Traditional business strategy is based on beat the competition by differentiation or pricing. This approach only allows to win a portion of the limited market space.
Blue Ocean Strategy proposes a different strategy called Value Innovation that focuses on offer both value and innovation, and thus, creating a leap in value for customers. When a leap is created, a new market space is created too. In this new market, it is possible to break the value-cost trade-off because you can offer both a good price and offer high value to customers.
Blue and Red Oceans
The previous information implies that new market spaces are very profitable. New market spaces are called “blue oceans”, and, on the other side, spaces highly competitive are called (bloody) red oceans.
Products inside a red ocean eventually become a commodity because the market space is crowded. When a product becomes a commodity, most of the offer becomes pretty similar and consumers end up choosing based on price, which causes pricing wars thus reducing profits.
All of this suggests that traditional strategy and management should be more concerned about generate more blue oceans rather than only focus on red ones.
Cirque du Soleil’s and Blue Oceans
Cirque du Soleil is a great example of a blue ocean. Previous to its first appearance, circuses used to fight one against the other by offering star performers, animal shows, and multiple show arenas, which were rather expensive, they offer a completely different approach where the fun of the circus was combined with the sophistication of the theater.
With this innovation in value, Cirque du Soleil was able to create new market space for both old circus customers (kids) and a new kind of customers: adult theater customers willing to pay more for a sophisticated spectacle.
Lessons to Learn
When analyzing different strategies for a given product, you should be aware of being trapped inside a red ocean. That’s not necessarily bad, because red oceans will always be part of business, but being rather conscious about potential opportunities.
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