In 2004, Professors W. Chan Kim and Rénee Mauborgne ignited a business strategy revolution. The general gist of their strategy is to develop “Blue Oceans,” or new industries free of competition. This is in contrast to “Red Oceans,” or existing industries where the boundaries are accepted and defined, and the rules are known. It should go without saying, but most firms typically dream of operating in an uncontested market space free of competition. This is also known as blue ocean strategy. However, most stick with the status quo and struggle to survive in the bloody shark-infested “Red Oceans,” where competition is fierce.
The desire to create a more significant economic pie for everyone fueled Kim and Mauborgne’s research. This is a far cry from the current practice of dividing markets and fighting for a larger slice of the existing and often shrinking pie.
Examples of Blue Ocean Strategy
Marvel
Unless you’ve lived under a rock for fifty-five years, you’ve likely heard of Marvel. If not Marvel, then the characters of the Marvel universe, such as Spiderman, The Hulk, and countless other superheroes. However, you may not realize that Marvel is one of the best examples of a modern firm leaving the red ocean and entering the blue ocean.
Over the last decade, Marvel has demolished the box office with countless blockbusters. The Avengers, Age of Ultron, Infinity War, Endgame, and Black Panther are the five highest-grossing movies of all time. Furthermore, they account for half of the lifetime top-ten-grossing films in any genre, and Endgame is the second highest-grossing movie ever produced. What do they all have in common? They were all produced by Marvel.
While Marvel is currently raking in cash, this wasn’t always the case. A little over twenty years ago, the firm emerged from bankruptcy with $250 million in high-interest debt, a patchy sales channel, unhappy customers, and a skeleton staff. Their cash flow was so tight that they struggled to make payroll.
The Early Years of Marvel
Established in 1939 as a comic book company, Marvel barely survived the first few years when superheroes had fallen out of fashion. Their only well-known character was Captain America, who was created to encourage Americans to support WWII. In the 1960s, Marvel’s uninspired, “me-too” division almost shut its doors. At this point, three middle-aged men – Stan Lee, Jack Kirby, and Steve Ditko – decided to construct a new type of superhero. Their fresh take on superheroes was human first and a superhero second.
Instead of catering to the likes of traditional comic book buyers, who were children, for the most part, Marvel aimed to develop new, more complex characters that appealed to college students, who were noncustomers of the comic book industry up until this point. From 1960 to 1964, Marvel introduced Spider-Man, Iron Man, The Hulk, The X-Men, and an array of other characters – 8,000 total characters at the end of the day. Marvel started to thrive.
Everything changed in the 1980s when new ownership took a red ocean approach that set the brand back decades. During this time, management siphoned hundreds of millions of dollars and demolished Marvel’s staff and retail channels. This left customers alienated and confused. The business eventually went bankrupt.
Marvel’s Blue Ocean Strategic Move
In 1999, Peter Cuneo, a famous turnaround expert, took the helm as Marvel’s CEO. He is credited with bringing Marvel out of bankruptcy and positioning it to be acquired by Disney for over $4 billion in just over a decade.
Cuneo and Marvel’s key blue ocean move occurred when they entered the motion picture industry. This blue ocean pivot saw the company soar back to success in the 21st century in the form of Marvel Studios.
In addition to reinvigorating Marvel, Cuneo also transformed the movie production model. Marvel’s strategic move saw it enter a new field and rebuild that field into a blue ocean.
How Marvel Broke the Value-Cost Trade-Off
Most of the business world abides by the conventional belief that companies can either create more value at a higher cost or create reasonable value at a lower cost. Through this lens, most strategies choose between differentiation and lower cost, a value-cost trade-off.
On the other hand, Marvel took a blue ocean approach and pursued differentiation and low cost simultaneously. To better understand how this works, we need to review Cham Kim and Rene Mauborgne’s Four Actions Framework.
To break the trade-off between differentiation and low cost, the Four Actions Framework poses four questions to challenge an industry’s strategic mindset:
- Which factors does the industry take for granted that ought to be eliminated?
- Which factors should be reduced well below the industry’s standard?
- Which factors should be raised well above the industry’s standard?
- Which factors does the industry currently lack and need to be created?
The Eliminate-Reduce-Raise-Create (ERRC) Grid above outlines how Marvel successfully broke the value-cost trade-off.
The Marvel blue ocean example highlights how a company used differentiation and low cost to reinvigorate its blue ocean business. By entering the movie industry and value innovating the motion picture production model, Marvel restored its blue ocean and became the most profitable movie franchise ever.
Nintendo’s Switch to a Blue Ocean
Nintendo created its first video game console in 1977 and quickly became famous around the globe with the release of Donkey Kong in 1981 and Super Mario Bros. in 195. However, by the early 2000s, Nintendo began to slide as Sony and Microsoft began to dominate the market.
In 2006, Nintendo took a blue ocean approach. While Sony and Microsoft focused solely on Gamers, Nintendo started to study non-gamers. Nintendo looked at the gaming industry’s noncustomers, reformulated elements throughout the market, and created the Wii. The Wii was based on simplicity, functionality, and interactivity, with games that drastically increased utility for these noncustomers.
Nintendo did away with or reduced supposedly vital factors, such as high-definition graphics and sound, fast chips, controllers with an array of buttons, and violent lifelike games. At the same time, Nintendo raised and created factors that noncustomers liked, such as more approachable games, a focus on fun instead of computing power, and more intuitive controls.
As a result of applying the blue ocean strategy, the Nintendo Wii created a new market. This market pulled in traditional non-gamers and destroyed both Sony and Microsoft in units sold. The Wii was a massive success until the dramatic technological disruption that came with the rise of smartphones and tablets.
Nintendo created another blue ocean in 2017 when it introduced the Nintendo Switch, which answered a growing demand for simple games, such as free downloadable games for smartphones. Instead of going head-to-head with the high-end PlayStation 4 or Xbox One, the Switch was a small device that gave players the ability to play on a TV and on the go.
The Switch became the fastest-selling home video system of all time in the United States and out performed every other console in sales that Christmas. Nintendo had officially reconstructed boundaries with the Switch by capturing the best of high-powered game consoles and smartphone games.
Stitch Fix
Stich Fix is a prime example of a blue ocean in the fashion industry. Katrina Lake, the youngest female CEO to ever take a US company public, created a blue ocean in the extremely competitive fashion retail industry. Stitch Fix is a personal styling company that tsends its customers a box of carefully selected clothings. The idea is that customers experience the benefits of having a personal stylist. In 2019, Stitch Fix garnered $1.5 billion in revenue from their 3 million (and growing) customers. WHile most retail companies are spiraling downwards, Stitch Fix is soaring.
Stich Fix bridged artificial intelligence and human interaction to create a differentiated and low-cost offering that women couldn’t resist. Lke created this blue ocean by combining the best of technology, human creativity, and ingenuity in its products.
Stitch Fix was founded by a woman and, with 86% of female employees, the company has one of the most robust female workforces in the AI space.
