Dare to Innovate Your Service Business: Blue Ocean Strategy Guide With 3 Examples
What is the Blue Ocean Strategy?
Blue ocean strategy is a business-level strategy coined by professors W. Chan Kim and Renee Mauborgne after they analyzed over 150 winning and losing strategic moves in retail, airline, automobile and other industries.
By definition, it's a simultaneous pursuit of low cost and offering differentiation to create new market space and demand.
Blue ocean strategy equips your coaching practice with analytics tools and frameworks to create uncontested markets that are:
- Deep relative to growth and profitability — just like a blue ocean.
The strategy enables service businesses to achieve sustainable competitive advantage by inviting you to completely redraw your market boundaries to:
- Create value for clients.
- Break away from the “group think” that your industry competition is likely still operating from.
With this strategy, you can let go of trying to outsmart or outprice your industry competitors. Instead, you’ll be able to reconceptualize your coaching, consulting, and training offers into a new, compelling value proposition.
Principles of blue ocean strategy
Blue ocean strategy is based on:
- Creating new markets where competition is irrelevant by redrawing market boundary lines.
- Value innovation (thinking beyond the usual concepts of value generation and delivery).
- Creating new demand and meeting the same in new markets.
- Sequencing the practice’s strategic approach to generate new markets.
The dynamic nature of blue ocean strategy
When you create a blue ocean as a coach or consultant, you should swim as far as possible into different waters. You want to leave your imitators lagging as far behind you as possible for as long as possible.
The goal is to protect your surrounding area and prolong your first-mover advantage.
When you notice any signs of competition, it’s time to create new blue oceans to keep enjoying the "first mover" advantage. Hence its dynamic nature.
Red vs. blue oceans: What’s the difference between red and blue ocean strategies?
In the business universe, there are red oceans and blue oceans.
Red oceans designate the existing or known market — including all the industries in existence. In this ocean, the industry boundaries and competition rules are well-defined and accepted.
Here, competition is fierce as existing players try to outdo each other. Services become more commoditized, and the cutthroat competition turns the market bloody. Hence the name "red" oceans.
Competition is based on:
- Quality of services
- Customer service
Red oceans are characterized by:
- Large markets
- Low innovation rate
- Known set of rules
- Fierce competition
- Reduced profit and growth
- Replicated and refined services
Red vs. blue ocean strategy example
In 2018, iPhone was expected to defeat Nintendo DS. However, Apple relied on the red ocean strategy of focusing on smart designs and customer service, while Nintendo leveraged the blue ocean strategy of focusing on innovative values that were completely unseen by Apple. As a result, Nintendo provided players with an interface to enjoy “mega-hits.” The innovation consequently allowed Nintendo to also dominate Sony PSP.
Why is the Blue Ocean Strategy Important for Service Providers?
The goal of a blue ocean strategy is for coaches and consultants to:
- Find and develop uncontested, growing markets.
- Avoid overdeveloped, saturated markets.
When you reimagine your digital product or service strategies to realize innovative value at affordable costs, your coaching practice will experience more success, increased profits, and fewer risks.
The rise of social networks, user-generated content, and internet ratings have shifted the power from professional service providers to the client and customer. Today, clients can easily broadcast their opinions about your coaching and consulting services.
To win, your offer needs to be unique and differentiated. That's what will get people:
- Giving you five-star ratings.
- Tweeting your praises instead of your faults.
- Sharing your offerings on social sites.
- Clicking and tapping thumbs up.
With the low entry cost to being a global player, you can leverage the blue ocean strategy to establish commercially viable markets worldwide and offer your differentiated services. For instance, you can:
- Leverage the ease and low cost of creating a website to give your practice a global storefront.
- Raise money through crowdfunding to boost your business.
- Use services like Skype and Gmail to communicate with clients across the globe.
- Transact faster and more effectively through PayPal and other online payment services.
- Advertise globally through YouTube, Twitter, and other channels.
How to Apply the Blue Ocean Strategy
The development of a blue ocean strategy involves increasing value while simultaneously lowering cost. Here, service businesses focus on their idea, perform market research to help differentiate their offer, and create catchy copy to communicate their service value.
In more elaborate terms, here are six principles for blue ocean strategy application.
#1: Reconstructing market boundaries
Market boundaries can be reconstructed through the following paths:
- Alternative industries. Here, enterprises need to ask themselves: what are alternate industries (or niches) to the current industry? What can be improved in the existing industry? What are the significant factors that need to be improved within the market or industry? Why do customers trade across the existing industries? Focusing on factors that lead consumers to transact across alternate niches/industries, enterprises can create blue ocean opportunities.
- Strategic groups within industries. As a coach, you look across lead users, hobbyists, and other strategic groups within the industry for opinions and insights.
- Buyer group. This path involves redefining your target clients. As a coach, you must understand the value proposition for target clients. Understanding the clients sheds light on how to lower cost or differentiate offers to meet clients' needs.
- Scope of services and offerings. Look across complimentary services that go beyond your enterprise boundaries. What has never been offered before by competitors that could bring a breath of fresh air to the industry? What do clients generally purchase together with your practice core offering? Understanding complementary offerings can help you innovate your core value. The idea is to combine the complementary value or eliminate it to create a new market.
- Functional and emotional orientation of the industry. Here, you rethink the fundamental orientation of the current industry. Sure, people buy stuff for utility and to generate or meet emotional responses. According to the blue ocean strategy, when a consumer changes their purpose of buying something, a new market is formed. For example, if someone purchases your coaching program for its functional purpose, then changes their buying habits based on prestige and the need to belong to specific communities, there's a new market.
- Trends. Take part in creating or shaping external trends.
#2: Focusing on the big pictures, not just numbers
To focus on the end game, follow these steps:
- Visual awakening. That is, compare your current strategy using different blue ocean strategy tools, such as the strategy canvas tool. Consider: What are the attributes and benefits of your current service offerings?
- Visual exploration. That involves getting into the field, exploring existing alternatives to your coaching services, the benefits, plus what needs to be created, raised, reduced, or eliminated. Essentially, consider: What new features can the company create that other businesses have never offered?
- Visual strategy fair. Review results from the first two steps and formulate alternative strategy canvasses for group discussion, feedback, and observation. And then build a new, future strategy.
- Visual communication. Here, you incorporate and distribute the new and old strategy canvasses to your professional staff – and only approve initiatives and projects that implement the new strategy canvasses.
#3: Reaching beyond existing demand
Determine the different tiers of prospective clients and develop strategies to create mass appeal.
- The first tier encompasses soon-to-be customers. This includes customers who don't closely identify with your brands or those that are not recurring. Your goal is to determine their pain points and the solutions they are looking for and to identify commonalities. Then, you want to engage them through brand awareness or additional value offering.
- The second tier encompasses clients who consciously avoid/refuse your current offerings. Determine the reasons and motives behind the refusal, pinpoint the commonalities, and devise ways to overcome such frictions — be it cost, function, or geography.
- The third tier encompasses customers who do not consider your offerings as a need or want. It also includes those who may be unaware of your practice offerings.
#4: Getting the right strategic sequence
To get it right, evaluate your strategy against the following criteria:
- Buyer utility. Does your new idea offer buyers exceptional utility? Is there exceptional buyer utility? If not, rethink the strategy.
- Price. What's the ideal strategic price to create critical mass appeal? The price should be based on value in that strategic price minus the desired profit margin equals the targeted costs.
- Cost. After determining the estimated costs, design your services to meet the defined costs.
- Adoption. Can you address the barriers to the adoption of this new service? Ideally, you should identify adoption hurdles and address them.
#5: Overcoming organizational hurdles
Spread the message and engage your staff to help them understand your practice's change in organizational strategy. If you have limited resources to pursue the blue ocean strategy, prioritize the allocation of resources – starting with the critical areas.
To boost motivation and accountability, consider deploying concepts like atomization, fishbowl management, and kingpins.
#6: Building execution into strategy
For best results, include stakeholders, key implementers, and staff in the planning initiatives and strategy.
As seen, the blue ocean strategy encompasses different strategic steps. In essence, focus on:
- Analyzing how you can offer your services in new, different ways by targeting specific problems that no one is focusing on. Use the insights to create new relevant markets.
- Moving past benchmarking your services with the competition to delivering practical value to new clients. Then, consider how to scale the value proposition to other prospects.
Additional Tips for Applying Blue Ocean Strategy
As noted, you should strategically focus on both low cost and differentiation. For best results, follow the ERRC framework, with the following key actions:
- Eliminate the main drivers of competition in the current market. The goal is to eradicate inefficiencies and costs while focusing on value drivers.
- Raise elements typical to the current market that will become more important to differentiate your services and make them valuable to clients.
- Reduce or remove elements that don't add value or adequate differentiation to reduce cost.
- Create new elements to appeal to new audiences and reach clients with different needs. Here, focus on finding new value offerings that could appeal to more people.
To list and categorize your value drivers or elements in a visual format, utilize a four-quadrant ERRC grid.
Using a Strategy Canvas to Find Your Blue Ocean Strategy
The strategy canvas helps you visualize aspects (factors or functions) of your value chain (usually placed on the x-axis). The y-axis represents the value these aspects add to your practice.
To identify the factors, focus on aspects of your service business operations and delivery process that needs changing.
With the factors, plot a point signifying the importance of each driver to your practice.
You can then overlay your competitor, complementary product, or any other benchmark to compare the value factors.
In so doing, you visualize the importance the industry places on your value drivers vs. the importance your practice places on the same. That, in turn, helps you adjust your priorities accordingly, to differentiate your offer and reduce cost.
You can achieve that by:
- Creating new value drivers
- Focusing on different value drivers
Case example: How did Cirque du Soleil manage to become a successful and prominent player in the declining circus industry?
Cirque du Soleil is arguably one of the most popular blue ocean strategy examples in action.
The company reinvented the industry by pursuing low cost and differentiation simultaneously. They did away with live animal acts to lower costs and introduced storyline and live music, which inspired the world of theatre. The emphasis on human physical skills enabled Cirque du Soleil to create new features/elements that were nonexistent in the circus market.
As a result, the company created an untapped market, with a new audience (corporate and adult clients instead of families) willing to pay higher prices to watch the extraordinary spectacle. Thus far, the company has entertained over 155 million people in more than 300 cities.
Blue Ocean Strategy Examples for Service Businesses
The term blue ocean is relatively new, but its existence is not. Think back to 100 years ago and ask yourself: how many modern industries were nonexistent then? The answer could include industries like aviation, music recording, petrochemicals, and management consulting.
Looking back 40 years, industries like express package delivery, cell phones, and mutual funds were nonexistent.
Let's analyze several companies that successfully put the blue ocean strategy theory into practice.
Netflix: Is Netflix a blue ocean strategy example?
Netflix is a popular subscription-based streaming service.
However, when it started in 1997, Netflix was another player in the DVD rental and sales industry. Today, the company is a streaming service with a limitless choice of TV series and films. They have also launched movies and shows exclusively available on the platform.
So how did Netflix change the bloody DVD rental and sale market into a blue ocean full of opportunities?
Using blue ocean strategy, Netflix analyzed the DVD market and came up with elements that could be raised, created, reduced, or eliminated – to deliver more value to customers.
In summary, the company followed the following four basic actions:
Netflix eliminated physical stores by making films available online. Because the company only needed to pay for the movie license, it eliminated the cost of buying and storing DVDs.
Netflix raised the comfort standards for watching TV series, movies, shows, etc. People no longer needed to leave their house to go to a theatre or buy a DVD.
Netflix also made it easy to restart watching from where you stopped – improving the overall movie-watching experience.
Finally, the company simplified the payment option – requiring only a credit card number.
As mentioned, the company reduced the overall cost by eliminating the need to buy and store DVDs. In turn, Netflix could offer high-quality movies at an affordable price.
The company created personalized subscription-based accounts. Here, users pay monthly and watch a limitless number of movies. The service also learns the viewer's preference and offers suggestions based on the user history.
Netflix's blue ocean strategy was to make movies available online. When imitators reached the blue ocean, Netflix launched its original films and shows – proving you can create multiple blue oceans in the same industry.
Uber: Is Uber an example of a blue ocean strategy?
Uber is a ride share service available across 42 countries and over 200 cities.
The company didn't invent a new product, but it worked to change the way the transportation industry operates.
Here's their blue ocean strategy in a nutshell.
Uber removed the inconvenience of:
- Booking a car.
- Leaving a complaint about a taxi driver.
- Paying the driver without change.
- Booking cancellation.
Now, travelers can easily order a taxi and track its location with their devices. Their platform charges the user automatically after their ride – eliminating the need for cash payments and their associated inconveniences.
Uber dramatically improved customer service. Their application is fast, user-friendly, and convenient. Since users can rate the driver, taxi owners strive to provide excellent services to maintain their reputation.
By connecting riders and drivers, Uber solved the search problem for both parties.
Uber leveraged new devices and technologies to create a new market — branching away from the traditional taxi service.
Uber maximized its "first mover" competitive advantage to spread its service across the globe. No wonder they still dominates despite other players filling the niche.
Airbnb: Is Airbnb an example of a blue ocean strategy?
Airbnb is a platform for vacation rentals. It provides apartment owners with a chance to make money and travelers with alternate options to traditional hotels. In short, it mediates hosts and travelers.
Here's how Airbnb simultaneously attained value differentiation and affordability.
Airbnb eliminated problems with hotel service quality and challenges linked to finding and reserving rooms in traditional hotels.
On the platform, you can find possible options with:
- Info about the host
- Reviews of the accommodation
Once you have settled on an offer, it will take just a few minutes to book the room.
The platform raises the standard of service. You can count on hosts to provide good customer experiences to improve or maintain their review ratings.
Added to that, the application is easy to use and highly intuitive.
Since Airbnb does not need to spend money buying and maintaining hotels, it saves a great deal of fixed and recurrent costs. That translates to a reduced accommodation cost.
Plus, the application makes it easy for different users to find rooms, houses, apartments, or even tree houses they can afford.
Airbnb created a blue ocean by leveraging the concept of the shared economy – travelers can find unique locations for their vacation, and hosts can offer an extra room in their apartment to travelers (earning a side income).
Now What? Apply Blue Ocean Strategy to Your Service Business Model Today
Now that you’ve seen a few great examples of blue ocean strategy (for example, Netflix's blue ocean strategy) along with examples of red ocean strategy, we hope you feel more confident identifying the key characteristics of blue ocean strategy.
For a quick recap:
The Cons of Not Using Blue Ocean Strategy in Your Service Business Model
- Single-minded focusing on your niche and industry competition can jeopardize your coaching business model.
- Limiting your strategic focus to competition only leaves you fighting to offer your services at the cheapest price or with more content per dollar.
- This kind of loop isn’t scalable and strains both your team and financial resources.
- And it’s a blind spot to a whole market of prospective clients and potential business model innovation
We said it before and we’ll say it again: blue ocean strategy changes all that — helping you differentiate your coaching practice in a digital professional services market.
If you’re ready to look at your business from a completely different angle to disrupt your industry market in a way that makes your competition irrelevant, let’s talk.
Book time with one of our Product Coaches to review your current business model and pinpoint where Profi’s coaching software can innovate and transform the way you look at running your business, your team or your revenue model.
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