IIM TRICHY
BLUE OCEAN STRATEGY
PREETI ADMANE 1201037
7/7/2013
BLUE OCEAN STRATEGY
WHAT IS BLUE OCEAN STRATEGY? Given a choice, where would you rather be swimming in shark-infested waters or in a serene blue ocean? That is the choice companies have to make. The idea here is surviving competition or identifying a niche in which to thrive in and where competition becomes irrelevant. The metaphor of red and blue oceans describes the market universe. A slang term for the uncontested market space for an unknown industry or innovation. Coined by professors W. Chan Kim and Renee Mauborgne in their book "Blue Ocean Strategy: How to Create Uncontested Market Space and the Make Competition Irrelevant" (2005), blue oceans are associated with high potential profits In an established industry, companies compete with each other for every piece of available market share. The competition is often so intense that some firms cannot sustain themselves and stop operating. This type of industry describes a red ocean. The red ocean represents the existing market space. Companies in red oceans most often pursue competitive-based strategies, aiming to get a bigger share of the market from their competitors - thus the bloody competition - red ocean metaphor. This approach is called the structuralist view of strategy, meaning that companies adapt their behavior (strategy) to the existing industry's conditions. However, this approach is limited. Due to globalization, lowering cost of production and availability of information, the competition is fiercer some than ever in most industries, putting more pressure on companies and shrinking their profit margins. In this competition race, products and services tend to become commoditized much faster. To avoid costly competition, firms can innovate or expand in the hope of finding a blue ocean. A blue ocean exists where no firms currently operate, leaving the company to expand without competition With competition existing markets (red ocean) becoming more intense, many business are seeking opportunities in new geographies. The only way to beat the competition is to stop trying to beat the competition A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. The blue oceans are new markets created by companies following conscious strategic decisions. The creation of a new market space gives companies a natural monopolistic position, which the company can take advantage from. This is called the reconstructionist view of
strategy, meaning that companies recreate the boundaries of an industry (which are mental barriers, anyway), as a result of the strategy they pursue. However, Blue Ocean Strategy does not encourage companies to behave monopolistically, as it will hurt them in longer term. Instead, companies must price their service/product strategically, to win a mass of buyers, which results in a win-win situation for the buyers (value proposition), for the company (profit proposition) and for the employees (people proposition)
Competitive-based strategy
Blue Ocean Strategy
Compete in existing market space Beat the competition Exploit existing demand Make the value-cost trade-off Align the whole system of a firms activities with its strategic choice of differentiation or low cost
Create uncontested market space Make the competition irrelevant Create and capture new demand Break the value-cost trade-off Align the whole system of a firms activities in pursuit of differentiation AND low cost
So based on above information I think we should go for blue ocean strategy. If it works it is going to generate profits for us. In business we need to take risk as there is no other better way to achieve success.
EXAMPLE OF BLUE OCEAN STRATEGY IN INDIAN CONTEXT: PARAS pharmaceuticals has grown over the years by creating a new category of products altogether. They created market segment which no could thought of. They came up with following products: 1. Moov : for those who are suffering from backpain. There was nothing specially for backpain. & Paras came up with exclusive product 2. Livon 3. Lipguard 4. Itchguard 5. Dermi cool All these products were introduced in very different segment. All these products are doing very well in the market & have substantial market share in those categories.
