Blue Ocean Strategy By W. Chan Kim And Renée Mauborgne Business Plan Example
In the entertainment industry, one of Canada’s largest cultural exports is the Cirque du Soleil founded in 1984 that was centered on the production of circus street performances in some 90 cities around the world (Kim and Mauborgne 71). The company, however, experienced tragic loss during a long-term decline brought by the production of alternative forms of entertainment, such as television, video games, and sporting events. There was also the case of the animal rights, in which there was discouragement in the use and abuse of animals used in the field of entertainment. With the decrease of the audiences and the increasing costs, it was a challenge for Cirque to increase its revenues at a time when the environment was so unattractive, and people were not interested in circus entertainment.
For Cirque du Soleil, the answer lies on reinventing the circus. Instead of the use of competence within their specific industry, the company focused more on creating “uncontested market space” that seemed to ignore the need for competition. This strategy created a new set of customers who were prepared to pay more than the price of a conventional circus ticket, for them to experience a new form of entertainment. These are the blue ocean companies of the business industry, which pertains to the industries that are not presently existing. They cover an unknown market space that is uncorrupted by competition, and where demand is created through profitable growth and continuous sustainability.
There are two ways of creating blue oceans. First is by giving rise to completely new industries. Second is by creating it from the red ocean and then altering the boundaries of the existing industry, such as reflected in the strategy of Cirque, which they implemented to provide growth in their production. What they did was to break the boundary separating circus and theater, and then create a blue ocean from the red ocean of the circus industry. They distinguished the basic differences between the red ocean and the blue ocean, which others were not usually aware of, and then broke from the competition by creating a blue ocean, which did not center on competition but on creativity. The new systems designed have supported standardization and continuity by replacing the red ocean with the blue ocean, and then reinforced industry expansion that led to economic growth. Thus, blue oceans are said to be the “engine of growth” that supports and stabilizes technological advances for improved industrial productivity. This will therefore, permit the suppliers to produce a wider array of new products and services, which expands the industry all the more, while destroying niche markets and monopoly, until supply will begin to overtake the demand.
More so, as supply overtakes the demand, the commoditization of products and services increases, as it hinders fueled price wars and the shrinking of profit margins. In a blue ocean, there is therefore the tendency for company brands to be more similar, so that consumers would base their choices on price instead of the quality. Consumers will no longer stick to just one brand, such as in the past generation; rather, they perceive the brands in the same fashion and quality, by which differentiation would lie only on the price. This is witnessed in overcrowded industries, wherein the differentiation of brands become more difficult, as an effect of the economic upturns and downturns taking place in the industry.
When it comes to the strategic logic of blue oceans, there are four facts that distinguish the blue ocean strategy from the red ocean strategy. First, blue oceans do not pertain to technology innovation, since there are instances wherein blue oceans are not the result of technological innovation. There are times when the underlying technology already exists, such as what took place in the computer industry, in which technology was linked to what consumers valued most in products. Secondly, incumbents usually create blue oceans within their core businesses, such as in the case of IBM and Compaq, which were not new entrants but were already established in their specific industries. Incumbents, therefore, may be on the advantage side of creating new market spaces in the blue ocean, by creating them from within the red ocean. Thirdly, company and industry are said to be the wrong units of analysis, since there is no explanatory power residing in the blue ocean, and that there is no permanently excellent industry. The unit of analysis is set rather, on the strategic move of the company, or the set of managerial actions and decisions involved in creating a successful marketing industry. Fourth and final is the fact that, creating blue oceans will lead to the building of brands. A strategic move can create brand equity that is made to last for a number of decades, since one move can create a series of multiple blue oceans over time.
The blue ocean strategy reflects a couple of defining characteristics. First, blue ocean strategies never use competitions as the company’s benchmark. Second, it does not apply the fundamental tenet of conventional strategy that, there is trade-off between value and cost; rather, differentiation and cost can be pursued at the same time or simultaneously. This is seen in the history of Cirque du Soleil, wherein instead of following the logic of benchmarking and maximizing shares, they centered more on redefining the problem. They began offering customers with greater benefits and more entertainment that differentiated them from other companies, while decreasing the overall cost used in benchmarking. After such time, Cirque du Soleil realized that the lasting allure of the traditional circus focused on three things: (1) the clowns, (2) the tent, and (3) the classic acrobatic acts (Kim and Mauborgne 76). Thus, they centered on renovating these factors, for the customers to have a more enriched experience. Clowns became more enchanting. Tents were made to be more glamorized. More intellectual element were added to the classic acrobatic acts. There was new magic in the circus, and it recreated the experience inimitable in the theater world.
Kim, W. Chan, and Renée Mauborgne. “Blue Ocean Strategy.” Harvard Business Review, October 2004: 69-80. Print.