Definition of blue ocean strategy

Blue ocean strategy generally refers to the creation by a company of a new, uncontested market space that makes competitors irrelevant and that creates new consumer value often while decreasing costs. It was introduced by W. Chan Kim and Renée Mauborgne in their best-selling book of the same name.
 
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The following guidelines may be proposed to companies seeking to create blue oceans:

1. Identify the key features/ dimensions that currently define a product/ service.

2. Identify a group of customers who only value a subset of these features. These customers may be currently using lower end alternatives, or may be very different from the current customers while having needs that are similar at some fundamental level.

3. Make the product or service not as good on the dimensions less valued by new target customers. This step is counter-intuitive but necessary in order to create value while decreasing cost.

4. Consider making the new product or service better on the dimensions valued by the new target customers and/ or introducing new features targeted to these new customers.

Example
Consider Yellow Tail, the company’s initial success was achieved with a wine of ordinary quality (according to the standard criteria used to evaluate wine), targeted to beer drinkers.

The steps above would take the following form for this innovation:

1. Wines traditionally compete, among others, on aging quality, vineyard prestige and complexity.

2. Yellow Tail identified a significant group of customers who were intrigued by wine, but who were intimidated by the difficulty of selecting and enjoying this product. These customers were typically reverting to beer as a lower end alternative.

3. Yellow Tail developed a line of wines that were not as good than even the lower end of the market on the traditional dimensions of competition identified in step 1 and not valued by the customers identified in step 2.

4. Yellow Tail introduced new features or dimensions that were not traditionally used to evaluate wine, but that were valued by their target customers, such as “ease of drinking,” “ease of selection,” and “’fun.” These new dimensions enabled the company to steal customers from the beer market. [1]

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