Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant

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3 Sentence Summary

The only way to beat the competition is to stop trying to beat the competition. This book challenges the conventional strategy that views beating the competition as the only way to gain market share. Instead, Blue Ocean Strategy outlines six principles that will help any business pivot towards uncontested domains where the competition is irrelevant and pent-up demand remains untapped.

5 Key Takeaways

1. Stop worrying about what the competition is doing. Make them irrelevant.
2. Focus on value innovation = lower cost + increased value
3. Use the four-actions framework to differentiate your products/services.
4. Seek out non-customers and new market segments that have values in common with your current customer base.
5. Start with a strategic price and then deduct the desired profit margin to arrive at the target cost.

Blue Ocean Strategy Summary

Creating Blue Oceans

• The only way to beat the competition is to stop trying to beat the competition
• Do not use the competition as your benchmark
• Focus on value innovation: instead of trying to beat the competition, you make the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space
• Value innovation = lower cost while simultaneously increasing the value

Analytical Tools and Frameworks

• Reorient your strategic focus from competitors to alternatives and from customers to noncustomers of the industry

4 Actions Framework

• Reduce: What factors should be reduced well below the industry’s standard?
• Create: Which factors should be created that the industry has never offered?
• Raise: Which factors should be raised well above the industry standard?
• Eliminate: Which of the factors that the industry takes for granted should be eliminated?

3 Characteristics of a Good Strategy

1. Focus: Your strategy is focused on a distinct value proposition
2. Divergence: Your strategy diverges from the competition by applying the “4 Actions Framework”
3. Tagline: Your strategy can be summed up in a clear-cut and compelling tagline

Reconstruct Market Boundaries

• Break outside of the accepted market boundaries that define how you’re supposed to compete
• Focus on the key factors that lead buyers to trade across alternative industries and eliminate or reduce everything else
• What are the strategic groups in your industry? Why do customers trade up for the higher group, and why do they trade down for the lower one?
• Challenging and industries conventional wisdom about which buyer group to target can lead to the discovery of new blue ocean
• What is the chain of buyers in your industry? Which buyer group does your industry typically focus on? If you shifted the buyer group of your industry, how could you unlock new value?
• Untapped value is often hidden in complementary products and services. Think about what happens before, during, and after your product is used. Can you identify the pain points? How can you eliminate these pain points with a complementary product or service offering?
• Does your industry compete on functionality or emotional appeal? If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete on functionality, what elements can be added to make it emotional?

6 Paths to Reconstruct Market Boundaries

1. Look across alternative industries: Deliver on the advantages of two industry alternatives (not substitutes) and reduce or eliminate everything else
2. Look across strategic groups within industries: Understand which factors determine customers’ decisions to trade up or down from one group to another (strategic groups are usually defined by price and performance)
3. Look across the chain of buyers: Purchasers may differ from users. Challenge the industry by focusing on an unconventional buyer group to target.
4. Look across complementary product and service offerings: Think about what happens before, during, and after your product is used. What is the context at the point of use? Can you identify and then eliminate pain points through a complementary product or service?
5. Look across functional or emotional appeal to buyers: You can compete on emotional appeal or functional performance. Do the opposite of the competition.
6. Look across time: Adapt to external trends as they occur. Identify how the value for the customer will change as the new trend is adopted.

Focus on the Big Picture, Not the Numbers

• A company should never outsource its eyes. There is simply no substitute for seeing for yourself
• After the future strategy is set, the last step is to communicate it in a way that can be easily understood by any employee

Reach Beyond Existing Demand

• Instead of concentrating on customers, look to noncustomers. Instead of focusing on customer differences, build upon powerful commonalities in what buyers value

Get the Strategic Sequence Right

• To maximize the profit potential of a Blue Ocean idea, a company should start with a strategic price and then deduct its desired profit margin from the price to arrive at the target cost

Sequence of Blue Ocean Strategy

1. Buyer utility: Is there exceptional buyer utility in your business idea?
2. Price: Is your price easily accessible to the mass of buyers?
3. Cost: Can you attain your cost targets to profit at your strategic price?
4. Adoption: What are the adoption hurdles in actualizing your business idea? Are you addressing them upfront?
5. If you can say yes to all the above then you have a commercially viable Blue Ocean idea

Overcome Key Organizational Hurdles

• Fundamental changes can happen quickly when the beliefs and energies of a critical mass of people create an epidemic movement toward an idea
• In every organization, there are people, acts, and activities that exercise a disproportionate influence on performance
• Conserve resources and cut time by focusing on identifying and then leveraging the factors of disproportionate influence in an organization
• To tip the cognitive hurdle fast, make people see and experience harsh reality firsthand. Don’t rely on numbers alone. Numbers lack urgency and emotional impetus.
• Get your manager to listen to their most disgruntled customers firsthand. Don’t rely on market surveys.
• Focus on acts with disproportionate influence

Build Execution into Strategy

• In order to build peoples trust and commitment deep in the ranks and inspire their voluntary cooperation, companies need to build execution into the strategy from the start

Conclusion: The Sustainability and Renewal of Blue Ocean Strategy

• Over time, the competition, and not the buyer, may come to occupy the center of your strategic thoughts and actions. If you stay on this course, the basic shape of your value curve will begin to converge with the competition

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