Int

BM & HRM 2020-22 | Session 16

Blue Ocean Strategy

APALAK KHATUA, Email: apalak@xlri.ac.in

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 Strategy: All about Competition?

• Competitive Advantage
– Outperform rivals and capture
greater shares of existing market
space

• Unfortunately competitive strategy is

similar to military strategy
– Limited terrain
– Need to beat an enemy to success

• What about creating new market

space that is uncontested?
I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 Option 1: Traditional Competitive Strategy

• Red oceans: all industries in existence = known market space

– Industry boundaries defined and accepted
– Competitive rules of game known
– Companies try to outperform rivals; cutthroat competition
– As market space gets crowded, prospects for profit and
growth reduced
– Products become commodities
– Red ocean strategy is a market-competing strategy

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 Option 2: New Market Space

• Blue oceans: all industries not in existence à unknown market

space
– Undefined market space, demand creation, opportunity for
highly profitable growth
– Most are created from within red oceans by expanding
existing industry boundaries
– Rules of game waiting to be set
– Competition irrelevant
– Blue ocean strategy is a market-creating strategy

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
The Case of Cirque du Soleil!

• What is Cirque du Soleil?

• Red Ocean Strategy was:

– Benchmarking the
competition
– High-profile “stars”, which
increased costs but who were
largely unknown to the
general public
– Traditional venue
– Traditional audiences

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 What so unique? Blue Ocean Strategy?

• Effectively combined the best of both the circus and the

theater while eliminating everything else - retention of
the symbolic and glamorous aspects of circus, such as the
tent and the more breathtaking aspects, such as acrobats

• Incorporation of more comfort, sophistication, elegance

and theatrical plots; this brought not only the richness of
theatre but a whole new demographic of customers - So,
appealed to both circus customers and noncustomers

• Each show, like a theater production, had its own unique

theme and storyline - This allowed customers to return to
the show more frequently

• Created a new market space!

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 Blue Ocean Strategy ?
• 1908: The Model T
• More than 15,000,000 Model T's were
built and sold
• Henry Ford called the Model T- the
universal car, a low-cost, reliable vehicle
that could be maintained easily and could
successfully travel the poor roads of the
era
• Handmade luxury cars were $1500
• Horse-drawn carriages were $400!
• Introduced with a price tag of $850 and
later sold for as little as $260

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 TATA’s Nano Car

Target industry? 4 wheeler or 2 wheeler?

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
The Impact of Creating Blue Oceans
The Profit and Growth Consequences of
Creating Blue Oceans
Red Oceans Blue Oceans

Profit Impact 39 61

Revenue Impact 62 38

Business Launch 86 14

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 Although the term may be new, but

BLUE OCEANS have always been with us

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 Look Back 30/40 years…

Let us find which industries known today were then unknown…

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 Red Ocean or Blue Ocean Strategy?
Red Ocean Strategy
• Competing in existing market
space
• Beat the competition
• Exploit existing demand
• Make the value/cost trade-off
• Align the whole system of a
company’s activities with its
strategic choice of
differentiation ‘or’ low cost
I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
Blue Ocean Strategy
• Create uncontested market
space
• Make the competition
irrelevant
• Create and capture new
demand
• Break the value/cost trade-off
• Align the whole system of a
company’s activities in pursuit
of differentiation ‘and’ low
costs
 Types of Competitive Advantage

Willingness to pay

Supplier opportunity cost

Industry Successful Successful low- Competitor

Average Differentiated Cost Competitor with dual
Competitor Competitor advantage

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
Blue Ocean Strategy: Value Innovation

Costs

Value
Innovation

Buyer Value

The Simultaneous Pursuit of Differentiation and Low Cost

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
BOS: Analytical Tools and Frameworks

1. Strategy Canvas

2. Four Actions Framework

3. Eliminate-Reduce-Raise-Create Grid

4. Three Characteristics of a Good Strategy

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 The Case of [yellowtail]

• American wine industry was 3rd largest in world: worth $20

billion
• Californian makes 66% - the rest is from Italy, France, Spain,
Chile, Argentina, Australia
• Exploding number of new wines with a stagnant customer base
• Top 8 producers had 75% of the market; 1600 had the remaining
25%
• Intense competition, huge marketing expenses, severe price
pressure
• The dominant growth strategy was towards premium wines –
more complexity, better image, more prestigious vineyards,
number of medals won at wine festivals.
I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 [yellowtail]

• Casella saw that most US consumers preferred beer, spirits and pre-
packaged cocktails to wine
• Consumers saw wine as a turn-off due to
– It was pretentious
– The taste was too complex
– It could be intimidating
• To differentiate yourself in the market place, you must focus on
alternatives and non-customers to re-define the marketplace
• For example, Casella Wines looked at the Strategy Canvas and
redefined the question: How do you make a fun and non traditional
wine that is easy for everyone to drink?

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
Strategy Canvas for US Wine Industry
High

Premium Wines

Budget Wines

Low
Price Above-the-line marketing Vineyard prestige Wine
range
Use of enological terminology Aging Wine complexity
and distinctions in wine quality
communication

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 Four Actions Framework
REDUCE
Which factors should be
reduced well below
the industry’s standards?

ELIMINATE A New CREATE

Which of the factors that Which factors should be
the industry take for granted Value created that the industry
should be eliminated? Curve has never offered?

RAISE
Which factors should be
raised well above
the industry’s standard?

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
ERRC Grid for Yellow Tail
(Eliminate-Reduce-Raise-Create)

Eliminate Raise

Enological Terminology Price versus budget wines

Aging qualities Retail stores involvement
Above-the-line Marketing

Reduce Create
Wine complexity Easy drinking
Wine range Ease of selection
Vineyard prestige Fun and adventure

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 A New Value Curve for Yellow Tail
High

Premium Wines

Budget Wines

CREATE
RAISE
Low REDUCE
Price
ELIMINATE
Above-the-line
marketing
Vineyard
prestige
Wine complexity
Wine
range
Ease of
selection
Fun and
Use of enological Aging Easy
terminology and quality drinking adventure
distinctions in wine
communication

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 [yellowtail]

• Only 2 types initially – Chardonnay and Shiraz

• Same bottle for red and white – low logistics costs
• Simple vibrant packaging – lower case letters/kangaroo
• Un-intimidating - Appealed to beer and spirits drinkers
• Fruity, soft on palette, sweetish – great for those who had not
drunk wine before
• They were selling “The essence of a
great land … Australia”
• Australian clothing for the retail staff –
they enthusiastically promoted a wine
they could understand.

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
ERRC Grid for Cirque du Soleil

Eliminate Raise
Star performers Unique Venue
Animal shows
Aisle Concession sales

Reduce Create
Theme
Fun and humor Redefined environment
Thrill and Danger
Multiple production
Artistic music and dance

I N T E R N A T I O N A L M A N A G E M E N T . A P A L A K K H A T U A26
 Strategy Canvas: Cirque du Soleil
High
Ringling Bros. & Barnum & Bailey

Cirque du Soliel

Smaller
Regional
Circuses

Low
Price Animal Multiple Thrill and Theme Multiple
shows show challenge Production
Star Aisle arena Fun and Unique Refined Artistic
performers concessions humor venue watching music and
environment dance

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 NetJets: Fractional aircraft ownership

High
Private Jet
Corporate travel

Commercial Airlines
First and Business-Classes travel

Low
Price (fixed Need for customer Deadhead costs Speed of total Ease of travel Flexibility and In-flight
purchase + to manage aircraft travel time (include. Check- reliability service
variable price (Aircraft M&A) in, customs, etc.
per flight)

I N T E R N A T I O N A L M A N A G E M E N T . A P A L A K K H A T U A28
 Three Characteristics of a Good Strategy

1. Focus - not diffused across all potential aspects of the market

2. Divergence - The shape of the value curve diverges from any

potential competitors

3. Compelling Tagline - It should have a compelling tagline

– [yellowline]: The essence of a great land … Australia
– Southwest Airlines: The Speed of a plane at the price of a
car – whenever you need it

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
 Strategy Canvas: Southwest Airlines
High

Average Airlines

Car Transport
Low
Seating class Hub Friendly Speed Frequent Point-to-
Price Meals Lounges point departure
choice connectivity Service

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
For Further Reading ...

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A
Blue Ocean Strategy: A tool for
analyzing Adaptation strategy?

I N T E R N AT I O N A L M A N A G E M E N T . A PA L A K K H AT U A