Companies that adopt similar strategies compete head-to-head.
Markets that aren't growing with a lot of head-to-head competition are "Red Oceans".
Companies should adopt highly differentiated strategies in order to grow the market and create "Blue Oceans".
A highly differentiated strategy means to do certain things much better than your competitors at the expense of not doing certain other things. The strategy must still make bottom-line sense.
Corporate strategy is commonly modeled after military strategy, which is typically a zero-sum head-to-head battle. However, this framework is too narrow for business, where greater value can be created by developing new, uncontested market space.
Value innovation is the cornerstone of Blue Ocean Strategy. It means to give customers a better utility+price proposition without substantially raising costs. The way to do this is to cut high-cost / low-value features and add high-value / low-cost ones while maintaining an integral overall offering. This results in a highly differentiated offering vs. competitors.
A strategy canvas is a graph of the main factors an industry competes on (on the horizontal axis), and how highly customers perceive these factors (on the vertical axis). A line for a company (or product) across this graph is called a value curve.
Four-actions framework:
1. Eliminate features people don't care about, or that have been taken for granted by the industry.
2. Create features the industry has never offered.
3. Reduce factors that are being over-served to customers.
4. Raise factors to eliminate compromises customers are forced to make.
Symptoms:
1. If its value curve converges with competitors, then a company is caught in a red ocean.
2. If the value curve is high across the board, then a company may be over investing with diminished payback
3. If the value curve is incoherent, then this may be due to lack of clear strategy
4. If the value curve is inconsistent, where supporting factors are much lower than others, then the strategy may be misaligned.
5. If the labels for factors used by a company aren't the same as what customers perceive, the company may be too internally focused.
Six paths
a. Look across alternatives:
i. Consider alternatives to a product in addition to just substitutes. e.g. restaurants and movies are alternatives for enjoying a night out
ii. The key is to deliver exceptional value, but value as defined and perceived by the customer.
b. Look across strategic groups:
i. Strategic groups are clusters of products with similar price and performance ranges, e.g. "budget cars" vs. "luxury cars". Most companies compete within strategic groups, but blue oceans can be created by competing across them.
c. Look across the chain of buyers:
i. Consider users, purchasers, and influencers
d. Look across complementary products and service offerings
i. E.g. Maintenance costs vs. the purchase cost
ii. E.g. The shopping environment vs. the price of items
e. Look across functional or emotional appeal
i. Emotionally oriented industries can save costs by being more functional, while functionally oriented industries can induce demand by appealing emotionally to buyers
f. Look across time:
i. Identify dominant trends and project how they will affect the value proposition to customers.
There's nothing like seeing something for yourself. e.g. Michael Bloomberg's realization that traders needed analytics with their data from watching traders work on the floor.
Extend beyond customers to non-customers. e.g. Cinema Kinepolis offfered on-site child-care to attract parents.