Unlocking the Power of the Blue Ocean Strategy: A Comprehensive Guide for SaaS Businesses [2023]

Blue ocean strategy has become an increasingly popular business framework over the past two decades, especially in the SaaS industry. But what exactly is it and why does it matter? This article will provide an in-depth look at the blue ocean strategy, including its origins, core principles, implementation, and measurement of success.

As experts note, while blue oceans promise lucrative opportunities, not every new market lives up to expectations. At the upcoming Product Drive Conference, seasoned entrepreneur Melissa Kwan will share invaluable insights in her talk on the potential pitfalls of over-relying on blue ocean strategy. Register here for FREE!

TL;DR

• Blue ocean strategy is about creating uncontested market space instead of competing directly with rivals.
• It focuses on differentiation and low cost simultaneously to break the value-cost tradeoff.
• Properly implementing the blue ocean strategy can help companies achieve rapid growth and increased profits.
• However, many firms fail at successful implementation due to common pitfalls.
• Key metrics like revenue growth, customer acquisition costs, and net promoter score can indicate the success of a blue ocean strategy.

What is the Blue Ocean Strategy? Definition and Origin

The concept of blue ocean strategy was first introduced in the 2005 book "Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant" by professors W. Chan Kim and Renée Mauborgne.

In their book, Kim and Mauborgne argue that successful businesses should not look to beat the competition but rather make the competition irrelevant by creating "blue oceans" of uncontested market space.

This strategy rejects traditional competitive business frameworks focused on outperforming rivals. Instead, it is about capturing new demand and reconstructing market boundaries.

The terms "red ocean" and "blue ocean" are used as metaphors to describe the market universe. Red oceans represent all existing industries with defined boundaries and known rules of competition. Blue oceans denote industries not yet in existence.

Whereas red oceans are crowded with competition fighting over limited demand, blue oceans offer ample opportunity for growth and profits since demand is created rather than fought over.

Blue ocean strategy is especially relevant today as many industries are seeing declining profits and growth due to commoditization and saturation. The need to break out of hyper-competitive red oceans into blue waters where demand is untapped is rising.

As the book Blue Ocean Strategy notes, blue oceans have always been a key engine of growth for companies and entire economies. But their creation depends on the right strategic mindset and set of principles.

What is the Red and Blue Ocean Strategy? A Comparison

Red Ocean's strategy focuses on taking market share from competitors in overcrowded, saturated markets. Companies try to seize greater demand by exploiting existing offerings better than rivals.

Blue Ocean's strategy is about creating a completely new uncontested market space by reconstructing industry boundaries. The competition becomes irrelevant as new demand is unlocked.

The table below summarizes the key differences between red and blue ocean strategies:

Under the red ocean strategy, companies accept industry conditions as a given and strive to outperform competitors. The focus is on dividing up existing demand.

Blue Ocean's strategy sees market boundaries and structures as flexible and shaped by companies' actions. The focus is on developing new demand and reconstructing market landscapes to make rivals obsolete.

The Significance of the Blue Ocean Strategy

In an increasingly crowded marketplace, the blue ocean strategy offers companies the opportunity to break out of hypercompetitive red oceans. By creating new market spaces, they can unlock new demand and achieve high growth and profits.

The business world has seen numerous examples of blue ocean strategies delivering exceptional results over the past century across a range of industries from automotive to entertainment.

With globalization and advancing technology, products and services are becoming commoditized faster than ever. This makes the blue ocean strategy vital for companies to sustain high performance and carve out their blue oceans before competitors catch up.

However, adopting a blue ocean mindset requires challenging long-held assumptions about strategic planning. Companies must shift from a focus on competition to a focus on innovation.

The reward for this shift is the potential to become an industry leader and benefit from strong first-mover advantages before imitation kicks in.

Core Principles and Benefits

Now that we've covered the basic foundations of the blue ocean strategy, let's explore some of its central tenets and why it can be highly advantageous for businesses.

What Are the 4 Strategies of Blue Ocean Strategy?

The core of the blue ocean strategy is value innovation. This is about creating a leap in value for buyers and your company while also driving down costs.

Value innovation is achieved by applying the four key blue ocean strategies:

• Raise – Factors that should be raised well above the industry standard
• Reduce – Factors that should be reduced well below the industry standard
• Eliminate – Factors that should be eliminated that the industry has taken for granted
• Create – Factors that should be created that the industry has never offered

This Four Actions Framework guides companies through reconstructing buyer value elements to develop a breakthrough value proposition. It pushes businesses to question long-standing industry and strategic assumptions.

The four actions open up new value-cost frontiers by helping companies disentangle the trade-off between differentiation and low cost. Value is increased through raising and creating actions while focus and clarity are sharpened through reducing and eliminating actions.

What Are the Benefits of the Blue Ocean Strategy?

Done right, implementing a blue ocean strategy offers several compelling benefits:

• Strong profitable growth – By creating new demand, companies can achieve rapid growth and healthy profits. High perceived value allows for strong pricing power.
• New customer segments – Blue ocean strategies unlock demand from demographics outside existing industry segments. Entirely new markets can be born.
• Competitive differentiation – The competition becomes irrelevant as the company carves out its blue ocean market. Imitation is difficult due to new capabilities and branding.
• First-mover advantage – Being first in an untapped market provides advantages in branding, pricing power, proprietary assets, and cost.
• Improved value proposition – Buyer utility is increased substantially while costs are reduced. This supports premium pricing and customer loyalty.
• Long-term sustainability – Blue Oceans builds brands and high perceived value that can last for decades. Continued innovation maintains the Blue Ocean advantage.
• Enhanced employee motivation – Pursuing a transformative strategic vision can drive greater employee engagement, creativity, and morale.

Adopting a blue ocean strategy requires shifting from competitive benchmarking to a market-creating strategy. But done successfully, the payoff can be tremendous and sustainable.

However, veteran tech entrepreneur Melissa Kwan warns in her Product Drive Conference talk that the allure of undiscovered market potential can sometimes prove deceptive. Her firsthand experience offers important lessons for innovators. Register here for FREE to hear what secrets she spills!

Breaking the Value-Cost Tradeoff

A key principle of the blue ocean strategy is the simultaneous pursuit of differentiation and low cost. This breaks the traditional value-cost tradeoff.

Companies can offer buyers greater value while keeping costs low by eliminating and reducing factors the industry competes on but add no real value to buyers. Higher value is created by introducing innovative new factors the industry has never offered before.

As buyer utility is increased and costs reduced, demand escalates rapidly. This results in fast growth, high profits, and barriers to imitation. Competitors struggle to replicate differentiated value propositions without high costs.

According to Blue Ocean Shift, some ways companies can break the trade-off include focusing on eliminating pain points, pursuing simplicity, embracing transparency, and more.

The most successful blue ocean strategies create “value innovation” – substantial new value at affordable pricing through a leap in buyer utility and strategic low costs.

Implementation and Examples

The principles behind the blue ocean strategy are promising. But how can companies implement the approach successfully? This section will cover techniques and case studies.

How to Create a Blue Ocean Strategy?

Creating commercially compelling blue oceans that unlock new demand and growth requires the right tools and processes.

Here are some key steps:

• Assess the current state of play in your industry using analytical frameworks like the strategy canvas.
• Understand where you can create value for current non-customers by unlocking unmet needs.
• Use the four actions framework to reconstruct elements that generate a leap in value and reduce costs.
• Develop creative “what-if” scenarios to design potential blue ocean offerings.
• Refine and select the most promising blue ocean ideas based on commercial viability.
• Build alignment around the new strategic direction and train employees on required capabilities.
• Rapidly test and refine the blue ocean offering while mitigating risk.
• Leverage first-mover advantage and partner ecosystems to scale rapidly after launch.
• Continuously improve and innovate new complementary offerings to stay ahead.

Following a deliberate process for blue ocean creation while allowing creative room for exploration is key.

What is the Blue Ocean Strategy with Examples? A Case Study

Let's examine a real-world example of successful blue ocean strategy implementation.

In the late 1990s, the circus industry was stagnant and circuses were losing money. The industry focused on traditional shows with animal acts, three rings, and concession stands.

Cirque du Soleil took a blue ocean approach by creating a new type of circus. It eliminated animals, three-ring shows, and reduced concession stands while adding artistic music, elegant acrobatics, and a crafted story narrative.

Rather than compete directly with existing circuses catering to kids, Cirque targeted adult and corporate entertainment segments willing to pay much more. It maximized differentiated value while eliminating unnecessary elements that added cost but not value.

The results were remarkable. Between 1990 and 2000, Cirque du Soleil multiplied its revenues by over 31 times from $40 million to $1.26 billion. By 2011, it achieved revenues of $850 million with only 20 shows. The approach created a highly profitable blue ocean.

Cirque du Soleil is one of the most legendary examples of a market-creating strategy done right. Its blue ocean is executed on the core principles of value innovation and strategic alignment.

Why Do Many Firms Fail to Successfully Implement a Blue Ocean Strategy?

Despite the compelling benefits promised by the blue ocean strategy, many companies fail in implementation. Common reasons include:

• Lack of understanding – Leadership does not fully comprehend the approach or commits needed resources.
• Risk avoidance – Firms are unwilling to pivot from existing business models that still produce revenue.
• Poor planning – No structured approach is taken to generate and test blue ocean ideas.
• Bias toward competition – Companies cannot shake off competitive mindsets and benchmarks.
• Imitation obsession – Attempts are made to imitate successful blue ocean models rather than innovate.
• Loss of nerve – The resolve to see the new strategic direction through wavers after initial resistance.

Executing a commercially successful blue ocean strategy requires knowledge, structured creativity, conviction, and patience. Understanding common implementation pitfalls is the first step to avoiding them.

Challenges and Measuring Success

Even with proper implementation, blue ocean strategies involve overcoming hurdles and uncertainties. We’ll cover ways to address challenges as well as measure success.

Common Mistakes and How to Avoid Them

Here are some common mistakes companies make with blue ocean strategy and techniques to avoid them:

• Muddling execution – Maintain focus on the swift, flawless execution of the complete blue ocean package.
• Focus drift – Continuously improve and expand upon the initial blue ocean to stay ahead as imitators enter.
• Pricing errors – Price too high and adoption is stifled. Price too low leaves profit opportunities.
• Over-customizing – Proliferating offerings try to please everyone, diluting the blue ocean value.
• Complacency – Resting on initial success rather than continuing innovation invites new competition.
• Isolation – Collaborate with partners and suppliers to maximize reach and adoption.

Creating new market space involves trial and error. However, being cognizant of common missteps can help prevent them.

Overcoming Obstacles

Every transformative strategy meets resistance, both externally and internally. Leaders must address obstacles head-on to drive adoption.

Externally, negative press and criticisms from industry incumbents may arise. Firms should ensure customers understand the core value proposition and not get distracted by skeptics protecting the status quo.

Internally, present a compelling vision and logic for employees. Provide sufficient training and incentives. New capabilities and skill sets will need development.

There may also be inertia from established processes optimized for current business models rather than the new blue ocean strategy. Streamlining or replacing legacy systems can address this.

Key Performance Indicators

Given the risks involved, companies need to carefully monitor a new blue ocean strategy rollout. Relevant key performance indicators include:

• Revenue growth – How fast is total revenue increasing as new demand is unlocked?
• Profit margins – Are margins healthy from value-cost alignment and lack of competition?
• Customer acquisition costs – How much does it cost to acquire new customers attracted to the offering?
• Customer retention – Are new Blue Ocean customers repeat purchasing rather than one-time trying?
• Net Promoter Score – How willing are customers to recommend the product or service to others?
• Brand awareness – Is brand recognition increasing in new target segments?

Leaders should define targets and monitor KPIs to ensure successful blue ocean execution. Corrective actions can address any gaps.

Continuous Improvement

Blue Ocean's strategy requires rapid iteration after the initial launch. Leaders must continuously improve the offering, service, and business model to retain the blue ocean advantage.

Ongoing innovation keeps imitation at bay. New complementary products or partnerships further widen moats. Employees should be empowered to identify areas for improvement.

Analytics and customer insights are invaluable for guiding enhancement efforts. The initial blue ocean will eventually face competition without sustained innovation.

Companies that rest on their laurels invite new disruptive entrants. Blue ocean creators must relentlessly deepen their advantage over time.

The best tools for executing customer insight strategies

Of course, none of this is possible without choosing the right tool for the job. Let’s explore some of the options available on the market.

Userpilot – for collecting, analyzing, and acting on customer insights

Userpilot is a powerful digital adoption tool.

It allows you to easily analyze user behavior, collect customer feedback, and drive product engagement with engaging in-app experiences. This makes it a comprehensive product management solution that will satisfy the needs of most product folks.

Features and Events dashboard in Userpilot.

Userpilot also offers a powerful array of UI patterns: including modals, tooltips, checklists, slideouts, and more. What makes it particularly effective? You can build any of these without writing a single line of code.

And because Userpilot offers in-depth brand customization options, the UI patterns you create will be on-brand every time.

Microsurvey modal created in Userpilot.

Frankly, considering the value for money, Userpilot is one of the most attractive options on the market.

Amplitude – for granular customer insights analysis

Amplitude is another powerful product analytics tool offering an even more extensive range of analytics than Userpilot.

Some of Amplitude’s robust analytics features include:

• Milestone analysis
• Retention analysis
• Custom dashboards displaying the data you need
• Predictions and behavioral analytics
• User segmentation patterns
• Pathfinder (helps you find all the possible user paths leading up to an event)

Amplitude offers access to a range of these capabilities in its free plan, so you can easily try it out and see if it works for you. You can even book a live demo to get to know the product offering before you commit.

However, Amplitude doesn’t let you act on customer insights data. For the latter, you would need a separate product engagement tool.

Hotjar – for collecting qualitative customer data

Hotjar is another excellent tool for granular analysis of user in-app behavior.

The product offers two main features; heat maps and session recordings.

Heat maps are visual representations of user engagement in the product. The warmer the color of the spot on the screen, the more popular the feature is. This shows you which parts of the UI attract the most attention and which parts to optimize.

Session recordings are screen recordings of what users do. You can either use them for user testing, where they have a specific task to perform, or simply watch user interactions with the product, for example, to identify friction.

The Future and Expert Opinions

Blue Ocean's strategy has seen tremendous success over the past 20 years. How will it evolve moving forward? Let’s examine emerging trends and expert advice.

Emerging Trends in Blue Ocean Strategy

Some evolving directions related to the blue ocean strategy include:

• Adopting blue ocean mindsets in traditionally “red ocean” sectors like manufacturing and infrastructure.
• Using advanced analytics and AI to identify attractive white spaces backed by data.
• Leveraging strategic partnerships rather than going it alone.
• Taking environmental and social factors into account in the strategy innovation process.
• Tapping into growing consumer segments like older demographics and the middle class in emerging economies.
• Hybrid approaches that balance incremental improvement with big-bang disruption.

Blue ocean thinking must keep evolving as markets, technologies, and business environments change. What remains constant are the principles of breaking trade-offs and not benchmarking competitors.

Expert Opinions and Advice

Here are some tips on succeeding with blue ocean strategy from leading experts:

"Keep developing new blue oceans. Competition eventually erodes their advantages. Market-creating strategy is not a one-time effort but a continuous process." – Renée Mauborgne, Co-author of Blue Ocean Strategy

"Take small steps forward while also planting seeds for big-bang blue oceans. Not every idea will work. Build a portfolio of strategic experiments.” – W. Chan Kim, Co-author of Blue Ocean Strategy

"Rather than seeking to disrupt competitors, disrupt yourself before others do. Be willing to make your existing business model obsolete." – Mark Johnson, Seizing the White Space

"Don’t just ask people what they want. Guide them to imagine breakthrough experiences that address unarticulated needs." – Clayton Christensen, The Innovator's Dilemma

Expert guidance reminds firms that a blue ocean mindset must be sustained despite early successes or failures.

To learn more about balancing blue ocean strategy with finding true product-market fit, be sure to catch Melissa Kwan's eye-opening Product Drive Summit talk "Finding PMF and Why the Blue Ocean isn't a Good Thing." Register today here for free!

Conclusion

As competition continues to intensify across industries, the need for companies to break out of congested red oceans is clear. Adopting blue ocean strategy principles focused on value innovation offers a pathway to finding and capturing new uncontested markets.

However, balancing differentiation and low cost to unlock new demand also requires challenging dominant paradigms. A deliberate approach must be taken to identify promising opportunities, develop commercially compelling new offerings, and rapidly iterate.

While the risks of new market creation are real, the rewards for successful blue ocean strategy implementation can also be enormous. Uncontested market space offers fast growth and strong profitability based on new demand rather than competing for existing customers.

The likes of Cirque du Soleil and Netflix found their blue oceans. With the right mindset and principles, your company can follow suit. Reconstruct existing market landscapes. Make rivals irrelevant. Develop high-value offerings at accessible price points to tap into underserved customer segments. You may just find a lucrative blue ocean.

To explore how Userpilot can empower your team in implementing the blue ocean strategy, book a demo today. Our team would be happy to discuss how our platform can help you gain clarity into your users and iterate new offerings to maximize adoption and value.