What is Blue Ocean Strategy? How to create a Monopoly in your Business?
Ever wondered why your Business is not making enough profits? Why the world of Business always seems an Unconquerable feat? Why do you’ve to discount your products before selling them?
This is a very detailed article on an exceptionally well-documented business strategy, Blue Ocean Strategy. This strategy’s implementation will allow you to solidify your business in the market and distinguish your own brand from other competing products in the market.
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This article is based on the following book:
What is Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant
What is Blue Ocean Strategy or Blue Ocean Shift?
Blue ocean strategy, also referred to as Blue Ocean Shift, is a marketing strategy where there is a single firm selling a differentiated product or there can be very few firms selling products that are differentiated in the market. Also, as there is no competition, there is no pricing pressure because of lack of competition in the market.
In the Blue ocean, the market is Uncontested, ie. Unoccupied. It may also mean that upon the arrival of the New Disruptive firm, the existing players will be rendered outdated or irrelevant. However, creating an Uncontested market space is not easy, for the fact it requires massive capital investment or a transformative innovation in the product or the service.
There is also a Follow-up book on Proven strategies to be applied by a Business to Establish a Blue Ocean Shift in the market:
What is Blue Ocean Shift: Beyond Competing – Proven Steps to Inspire Confidence and Seize New Growth
What is Red Ocean Strategy or Red Ocean Shift?
Red Ocean strategy is a marketing strategy where there are a large number of firms selling closely related or even homogenous products. Because of similar products, the firms in the Red Ocean also face pricing competition from the other existing firms to drive up their Business Revenues.
The market in the Red Ocean is already saturated, ie. Occupied. Thereby, meaning that a lot of competition already exists in the market. Any new firm cannot expect Abnormal Profits even in the long run. The scope is there for normal and minimal profits that can be expected in the short run.
Therefore, it is a must for any Entrepreneur to balance the two aforementioned situations to make the best of the newly found opportunity in the market.
Another book I recommend to Stay Ahead of the Traps in the Red Ocean Market by the author of all Blue Ocean Strategy is:
What is the Difference between Red Ocean Strategy and Blue Ocean Strategy?
To illustrate the difference between the Blue Ocean Strategy and Red Ocean Strategy, I’ve made an Infographic that lucidly explains the 6 vital differences between a red ocean market and a blue ocean market:
- Red Ocean Strategy focuses on Competing in the existing market space with the current firms. If a firm wins a customer, it’s automatically assumed that other firms have lost a prospective customer of that industry. Whereas a Blue Ocean Strategy focuses on creating uncontested or new market spaces. It aims to add new customers to the industry by creating a new product for the existing industry or differentiating the current product in such a way that new customers are attracted to that industry. In a blue ocean, if a prospective customer buys a product, it’s automatically the new firm’s win.
- In a Red Ocean, firms try to beat the competing firms by lowering the price or playing several ‘traditional’ tactics, whereas, in a Blue Ocean, a firm differentiates its customers from all other players in the market. That is, making the competition irrelevant.
- A red ocean strategy is focused on exploiting the existing demand driven by the existing customers in the market whereas a blue ocean strategy aims to create new demand and capture it by leading the innovation in existing products.
- The mindset in a red ocean market aims to make a Value Cost trade-off, that simply put is the fall in value offered by the product due to the lower cost of the product. However, in a Blue Ocean Market, a product is assumed to carry new characteristics and features that allow it to break the value-cost trade-off and place itself apart from the rest.
- Lastly, a firm following the Blue Ocean Strategy has to have greater intellectual power or financial leverage in order to add new features or characteristics to the product so that it renders the existing products irrelevant. This requires a higher initial investment, usually done by larger firms (Best example being Reliance investing heavily into R&D of Jio‘s 5G Technologies or Patanjali investing heavily into R&D for creating Ayurveda based Consumer goods). This is by far the biggest advantage of firms following the Red Ocean Strategy. That is, they require lesser initial investments to enter the market.
How to create a Blue Ocean Strategy? How to move your Business from Red Ocean to Blue Ocean? How to create an Uncontested Market Space?
A Blue Ocean Shift is created in one of the following two ways:
- Either create a product so unique by innovation and major upgrades in Technology used rendering other available products outdated or too inefficient to be used by new customers.
- Or, disrupt the existing market in which you’re selling your product by Technological Upgradation or Monetary Barriers such as extremely low Proft competition. (eg. Walmart, D-Mart(Indian) are the big FMCG firms that purchase their products in such large quantities that allow them to price their products so low that render the existing competitive products costlier for the value.
This methodology is known as Entry Barriers. A Blue Ocean shift is created by placing Entry Barriers on the existing firms in the market.
How to create Entry Barriers in your Industry? How to apply the concept of Blue Ocean Strategy in your Business
Below given are some examples by which Entrepreneurs can make use of the concept of Blue Ocean Strategy in their own businesses. All the points may not be applicable to all the business owners, but would definitely give the Entrepreneur an Analytical and Innovational edge over the industry:
- Massive Capital Investment – By investing a massive amount in a business, a businessman would render the small traders weak or gentle in the amount of their impact. Massive capital investment is also led by an investment in the Technologies of the business, thereby, limiting your competition to only a few industry leaders.
- Technological Upgradation – By leading a huge technological innovation, an Entrepreneur would render the existing products or services inefficient.
- Intellectual Property Protection – By protecting the Intellectual Property of your own Business, you’ll
- Apply for Patents and Licenses – Patents and licenses limit the amount of supply for 10 years, thereby, allowing the innovator to bag the profits for the due risk taken by him in the research and development of the new product or the service.
- Create an Excellent Distribution Strategy for own Product – You may provide the sellers of the existing product more margins, better services or even more ways to monetize themselves by promoting your product.
- Get exclusive rights to sell any product or service – By exclusive rights, we mean a situation where a businessman can get awarded the Exclusive rights to sell a physical product or to distribute a particular service.
- Build Brand Image by Advertising your Products in the Right Manner – If a businessman is assured of the fact that the product being offered is equal to or better than the current in the industry, he/she can advertise the product as the Default or Obvious choice for that product.
- Raise loyalty among your customers. Deliver awesome product, then build an emotional trust between your product and them. This trust is very important as it can save a failing company due to competition.
- Provide Excellent Customer Service and Feedback. Irrespective of the product you sell. This entry barrier Easiest of all to create and can even be implemented by even small Businessmen or traders.
For those of you who’d like to increase their knowledge and learn about the subject of Economics, I recommend you all to go through this wonderful book on the Application of Economics in our day to day life by IIM-Ahmedabad professor Satish Y. Deodhar:
Demand Restrictions for creating a Blue Ocean Market
What most new firms focus on is the creation of a product or a service that will render the existing products irrelevant. That is important, but what is ignored by the most is that not analyzing the demand for the new product correctly.
- If the demand is way too high and the newly introduced product or service is not patented/licensed, the Blue Ocean market condition will arise for a short period of time. After that, existing firms and new entrants to the industry would notice the drift in demand, thereby, Transitioning the newly formed Blue Ocean into a Red Ocean again.
- If the demand is way too low, then, despite the fact that newly launched product is unique, it won’t be able to last for long in the market due to lower profits.
Difference Between a Monopoly Market and a Blue Ocean Shift
- A Monopoly market situation is created when there exists a single seller in the market, selling differentiated products without any close substitutes. A monopolist is provided of Exclusive Rights to sell the product/ service by the government in terms of licenses, the access to important resources, high upfront initial costs or innovation led by patents. A huge advantage that a monopolist has the fact that he/she faces no competition from the market in terms of pricing. He/She can price the products according to own wish but up to an extent which maximizes the reach of their product or service and which provides the Monopolist with the highest profits.
- A Blue Ocean Market is also similar to a monopoly market but the difference lies in the fact that most of the times a Blue Ocean can fade into a Red Ocean Market as the entrants into the newly contested market fills up. A Monopolist is expected to have a larger control over the investments, resources or licenses that the period of duration of a monopoly is very long said, 10-50 years, or even higher. (Eg. DeBeers company of South Africa controls about 80% supply of diamonds in the world). A blue ocean market is prone to a limited time frame due to the scarcity of required innovation. The amount of innovation which sets apart a new product from the rest is very rare.
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Real Life Examples of Companies pursuing Blue Ocean Strategy
I know creating an Uncontested market space is difficult, but when we open our eyes to one of the Biggest Firms operating in the world are essentially operating as Blue Oceans.
I’d also like to add a piece of information that there can never be any business or a firm who Fully operates in the Blue Ocean. There will be a slight mix of Red Ocean as well. As it doesn’t matter how unique your product is, it can be imitated to a large extent.
1. Reliance Jio – Telecommunications Sector – India
The biggest example of a Blue Ocean Shift in India is the disruption done by Reliance Group led Jio in the Telecommunications sector. Jio created a Blue Ocean shift by:
- Investing a massive sum of $40 Billion ie INR 2,50,000 lakh crores.
- That too, in Newly established 4G/5G LTE Technology
- And pricing competitively their services, thereby rendering the existing Telecom 3G services providers such as Vodafone, IDEA, Tata Indicom, Docomo, Uninor, Airtel outdated and inefficient.
- The price per GB of data has fallen rapidly due to the massive technological advancement led by Jio. In India, Jio offers mobile data at a price of Rs 3-5/GB that is equivalent to 15 GB of data per US Dollar!
- Jio has currently 215 Million subscriber base.
2. Walmart Stores / D-Mart Stores – Fast Moving Consumer Goods Industry – USA / India
Another great example of Blue Ocean Strategy applied by firms across Globe is using the Power of Economies of Scale.
- Stores like Walmart and D-Mart use the power of their Massive Investment size to heavily discount products and to pass on that benefit to customers. Thereby, selling goods at such a low cost that allows them to set apart from the competition.
- Integration of required Technology in retail stores like Barcode integration allows them to track their inventory levels and order products as soon as they’re low on stock of daily supplies.
- Excellent logistics and supply chain management is also practised by these stores.
- Red Ocean vs Blue Ocean Image
- Recommended books for reading:
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