Blue Ocean Strategy

Blue Ocean Strategy is a concept that refers to creating new markets or uncontested market spaces, making the competition irrelevant, and creating new demand. The premise of this strategic framework is that businesses should focus on creating new markets rather than fighting over existing ones. To use the Blue Ocean Strategy to create a new market and deliver value to customers, you need to follow the four principles of the strategy:

1. Focus on the big picture, not the numbers
2. Reach beyond existing demand
3. Create and capture new demand
4. Make the competition irrelevant

W. Chan Kim and Renée Mauborgne, professors at INSEAD, a leading international business school in Fontainebleau, France, developed the Blue Ocean Strategy framework in the early 2000s. Their book, “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant,” published in 2005, introduced the concept to the world. The authors argue that businesses should seek out “blue oceans” of uncontested market space rather than competing in “red oceans” where there is already intense competition.

We can illustrate each of the four principles of the Blue Ocean Strategy with real-world examples:

1. Focus on the big picture, not the numbers: This principle involves looking beyond the existing market and finding new ways to create customer value. Cirque du Soleil is an example of this principle. The customers and experts saw the circus industry as outdated and declining. Still, Cirque du Soleil created a new market by combining circus acts with theatre and music, targeting adults rather than children. They focused on creating a unique and artistic experience rather than the traditional circus that relied on animals and clowns.
2. Reach beyond existing demand: This principle involves looking beyond the current market and identifying new customers. The Nintendo Wii is an example of this principle. Sony and Microsoft dominated the gaming industry. However, Nintendo created a new market by focusing on casual gamers and families rather than hardcore gamers. They developed a motion-controlled console that was easy to use and attracted new customers to the gaming industry.
3. Create and capture new demand: This principle involves creating new demand by offering new products or services. Uber is an example of this principle. They created a new market by offering a ride-hailing service that was convenient, affordable, and accessible through a smartphone app. They captured new demand by offering a service that was not previously available and provided a better customer experience than traditional taxi services.
4. Make the competition irrelevant: This principle involves creating a new market where competition is irrelevant. Apple’s iPod is an example of this principle. They created a new market for digital music players. They dominated it by integrating hardware, software, and online music distribution. They made the competition irrelevant by creating a unique and integrated product that took more work to replicate.

Southwest Airlines is a real-world example of a company that used the Blue Ocean Strategy. They created a new market by offering low-cost, no-frills air travel that appealed to a new customer segment. They made the competition irrelevant by focusing on secondary airports that were less congested and more convenient for customers. They also offered a point-to-point network that eliminated the need for connecting flights and reduced travel time. As a result, Southwest Airlines created and captured new demand by offering affordable air travel to a new market segment that the airline industry previously underserved.

Southwest Airlines, a renowned American airline, provides a textbook example of a company that successfully implemented the Blue Ocean Strategy to disrupt the aviation industry. Southwest Airlines created a new market by crafting a unique business model that combined low-cost, no-frills air travel with unparalleled convenience and efficiency. They redefined the competitive landscape in the process.

Before Southwest Airlines entered the market, the aviation industry was characterized by high operating costs, luxurious amenities, and a hub-and-spoke network. Traditional airlines focused on offering passengers a comfortable and luxurious travel experience, often at the expense of affordability. Consequently, this experience limited air travel to a select group of customers willing and able to pay premium prices for these services.

Identifying an opportunity for differentiation, Southwest Airlines established a new market catering to an underserved segment: price-sensitive customers who prioritized affordability and convenience over luxury. Southwest Airlines adopted several innovative strategies that distinguished it from the competition to achieve this goal.

Firstly, they stripped away the frills associated with traditional air travel, such as in-flight meals, seat assignments, and baggage fees. By eliminating these non-essential services, Southwest Airlines was able to reduce operating costs and pass the savings on to customers in the form of lower fares. In addition, this move attracted budget-conscious travellers who were previously unable to afford air travel or had to compromise on other aspects of their trips to accommodate expensive flights.

Secondly, Southwest Airlines focused on serving secondary airports, often less congested and closer to customers’ final destinations. This strategy allowed the airline to avoid the high fees associated with operating from major airports and reduce turnaround times for their aircraft. As a result, Southwest could offer more frequent flights and lower fares while maintaining operational efficiency. This approach attracted new customers and benefited those living in smaller cities, who now had more convenient access to air travel.

In addition, Southwest Airlines implemented a point-to-point network, in contrast to the traditional hub-and-spoke model used by other airlines. This strategy eliminated the need for connecting flights, reducing travel time and the likelihood of delays. Passengers enjoyed the convenience of direct flights and appreciated the reduced risk of missed connections, lost luggage, and other travel-related hassles.

Southwest Airlines also fostered a strong company culture emphasizing employee empowerment and customer service. In addition, the airline’s focus on maintaining a motivated workforce contributed to higher customer satisfaction. Employees were encouraged to take ownership of their work and go the extra mile to ensure a pleasant travel experience for passengers.

These innovative strategies allowed Southwest Airlines to create and capture new demand, as they effectively expanded the market for air travel by making it accessible to a broader customer base. As a result, Southwest Airlines became the pioneer of the low-cost airline model, inspiring numerous other carriers to adopt similar strategies to pursue a share of the lucrative blue ocean that Southwest had created. The company’s success is evident in its rapid growth and sustained profitability, as it has consistently outperformed many of its competitors in the industry.

Moreover, Southwest Airlines’ Blue Ocean Strategy has had a profound impact on the aviation industry as a whole. The introduction of affordable, no-frills air travel forced traditional airlines to reevaluate their business models and seek ways to reduce operating costs and offer more competitive fares. This shift led to the emergence of the low-cost carrier segment, which has since become a significant force in the industry, transforming how people travel and democratizing air transportation for millions of customers worldwide.

Southwest Airlines is a prime example of a company that successfully applied the Blue Ocean Strategy to create a new market and render the competition irrelevant. By offering low-cost, no-frills air travel that appealed to a previously underserved customer segment, focusing on secondary airports for increased convenience, and implementing a point-to-point network to eliminate connecting flights and reduce travel time, Southwest Airlines revolutionized the aviation industry. In doing so, the company has captured significant market share and spurred innovation and transformation across the entire sector, proving the power and potential of the Blue Ocean Strategy in a real-world context.

Blue Ocean Strategy can help businesses create new markets and deliver customer value by focusing on the big picture, reaching beyond existing demand, creating and capturing new demand, and making the competition irrelevant. By following these principles, businesses can find new ways to create customer value and differentiate themselves from competitors.