in established markets becomes less viable.

But what if there was another way?

What if, instead of fighting tooth and nail for every customer in overcrowded markets, companies could create entirely new market spaces where competition is irrelevant?

This edition of our Business Strategy Toolkit explores Blue Ocean Strategy – a systematic approach to breaking away from the competition by creating uncontested market space that makes competitors irrelevant. Rather than focusing on beating the competition, Blue Ocean Strategy urges companies to focus on making the competition irrelevant by creating leaps in value for both the company and its customers.

The Limitations of Red Ocean Thinking

Most companies operate with a red ocean mentality – the view that markets have a fixed structure that individual businesses cannot change. With this mindset, companies can only gain market share by taking it from someone else, leading to a zero-sum game where one company's gain is another's loss.

This approach typically results in:

• Price wars that erode profit margins for all competitors
• Commoditization of products and services
• Diminishing returns on marketing and innovation investments
• Customer loyalty based primarily on price rather than value

As W A Chump & Sons works with clients across various sectors, we consistently observe that companies focused solely on outperforming rivals in existing markets find themselves trapped in cycles of diminishing returns.

Creating Blue Oceans: The Reconstructionist View

Blue Ocean Strategy is built on what Kim and Mauborgne call a "reconstructionist view" – markets are dynamic, demand-driven, and can be reshaped by market players to create new demand. This perspective challenges the notion that market boundaries and industry structures are fixed.

Consider these examples of successful blue ocean creation:

• Cirque du Soleil reconstructed the circus industry by eliminating animal acts and star performers while adding elements of theatre and sophisticated themes, attracting an entirely new customer base willing to pay premium prices.
• Apple's iPod and iTunes created a blue ocean by providing a seamless, legal digital music experience when the market was fragmented between illegal downloads and traditional CDs.
• Southwest Airlines created a blue ocean in the airline industry by offering the speed of air travel with the price and flexibility of car transport, attracting customers who previously would have driven rather than flown.

Each of these companies didn't just compete better – they fundamentally changed the rules of the game.

The Strategic Canvas: Visualizing Your Blue Ocean

To help identify potential blue oceans, Kim and Mauborgne introduced the strategic canvas – a diagnostic tool that captures the current state of play in the known market space and helps you understand where the competition is investing, what factors the industry competes on, and what customers receive.

How to create your strategic canvas:

1. List the key competing factors in your industry along the horizontal axis
2. Plot how each competitor scores on each factor on the vertical axis
3. Connect the dots to create a "value curve" for each competitor
4. Look for patterns and opportunities to differentiate

If your value curve looks similar to your competitors, you're swimming in a red ocean. The key to creating a blue ocean is to develop a dramatically different value curve.

The Four Actions Framework: Reconstructing Market Boundaries

To break away from the competition and create a new value curve, use the Four Actions Framework:

1. Eliminate: Which factors that the industry takes for granted should be eliminated?
2. Reduce: Which factors should be reduced well below the industry standard?
3. Raise: Which factors should be raised well above the industry standard?
4. Create: Which factors should be created that the industry has never offered?

This framework helps companies break the trade-off between differentiation and low cost, allowing them to pursue both simultaneously.

Case Study: Yellow Tail Wines

Consider how Yellow Tail wines created a blue ocean in the highly competitive wine industry:

• Eliminated complex wine terminology and aging considerations
• Reduced wine prestige and vineyard heritage marketing
• Raised ease of drinking and easy selection
• Created fun and adventure in the wine experience

This approach allowed Yellow Tail to appeal to beer and cocktail drinkers who previously found wine intimidating, creating a new market space altogether.

Three Characteristics of a Good Strategy

Kim and Mauborgne identify three qualities that define an effective blue ocean strategy:

1. Focus: A blue ocean strategy shouldn't attempt to be all things to all people. It requires concentrating on specific factors.
2. Divergence: A blue ocean value curve must stand apart from competitors. If your strategy looks like everyone else's, it's likely a red ocean strategy.
3. Compelling Tagline: A good strategy has a clear and compelling message that speaks to buyers.

Example: Cirque du Soleil's tagline could be "Circus without animals, theatre without dialogue."

Finding Your Blue Ocean: Six Paths Framework

To help identify potential blue oceans, Kim and Mauborgne developed the Six Paths Framework – six systematic approaches to reconstructing market boundaries:

1. Look across alternative industries What industries provide alternative products or services that fulfill the same function? Example: Netflix looked at how people entertained themselves beyond traditional video rentals
2. Look across strategic groups within industries What strategic groups exist within your industry, and what drives customers to trade up or down? Example: Toyota's Lexus bridged the gap between luxury and economy cars
3. Look across the chain of buyers Are you focused on the right buyer group (purchasers, users, influencers)? Example: Pharmaceutical companies shifting focus from doctors to patients
4. Look across complementary product and service offerings What happens before, during, and after your product is used? Example: Apple's integration of hardware, software, and services
5. Look across functional or emotional appeal to buyers Does your industry compete primarily on function or emotion? Can you flip this? Example: Starbucks added emotional appeal to the functional coffee industry
6. Look across time What trends will fundamentally change your industry? How can you shape them? Example: Amazon anticipated the shift to online shopping

By exploring these six paths, you can begin to see opportunities for creating blue oceans that others have overlooked.

Executing Your Blue Ocean Strategy

Creating a blue ocean strategy is one thing; executing it successfully is another. Here are key principles for effective execution:

1. Overcome key organizational hurdles: Cognitive: Help people understand why change is necessary Resource: Secure the resources needed for execution Motivational: Motivate key players to move quickly and tenaciously Political: Overcome opposition from vested interests
2. Build execution into the strategy: Involve people in the strategic planning process Place as much emphasis on execution as on creation Ensure fair process through engagement, explanation, and clear expectations
3. Sustain and renew: Monitor value curves to stay ahead of imitators Be prepared to create a new blue ocean when imitation turns your market red again

Blue Ocean Strategy in Economic Uncertainty

In times of economic uncertainty, blue ocean strategies become even more valuable. When markets contract and competition intensifies, creating new demand rather than fighting over existing customers can be the difference between thriving and merely surviving.

During economic downturns:

• Customers become more value-conscious, providing opportunities to redefine value propositions
• Established players often retrench and focus on defending existing markets, creating openings for innovation
• Companies with reduced resources are forced to make strategic choices rather than pursuing multiple directions

Historical Example: During the Great Depression, Procter & Gamble continued to innovate and invest in R&D while competitors cut back, leading to the introduction of Tide, which revolutionized the laundry detergent market and established P&G's leadership for decades.

Moving Forward: Your Blue Ocean Action Plan

Ready to navigate away from red oceans and find your blue ocean? Here's a practical action plan:

1. Assess your current position: Draw your strategic canvas Determine if you're trapped in a red ocean
2. Explore potential blue oceans: Use the Six Paths Framework to identify opportunities Apply the Four Actions Framework to create a new value curve
3. Test your ideas: Validate your blue ocean idea with potential customers Refine based on feedback
4. Develop an implementation plan: Identify and address potential organizational hurdles Create a timeline for execution with clear milestones
5. Execute with discipline: Overcome organizational resistance Monitor results and adjust as needed

Conclusion: The Choice Is Yours

In today's challenging economic environment, companies face a choice: continue battling in red oceans with diminishing returns, or chart a course toward blue oceans of uncontested market space.

Blue Ocean Strategy isn't about technological innovation alone – it's about value innovation that makes competitors irrelevant by creating superior value for both customers and the company. By applying the tools and frameworks outlined in this newsletter, your business can begin to identify and create blue oceans even in the most challenging economic conditions.

At W A Chump & Sons, we've helped companies across industries discover their blue oceans. Unlike other consultancies, we don't bill by the hour, and your success is our success. Our approach is pragmatic, transparent, and focused on long-term partnership.

Remember, the question isn't whether blue oceans exist – it's whether you'll be the one to find them.

Andrew Bird CEO, W A Chump & Sons

Want to discuss how we can help you navigate to your blue ocean? Get in touch. W A Chump & Sons delivers strategic guidance across several sectors and invests in highly innovative AI-led technology services.