With more than two million sold copies and translated into a record-breaking 42 languages, Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne is one of the absolute classics of strategy literature. The book of the two INSEAD strategy professors has inspired many companies to leave highly-competitive "red" markets and dive into new, not yet contested "blue oceans." In the past ten years since the publication of the book, however, the world has not stopped spinning, of course.That’s why Kim and Mauborgne have continued their research expanding their strategy model by one key issue.
Based on countless conversations with managers responsible for the implementation of market-creating strategies, they were able to identify one common factor that seemed to consistently undermine their efforts: "their mental models—ingrained assumptions and theories about the way the world works,” which subconsciously control their actions. The authors were able to distinguish six key assumptions that are firmly anchored in the minds of managers and that keep them stuck in red oceans. The authors refer to these as "red ocean traps:"
- Trap #1: Seeing Market-Creating Strategies as Customer-Oriented Approaches
In red markets, customer focus is rightly regarded as a competitive advantage. Every company seeks to work closely with its customers in order to satisfy their needs and wants better and faster than the competitors are able to. This assumption does not apply to blue markets, however, as market-creating strategies don’t aim to serve existing customers as best as possible, but rather to generate new demand. That is, to convert non-customers into customers. In order to be able to successfully develop blue oceans, Kim and Mauborgne argue, companies need to focus primarily on new customers and come up with innovative ways to address their needs.
- Trap #2: Treating Market-Creating Strategies as Niche Strategies
Focusing on a niche can be a very effective strategy, particularly for start-ups and small and medium-sized enterprises. However, “uncovering a niche in an existing space is not the same thing as identifying a new market space,” the authors say. New markets offer far greater potential. Therefore, successful market-creating strategies "desegment markets by identifying key commonalities across buyer groups that could help generate broader demand.”
- Trap #3: Confusing Technology Innovation with Market-Creating Strategies
Contrary to common belief, market creation is not necessarily all about technological innovation. Even if new products and services are based on technology, customers often don’t perceive it as central. What matters more is that new offerings are “simple to use, fun, and productive that people fall in love with them,” Kim and Mauborgne argue. As an example for this kind of value innovation, they mention the transportation network Uber, which merely uses common mobile technology to connect customers with drivers in an effortless way.
- Trap #4: Equating Creative Destruction with Market Creation
Disruptive innovation is considered by many managers and scholars to be the ultimate growth strategy. However, new demand can also be created without making existing technologies and products obsolete. Simply by offering solutions where none previously existed. Kim and Mauborgne also warn that disruptive innovations can cause considerable internal problems for companies, as employees often see their status and work places threatened by disruptive technologies causing them to undermine such efforts.
- Trap #5: Equating Market-Creating Strategies with Differentiation
Another common trap is to view market-creating strategies as synonymous with value differentiation strategies which offer high-quality products at equally high prices. This misconception often leads to companies merely becoming premium providers in already existing markets, rather than creating new markets. Blue ocean strategies try to achieve value and cost differentiation simultaneously by appealing to a broad range of customers with high-quality yet affordable products.
- Trap #6: Equating Market-Creating Strategies with Low-Cost Strategies
Trap six is the “obvious flip side” of trap five, the authors explain, as it causes companies to pay too much attention on cost reduction, thus neglecting value creation. Successful market-creating strategies combine both aspects. When it comes to price, they do not compete against competitors within the industry, but against substitute and alternative products non-costumers are currently using.
Customer focus, niche strategies, technological and disruptive innovations, and differentiation on quality or price alone—these are all proven and solid strategies, as Kim and Mauborgne acknowledge. However, companies following such strategies will succeed only in already existing markets. The blue oceans will be reserved for those players who are able to create really new, relevant value for broad masses of customers. Challenging assumptions and breaking out of old patterns of thinking is a key prerequisite in achieving this.
Kim, W.C., & Mauborgne, R. (2015). Blue ocean strategy: How to create uncontested market space and make the competition irrelevant (expanded ed.). Harvard Business Review Press.
Kim, W.C., & Mauborgne, R. (2015, March). Red ocean traps. Harvard Business Review. https://hbr.org/2015/03/red-ocean-traps