Blue Ocean Strategy

Group Assignment

Presented to
Professor, John Krupa

In Partial Fulfillment of
The Requirement of MRKT_5500_HMT_13724
Johnson & Wales University

By
VIVEK SRIPATHI

1.What is a blue ocean strategy? What is a red ocean strategy? Explain these from the
perspective of company strategy, competition, and market space (nature of demand).
Blue ocean strategy is the quest of creating a whole new industry and market that are not in
existence today. The market space and demand is created rather than fought over. The blue ocean
strategy creates uncontested market space making the competition irrelevant. It aligns the entire
system of company activities in the pursuit of differentiation and low cost. In blue ocean, new
demands are created and captured.
And, red ocean strategy represents all the industries that are in existence in present period of
time, where the companies tries to outperform their rivals in order to grab a greater share of
existing demand. Unlike blue ocean strategy, red ocean strategy aligns the whole system of
companys activities with its strategic choice of differentiation or low cost. As the space in red
ocean gets more crowded, prospects for profits and growth are reduced.
2.Using the Snapshot of blue ocean creation exhibit, list and explain the common key
success factors for each of the three industries (auto, computer, movie theaters discuss
each).
The key success factor for the three industries is: they all driven by value pioneering: Value
innovation is the cornerstone of the blue ocean strategy; leading-edge technology is sometimes
involved in the creation of blue oceans. From the three industries, Blue oceans were seldom the
result of technology innovation and they all driven by value pioneering. Most Blue Ocean are
created from within, not beyond, red oceans of existing industries, Incumbents can also create
new market spaces making the right strategic moves.
Blue oceans are not about technology innovation. Leading-edge technology is some-times
involved in the creation of blue oceans, but it is not a defining feature of them. This is often true

even in industries that are technology intensive. As the exhibit reveals, across all three
representative industries, blue oceans were seldom the result of technological innovation per se;
the underlying technology was often already in existence. Even Fords revolutionary assembly
line can be traced to the meat-packing industry in America. Like those within the auto industry,
the blue oceans within the computer industry did not come about through technology innovations
alone but by linking technology to what buyers valued. As with the IBM 650 and the Compaq PC
Server, this often involved simplifying the technology.
Incumbents often create blue oceansand usually within their core businesses. GM, the
Japanese automakers, and Chrysler were established players when they created blue oceans in
the auto industry. So were CTR and its later incarnation, IBM, and Compaq in the computer
industry. And in the cinema industry, the same can be said of palace theaters and AMC. Of the
companies listed here, only Ford, Apple, Dell, and Nickelodeon were new entrants in their
industries; the first three
Were start-ups, and the fourth was an established player entering an industry that was new to it.
This suggests that incumbents are not at a disadvantage in creating new market spaces.
Moreover, the blue oceans made by incumbents were usually within their core businesses. In
fact, as the exhibit shows, most of the blue oceans are created from within, not beyond, red
oceans of existing industries. This challenges the view that new markets are in distant waters.
Blue oceans are right next to you in every industry.
Company and industry are the wrong units of analysis. The traditional units of strategic analysis
company and industryhave little explanatory power when it comes to analyzing how and
why blue oceans are created. There is no consistently excellent company; the same company can
be brilliant at one time and wrongheaded at another. Every company rises and falls over time.

Likewise, there is no perpetually excellent industry; relative attractiveness is driven largely by

the creation of blue oceans from within them. The most appropriate unit of analysis for
explaining the creation of blue oceans is the strategic move the set of managerial actions and
decisions involved in making a major market creating business offering. Compaq, for example, is
considered by many people to be unsuccessful because it was acquired by Hewlett Packard in
2001 and ceased to be a company. But the firms ultimate fate does not invalidate the smart
strategic move Compaq made that led to the creation of the multibillion-dollar market in PC
servers, a move that was a key cause of the companys powerful comeback in the 1990s.
Creating blue oceans builds brands. So powerful is blue ocean strategy that a blue ocean strategic
move can create brand equity that lasts for decades. Almost all of the companies listed in the
exhibit are remembered in no small part for the blue oceans they created long ago. Very few
people alive today were around when the first Model T rolled off Henry Fords assembly line in
1908, but the companys brand still benefits from that blue ocean move. IBM, too, is often
regarded as an American institution largely for the blue oceans it created in computing; the 360
series was its equivalent of the Model T. Our findings are encouraging for executives at the large,
established corporations that are traditionally seen as the victims of new market space creation.
For what they reveal is that large R&D budgets are not the key to creating new market space.
The key is making the right strategic moves. Whats more, companies that understand what
drives a good strategic move will be well placed to create multiple blue oceans over time,
thereby continuing to deliver high growth and profits over a sustained period. The creation of
blue oceans, in other words, is a product of strategy and as such is very much a product of
managerial action.

3.Explain the redefined relationship between value and low cost in blue ocean strategies.
What is the red ocean approach to competitive advantage as it pertains to value and costs?
In fact, blue ocean strategy basically refers to such kind of strategy created by a company itself,
which makes its rival companies irrelevant and develops new level of consumer value even by
lowering down costs. To establish a relationship between value of product or service and cost
of it, the key parameters that defines the product or service are analyzed. Next, the product or
service qualities that are less valued by the target customers are decreased, and those aspects
which are valued by the costumers are made better. By doing so, the value of the final
product/service can be lowered down in such a way that more and more customers get fascinated
toward the product/service. As the customers pay attention toward the desired dimensions of the
product, other remaining features of the can be neglected fully or partially to help lower down
the final cost of product/service. This eventually creates enough space to compete with rivals,
and attracts more customers toward it.
Red oceans represent all the industries in existence today, the know market space in red oceans,
industry boundaries are defined and accepted, and the competitive rules of the game are well
understood. Companies try to outperform their rivals in order to grab a greater share of existing
demand. As the space gets more and more crowded, prospects for profits and growth are reduced.
Products turn into commodities, and increasing competition turns the water bloody. It focuses on
the value/cost trade-off. The value/cost trade-off is the view that a company has the choice
between creating more value for customers but at a higher cost, or reasonable value for
customers at a lower cost.
According to red ocean strategy, the value-cost tradeoff is made by making greater value to end
users at a higher cost, and making lower value at lower cost. The competitive advantage for red

ocean strategy is that the company feels comfortable to exist in market either by targeting
customer who can pay more or less depending on the values of product/service they want.
4.Identify and analyze the markets and competition for Fords Model T. Include the
available product categories that met the needs for the transportation market prior to the
introduction of the Model T. How did Ford create a blue ocean for transportation? - discuss
costs, production/sales volume growth, pricing, product advantages.
Before Fords Model T automakers mainly focused on making fashionable and customized cars
for weekends in the country, a luxury few could justify. There were just more than 500
automakers that used to build such expensive cars targeting only handful of customers.
The fact that cars were so expensive and maintenance cost was very high, people preferred horse
drawn carriages that were worth of $400 compared to cars worth $1500.
Auto industry was small and unattractive during the pre-era of Fords model T. Industry focused
mainly on few customers which left the remaining part of the potential market un-exploited.
And, the model T was introduced in early 1900. Fords model T created its market and captured
the newly created demand by dropping the price of the particular model and making the car
feasible enough to be driven easily and used daily. As a result, previously unaddressed potential
customers who were buying the horse drawn carriages would convert themselves as the car
buying customers.
The Model T came in just one color, black and there were few optional extras. It was reliable and
durable, designed to travel effortlessly over dirt roads in rain, snow, or sunshine. It was easy to
use and fix and people could learn to drive it in a day.
Ford went outside the industry for price point. In 1908, the first Model T cost $805; in 1909, the
price dropped to $609, and by 1924 it was down to $290. In this way, Ford addressed the

customers who were comparing the price of horse drawn carriages and cars. Sales of the Model T
boomed. Fords market share surged from 9% in 1908 to 61% in 1921 and by 1923, majority of
the households had a car.
Ford even offered the mass of buyers a leap in value. By introducing the assembly line system in
the industry Ford was able to lower the cost of production and make a car in 4 days which
previously would take 21 days creating huge cost savings.