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Blue Ocean

Definition

Blue Ocean in finance refers to the concept of creating a new, uncontested market space that makes the competition irrelevant. It involves the simultaneous pursuit of differentiation and low cost, creating value for both the company and its customers. This concept was introduced in the book “Blue Ocean Strategy” by W. Chan Kim and Renée Mauborgne.

Phonetic

The phonetic pronunciation of “Blue Ocean” is: /bluː ˈoʊʃən/

Key Takeaways

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  1. Value Innovation: The Blue Ocean strategy emphasizes on creating a leap in value for both the company and the customers. Rather than struggling over price wars and direct competition, it encourages businesses to innovate and create new demand, ultimately offering unique value to customers.
  2. Creating Uncontested Market Space: Blue Ocean strategy suggests that businesses should create and capture new demand spaces where the competition is null. This involves ideating and launching unique products or services, or modifying existing ones in a way that makes competition irrelevant.
  3. Simultaneous Pursuit of Differentiation and Low Cost: The Blue Ocean strategy endorses the pursuit of differentiation and low cost simultaneously. It encourages businesses to lower their costs while still creating a differentiated product or service that stands out in the marketplace. This simultaneous achievement of differentiation and low cost is at the core of a good Blue Ocean strategy.

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Importance

The term “Blue Ocean” is important in business/finance as it refers to the strategy of creating new, uncontested market spaces that make competition irrelevant, instead of fighting over existing markets, known as “red oceans”. This strategy encourages innovation and growth by focusing on creating new demand and opportunities, which can lead to higher profits and expansion for businesses. This term is derived from the book “Blue Ocean Strategy” by W. Chan Kim and Renée Mauborgne, and it highlights the importance of differentiation and low cost to create new markets. The “Blue Ocean” strategy is vital as it can help businesses to create their own niche, avoid price wars and thrive in an increasingly competitive global marketplace.

Explanation

Blue Ocean refers to the concept of creating a new, untapped market space that provides potential growth opportunities and profitable ventures for businesses. The primary purpose of a Blue Ocean strategy is to make competition irrelevant by innovating and offering distinctive products or services that are not presently offered by any other competitors. It’s about exploring the unknown market territories, wherein a company can operate free from competition because the services or products they are offering are unique, thus giving birth to a new demand. Blue Ocean Strategy is used to change the rules of the game in business by focusing more on value innovation. Traditional competitive strategies (termed as Red Oceans) are based on the idea of fighting for market share in the existing market space. In contrast, Blue Ocean Strategy asserts that lasting success comes not from battling competitors, but from creating blue oceans of uncontested market spaces ripe for growth. Hence, this strategy gives opportunities for businesses to tap into new customer bases, allowing for substantial growth and increased profits.

Examples

1. Cirque du Soleil: In a time when traditional circuses were witnessing dwindling popularity and fierce competition, Cirque du Soleil revolutionized the industry by creating a new and innovative form of entertainment. They reduced the focus on expensive elements such as animal shows and stunts, and instead incorporated elements of theater and character-driven stories in their performances. This led to significant cost savings, besides establishing a unique brand identity in the market. 2. Apple Inc.: The launch of the iPhone in 2007 is a classic example of a blue ocean strategy. Prior to the iPhone, the mobile phone market had been focused on features and hardware. Apple revolutionized this market by introducing a sleek, touch-screen device with internet capabilities and a wide range of apps that essentially turned the phone into a multi-purpose tool. This innovative approach not only created a new demand in the market, but also made Apple a distinctive player in the smartphone industry.3. Netflix: Netflix introduced a unique home video streaming service, creating an uncontested market space that rendered traditional video rental stores obsolete. Instead of renting DVDs, customers could watch an unlimited amount of movies and TV shows online for a flat monthly fee. Netflix’s approach not only differentiated it from competitors but also reshaped the entire media landscape.

Frequently Asked Questions(FAQ)

What is Blue Ocean in business?

The term Blue Ocean refers to a type of market space in the business world that is untapped, uncontested, and potential for creating new customer demand. It originated from the business book Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne.

What is the concept of Blue Ocean Strategy?

Blue Ocean Strategy is a business model that recommends companies to look beyond existing competition and create new market spaces, resulting in higher profits and growth. This strategy advocates creativity and innovation to serve new segments or customer needs rather than fighting over the already saturated markets, i.e., red oceans.

How does a business create a Blue Ocean?

Companies can create a Blue Ocean by identifying and formulating strategies to meet customer needs in unique ways, launching innovative products or services, or exploring new market segments not served by current businesses.

Is there any risk associated with implementing a Blue Ocean Strategy?

Yes, there are risks as it involves venturing into the unknown market spaces. It requires substantial investment, and there’s no surety about the acceptance of a new product or service by the customers.

Can you provide any examples of successful implementation of Blue Ocean Strategy?

Successful cases of Blue Ocean Strategy include companies like Apple, Starbucks, Amazon, Cirque du Soleil, and Uber. These companies have created new markets by offering distinct products and services and redefining customer experiences.

How does a Blue Ocean differ from a Red Ocean?

A Red Ocean refers to existing market space where there’s intense competition, and companies try to outperform each other to get a greater share of existing demand. Blue Ocean, on the other hand, refers to unknown market spaces with no competition and potential for creating new demand.

Can one move from a Red Ocean to a Blue Ocean?

Yes, it’s possible to move from a Red Ocean to a Blue Ocean. This is done by innovation and strategic planning, where a business develops and introduces new products or services, or comes up with unique ways of satisfying customer needs which existing businesses fail to do.

Related Finance Terms

  • Value Innovation
  • Untapped Market
  • Red Ocean
  • Market Creation
  • Strategic Move

Sources for More Information

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