By W. Chan Kim, Renée Mauborgne   |    3 min read


By W. Chan Kim, Renée Mauborgne
 3 min read

At a time when the circus industry has left its golden years behind, how has a small show group named Cirque du Soleil managed to turn into one of the world's most profitable entertainment companies? The answer is simple. Cirque du Soleil did not try to compete. It created a new marketplace that rendered competition insignificant. By combining theater and circus, it attracted a new customer group: adults...

The award-winning book “Blue Ocean Strategy” is based on this premise: “The only way to beat the competition is to give up trying to beat the competition.” Imagine a marketplace made up of two types of ocean: red and blue oceans. Red oceans is the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Cutthroat competition turns the ocean bloody. Blue oceans is the unknown market space. Cirque du Soleil sailed into a blue ocean, rather than trying to grab a share in the circus market with colossal hundred-year-old circuses. Companies must go beyond competing.

Go back 30 years in time. How many of the current oceans existed? Mobile phone, notebook, snowboard, social media, express courier, Internet access service... Now, go 30 years forward in time and ask yourself how many industries there will be. If history tells us anything, there will be many...

A study of 108 companies reveals that only 14 percent of the new products and services belong to the blue ocean. However, this 14 percent made up of the 61 percent of the total revenues created. The most crucial goal of business life is to find the blue oceans that bring strong and profitable growth.

Companies squeezed in the red ocean followed the traditional approach and tried to gain a foothold in the competition by building a defensive line current industries. Meanwhile, creators of the Blue Ocean embraced a different strategic approach: value regeneration. When the value of the service or product is regenerated, competition becomes meaningless, and a new marketplace is created without rivalry. You can't avoid competition when value is created without innovation. Meanwhile, when innovation is created without value, the result is a technological product which is not useful and for which the customer is not ready to pay.

Basically, value regeneration is done in two stages: bring down costs and increase the value for the buyer. Cirque de Soleil has created a higher-value service that is a combination of theater, circus, and bale, all the while eliminating many high-cost and low-benefit features of the century-old industry.

So, how do we create a blue ocean? As we studied companies in all corners of the world, we have developed an analytical framework: strategy canvas. Let's explain it while looking into the wine industry. First, ask this question. What elements are companies in the industry focusing on in order to sell more? The price of wine... appeal of the bottle and label... advertising and marketing... aging period... prestige of the vineyard... richness of flavors... and diversity of the wines. Let's put these elements in a graphic. Then place the producers in the market on the graphic. You will see a similar trend for all producers of high quality or cheap wines. Meanwhile, Casella Wines company took a whole different approach. The company realized that American customers were tired of the wines' flamboyance, flavor complexities, and diversity. The Yellowtail pale ale it produces was a cocktail-type fun drink but has a wine at its core. While minimizing many elements, it created three new ones: easy-to-drink, easy-to-choose, and fun. And the result... In 2003, it became the top-selling wine in the 750 ml category in the U.S. The same goes for the aviation and circus industries. Strategy canvases of the revolutionary Southwestern Airlines and Cirque du Soleil... The act of creating a blue ocean by breaking off from the traditional market.

This four-action framework is applied to regenerate value when creating a blue ocean:

• Which elements that the industry unequivocally accepts should be eliminated?

• Which elements should be taken well below the industry standard?

• Which elements should be taken well above the industry standard?

• Which elements that the industry strictly does not offer should be created?

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