Tse blue ocean_strategy_modified2014

Business Model
Copyright of Bart Clarysse and Sabrina Kiefer
The Smart Entrepreneur

Blue Oceans = value innovation
(a new market space within mature
industry)
• Compete in existing market space
• Beat the competition head-on
• Exploit existing demand
• Make the value/cost trade off
• Create uncontested market space
• Make competition irrelevant
• Create and capture new demand
• Break the value/cost trade off
Red Oceans
(most businesses)

Business Launches
86% 14%
Revenue Impact
62% 38%
Profit Impact
39% 61%
Me-too & Value Improvement
Pioneer, Innovation in Customer Value
• Why seek Value Innovation?
14% of firms in a ‘Blue Ocean’ space
61% of overall profits
(Kim’s & Mauborgne’s observation
of 108 companies over a 100-year period)

Tools to find Blue Oceans
A The Strategy Canvas:
captures the current state of play in the known market space;
reorients focus from competitors to alternatives and from customes to non customers
the range of factors
the industry competes on and invests in
the offering level that buyers receive across all of
these key competing factors.

B Four actions framework (observations):
Factors that no longer are valuable to
potential customers are avoidable costs

B Eliminate-reduce-raise-create grid

Value innovation example:
[yellow tail]
Australian vineyard Casella Wines
sought a way to increase US sales in a
hugely crowded and competitive industry
space with falling margins
The US Wine market –
hardly attractive

Casella Wines’ value innovation
1. What did the US wine industry strategy canvas look like
(on what factors were producers competing)?

US wine industry - Factor 1: price

US wine industry - Factor 2: labelling for connoisseurs

US wine industry - Factor 3: mass media advertising

US wine industry - Factor 4: aging quality – age=better

US wine industry - Factor 5: heritage = prestige

US wine industry - Factor 6: complex bouquet = desirable product

US wine industry - Factor 7: wide product range = better label

The US Wine Industry – strategy canvas

[yellow tail] – 1 and 2
1. Industry Strategy Canvas
• Price, packaging, above the line marketing, aging quality, prestige of the
vineyard, complexity of taste, diverse range of wines
2. Four actions framework - observations
• Wine was only accessible to a limited number of people + takes years to
appreciate wine
• French and worldwide producers were all competing on the factors on
the strategy canvas, bringing down margins
• Blue Ocean: not competing on wine market, but on the alternative
market for beers, spirits and cocktails
>> Create a new market of new wine drinkers

[yellow tail] - 3
3. The eliminate-reduce-raise-create grid
• Eliminated
» Enological terms on wine packaging,
» above the line marketing – (replace with in-store merchandising)
» aging quality
» => costs and working capital declined
• Reduced
» Vineyard prestige,
» complexity of taste and range (2 products: Chardonnay and Shiraz)
• Raised
» Price versus budget wines,
» retail store involvement (display stands, merchandised clothing for staff)
• Created
» 3 new factors: easy drinking, easy to select, and ‘fun and adventure’ image of
Australia

Smaller product range, simpler labelling

In-store merchandising
Retail store
involvement
Wal-Mart displays

[yellow tail] value line vs US wine industry

[yellow tail] - Results

Further Reading
Kim, W.C. and Mauborgne, R., 2005. Blue Ocean Strategy: How to Create
uncontested Market Space and Make the Competition Irrelevant. Boston:
Harvard Business School Press.

Tse blue ocean_strategy_modified2014

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