The low-down Hide
Your first instinct as a founder might be to try and sell something everyone wants.
At least—wrong according to Blue Ocean Strategy.
The problem with selling something everyone wants is that other companies are already doing it. Where there is demand there is supply. Doesn’t matter how much better, quicker, cheaper, or more sustainably you do things, you’ll always have competitors snapping at your heels.
Similarly, you don’t want to be selling something that nobody wants. That comes with pitfalls of its own (which we hope are obvious enough not to explain).
Blue Ocean Strategy’s answer? Sell something nobody wants… yet.
What exactly is Blue Ocean Strategy?
Chan Kim and Renée Mauborgne wrote Blue Ocean Strategy – How to Create Uncontested Market Space and Make the Competition Irrelevant in 2005. ‘BOS’ has since become a common feature in business lexicon. It differentiates between:
Red oceans: Markets that are saturated and red with blood from all the competition. They operate on value-cost trade off. Here you’ll find challenger brands that do old things in new ways, like Peloton, Pepsi, Mailchimp, and Monzo.
Blue oceans: Brand new, unmapped waters where disruptors do new things in new ways. They operate on “Value Innovation” (more on that below). You can spot Apple, Uber, Netflix, AirBnB, and Tesla swimming in these seas.
Endless models and matrixes dominate the way we build companies. Founders run their AIDAs, SWOTs, SOSTACs, marketing mixes, and product life cycles (link if that’s all Greek to you).
Kim and Mauborgne claim this status quo of company building is conducted purely in a space of restraint and restriction. Companies become blind to what they could be outside of these rigid frameworks. They can only develop a product under comparison to another, and they can only make profit if they take it from someone else.
Everything from their price points to their advertising strategy is occurring in an echo chamber. The BOS authors describe this outcome as “a zero-sum game where one company’s gain is another company’s loss”.
The Blue Ocean framework
Obviously, “just do things differently” isn’t particularly helpful advice. So Kim and Mauborgne created a framework for brands trying to incorporate Blue Ocean thinking into to their product development:
- Eliminate: what can you take completely out of the status quo?
- Reduce: what can you dial back on?
- Raise: what standard can you raise a head and shoulders above the rest?
- Create: what brand new idea can you conjure?
Your eliminations and reductions should bring down your costs. Your raises and creations should boost your value offering to customers. Neither you nor your buyer compromises. What you’re left with is what the authors call Value Innovation.
Who needs Blue Oceans?
If you’re a shark that’s content with bloody red waters, you might question why someone would go to the trouble of diving for deep unchartered blue.
Some entrepreneurs thrive on the idea of dominating and destroying. Western institutions tend to instil a competitive life philosophy by awarding aggression above cooperation and first place above effort. This survival of the fittest mindset benefits only one person: the fittest.
Arguably, consumers benefit when prices are driven down by market saturation. But now that global corporations have more power and influence than monarchies, the “fittest” can swiftly monopolise, and small-time commerce suffers—not to mention the grave human and ecological costs of cheap mass production and razor-thin margins.
You might ask how relevant Blue Ocean Strategy is given it was published 16 years ago. The answer is: even more so.
- The market is much more crowded
Put simply, there are more people, more brands, and more noise to cut through.
- The consumer has much more power
We’re much harder to market to, and thanks to social media, much louder when we’re dissatisfied.
- It’s much easier than it was 20 years ago to become a global player
Emerging economies like those of China, India, Vietnam, and Brazil can now offer things just as quickly but much more cheaply. There are margins at play that organisations based in the West simply can’t compete with.
A classic example: Cirque du Soleil
Keeping a travelling circus from the 19th century alive in the age of cinema, consoles, TV, and TikTok is no joke. It’s an astounding accomplishment, and possibly Blue Ocean Strategy’s greatest triumph.
First of all, CDS eliminated the animals. That was a no-brainer given the pressure from animal rights groups and general public sentiment. Then they eliminated the clowns because, well, they’re just creepy.
CDS reduced the physical space of the operation from a three-ring circus to a single stage. They then raised the bar for production value (seating, lighting, sound, costume) to match the quality of theatre and broadway shows (and raised the ticket price accordingly).
Finally, they created new acts to reflect modern cultural preferences (dance, acrobatics, and artistry over old-fashioned tricks, acts of bravado, and animal cruelty).
Cirque du Soleil productions have since been seen by 150 million people across 300 cities – numbers its Victorian founders could never have even dreamed of.
On our own soil: Aldi Australia
Aldi Australia did a great job of interrogating the customer’s needs and habits. Major chain supermarkets offer customers everything they could possibly want and need and a bunch of other stuff on top.
Aldi’s Challenge to the status quo was to question if the vast majority of shoppers actually needed or wanted the overwhelming volume of stock as much as supermarkets were telling them they did. Aldi quite literally slashed product lines in half. In doing so, they streamlined their operations and dramatically cut costs. But they also created a totally new shopping environment, free of choice overwhelm.
Australia to the land of liberty: Yellow Tail
Yellow Tail was founded by the Casella family, who moved from Sicily to NSW in the 50s. Their move between cultures gave them a unique perspective on how wines were viewed and consumed around the world. The status quo was to compete in terms of prestige and complexity. The Casellas made a shrewd realisation: not everyone cares.
Due to the chasm in reputation between French and Italian wines the family decided not to compete with thosewines on quality, complexity, or vineyard prestige. Instead, they presented their brand as fun and approachable and targeted a new type of wine consumer: Americans.
The foundation of Yellow Tail is laid on the premise of Blue Ocean strategy- avoiding the sharks of an overcrowded market and laying your fishnet where there is no one to scout. In Blue Oceans, demand is created rather than fought over.
Yellow Tail was able to identify and answer the needs of a specific and new market in the US by…
- Eliminating the exclusivity and elitism surrounding wines.
- Reducing the packaging costs their prestigious/luxury competitors were tied to.
- Raising the easy-drinking factor.
- Creating simplicity and accessibility in an intimidating market.
Yellow Tail is an even better example of how BOS offers ways to avoid major compromise. The price point is cheap, but crucially, not the cheapest. The brand didn’t have to go to that rock bottom, undercut competitors, or operate on tiny margins. Because they were creating a new and different type of value, or in other words: the cornerstone of the strategy, Value Innovation.
Yellow Tail also managed to become a leader in the wine market by creating new business opportunities.
It didn’t steal the market; it created a new one in the Blue Ocean the US provided. That’s what Blue Ocean Strategy is all about.
It’s not all fine wine…
Despite Yellow Tail’s roaring success, only 1 in 5 Aussie companies succeed overseas. We share similar advantages to the UK and US. We speak a common universal language. We have a large addressable home market to launch new business models into. We have excellent educational institutions and a driven, work-willing population. What are we getting wrong?
Firstly, even as the digital age bridges physical distances, we’re still a long way from the West. Many of our nearest neighbours are home to emerging economies as opposed to developed ones, limiting us to higher risk opportunities.
Setting up infrastructure across oceans is fraught with expense and complicated geographical logistics. As a consequence, Australian companies often pay above the odds for overseas acquisitions, leading to ruinous overspends.
Can Pink Oceans offer smoother sailing?
The Blue vs Red Ocean theory is of course binary. It implies there are no other seas for founders to charter, and no middle ground in between.
It’s also biased towards big corps. Dropping anchor in blue oceans is all very well and good if you’ve got a multimillion dollar R&D budget to invent new products and market them to brand new unfamiliar, unaware, and under-researched consumer segments.
But if you’re a bootstrapping young startup, you often have no choice but to swim with the sharks.
What if there was another option?
A pink ocean is a market where competition exists, but it’s not a bloodbath. Think a handful of small to medium sized companies who are all finding their way in something relatively new. It might not be multinational – it might not even be multi-regional. But it’s enough to carve a slice of the pie.
Pink Ocean coffee markets
A few years ago, it emerged that 95% of the 1 billion aluminium coffee pods produced a year were going to landfill where they were taking 500 years to decompose. Unwilling to take on Nespresso/Mr. George Clooney himself, a pool of sustainable coffee pod suppliers sprang up in London, including Halo and Grind to offer the conscientious consumer compostable coffee capsules (say it ten times fast).
The paper/bagasse-based capsule substitutes they came up with were a totally different product to the sleek, branded, composite aluminium Clooney-capsules. They stuck to the machine, they were soggy, there was an argument about whether they actually kept the coffee fresh. But people liked that they were trying to do better despite them being pricier (eliminating pollutive impact, reducing external packaging, raising the price point, creating a new material).
The brands found success in the calm pink waters adjacent to the shark infested aluminium coffee pod market.
Questions to ask when implementing your Blue (or Pink) Ocean Strategy
- Question every assumption ever made about your target segment.
- Question the size and scope of markets – are they really supporting the current supply?
- Are products you think are good actually good? Or are people just buying them because they’re there, or because there’s no alternative?
- Are potential customers buying things because they actually need or want them, or just because other companies have convinced them they want them? Are they just buying out of habit?
- Ask what you can be “more like” than the obvious industry your product relates to. Cirque du Soleil was more like a high-end broadway production than a circus. WeWork was more like a coffee shop than an office block. Can you straddle sectors? Can you bring an existing concept into a space where it hasn’t existed before?