Blue Ocean Strategy definition

• Updated

A concept that companies should create demand for their products in unexploited markets

'Blue Ocean Strategy' written ona piece of paper                                 
Blue Ocean Strategy refers to companies finding new markets and creating a demand for a product or service – Photo: Shutterstock
                                

Blue Ocean Strategy meaning

This strategy was first introduced in 2005 in the book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, written by Professors W. Chan Kim and Renée Mauborgne.

 Blue Ocean Strategy refers to companies finding new markets and creating a demand for a product or service

The strategy states that the competition is not relevant in these new markets because competition rules are not defined, as is the case with saturated industries.

Since the competition is non-existent, a company doesn’t have to compete to gain a competitive advantage over other companies. The Blue Ocean industries are industries where the demand is created by the companies responsible for the development of these new markets.

What is the Blue Ocean Strategy?

The current environment and markets are characterised by pressures on the price set by companies. Also, the competition in these markets is high, and there is an everlasting battle between companies to capture a bigger market share. These markets or industries are called the Red Ocean. Growth potential in these markets is limited and any expansion may be too costly.

Unlike the Red Ocean, the Blue Ocean Strategy involves the identification of markets and industries free of price and competitive pressures. Companies try to enter the market first and acquire a large portion of demand by offering high-quality products.

Some characteristics of markets identified in accordance with the strategy are:

  • Lack of competition or competition is very low and weak;
  • Lack of price pressures;
  • Lack of pressures on costs;
  • The demand for a product is created;
  • The creator of the demand is capturing a considerable market share.

Using this strategy, companies create the demand for new products or they identify products that will add value to the consumers. Companies offer new and innovative products or products with augmented quality.

Accordingly, because of limited competition and the enhanced value offered by the product, businesses are not faced with price pressures and can set higher prices. As a result, the Blue Ocean Strategy offers an opportunity for companies to make higher profits in a low-competition environment compared with Red Ocean markets.

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