Blue Ocean Strategy
Chapter 2
Red Oceans
1) Five forces analyzing existing industry
2) Three generic strategies
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Blue Oceans
1) No set tools to excel
2) Learn from failure
3) Minimize risk
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1)
2)
3)
4)
U.S. wine industry
Third largest aggregate consumption
Stuck at 31st place in per capital wine
consumption
Top 8 companies produce 75 % of U.S. wine
1600 wineries produce the remaining 25%
Causes
1) Intense competition
2) Mounting price pressures
3) Flat demand despite overwhelming choice
A diagnostic and an action framework
1) Captures the current state of play
2) Help create a different strategic profile
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The Value Curve - Company’s relative
performance across its industry’s factors of
competition
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To create a strong profitable growth trajectory
DON’T
 Try to outcompete, a little more for a little less
 Perform customer research, they just want more
of what they are getting

To fundamentally shift the strategy canvas of an
industry
DO
 Focus on alternatives instead of competitors
 Focus on non-customers instead of customers
CAUSES
 You to gain insight into how to redefine the
problem the industry focuses on, and reconstruct
buy value elements
Red Ocean Winery
1) Wineries focused on overdeveloping on
prestige and the quality of wine at its price
point
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Blue Ocean Winery (Casella Wines)
1) How to make a fun and nontraditional wine
that’s easy to drink for everyone
2) Found that American Adults saw wine as
intimidating and pretentious
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Which of the factors that the industry takes
for granted should be eliminated?
Sometimes there is a change in what buyer’s
value:
◦ Companies focused solely on benchmarking the
competition will miss out on capitalizing on these
changes.
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Which factors should be reduced well below
the industry standard?
Companies must determine which
products/services in the industry are being
overdesigned/overfunded:
◦ Sometimes companies will over serve their
customers which will tend to increase costs, while
gains and profits stay the same.

Which factors should be raised well above the
industry’s standard?
◦ This pushes the company to find out and eliminate
the compromises that the industry forces
customers to make while using the product/service.

Which factors should be created that the
industry has never offered?
◦ This helps to discover new sources of value, create
new demand and shift the strategic pricing of the
industry.
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Eliminating and Reducing:
◦ Pursuing these will help drop the company’s cost
structure which will take out a lot of its
competitors.
 Having a high cost structure and a complex business
model makes it hard for any business to grow.

Eliminating and Creating:
◦ These prompt the companies to change certain
factors themselves rather then simply expanding on
the norm.
 Makes the existing rules of competition irrelevant.
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Wine created by Casella Wines
Wine no longer wine
◦ Casella created a social drink accessible to everyone
(i.e. beer drinkers, cocktail drinkers, etc.)

August 2003: Number one red wine in a 750
ml bottle sold in the U.S.
◦ Selling more than 4.5 million cases a year
New Market
◦ Red Ocean:
 Traditionally there were only people who drank a
certain type/standard of wine.
◦ Blue Ocean:
 Non wine drinkers now in the market
 Novice wine drinkers able to drink more frequently
 Jug wine drinkers moved up and began to drink the
slightly higher priced [yellow tail]
◦ Red Ocean:
A New Norm:
 Wine’s complicated taste is hard to appreciate for the
average customer.
◦ Blue Ocean:
 [yellow tail] has a soft taste, upfront and primary flavors, and
the sweetness of it makes it much easier to drink.
*Industry said the fruitiness reduced the quality of
the wine:
◦ Although found to be true, it did not take away any of
[yellow tail]’s customers, because the new customer
base was not concerned about it*
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Red Ocean:
Ease of Selection:
 Aisles and aisles of wine mixed with the intense terminology
on each bottle made it hard - not only for the customers to
choose from- but also for the retailers themselves to have
any valid opinion to suggest a certain brand.
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Blue Ocean:
◦ Casella dramatically reduced the range of wine offered
to (2): Chardonnay (most popular white wine in the US)
and Red wine.
◦ They also removed all technological jargon from the
bottle and used a simple, nontraditional label having a
yellow kangaroo against a black backdrop.
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The low variety of flavors that it offered
helped to minimize the cost of inventory and
also enabled them to be the first company in
the industry to put both red and white wine in
the same box.
They also eliminated the need for aging the
wine because their customers were simply
not concerned about it:
◦ This reduced costs and also created a faster
payback for wine produced.
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This grid pushes companies to not only ask the questions from
the Four Actions Framework – but to actually act on them.
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Four Immediate Benefits:
1. It pushes them to simultaneously pursue differentiation and low costs
to break the value-cost trade-off
2. Flags companies focused only on raising and creating which raises their
cost structure and lets them know if they are ‘overengineering’ their
product/service.
3. It’s easily understood by managers at any level, creating a high level of
engagement in its application.
4. Drives companies to scrutinize every factor the industry competes on,
making them discover the range of implicit assumptions they make
unconsciously while competing.
Eliminate:
Tough terminology and
distinctions
Aging Qualities
Raise:
Price versus budget
wines
Retail store involvement
Above-the-line marketing
Reduce:
Create:
Wine Complexity
Easy Drinking
Wine Range
Ease of Selection
Vineyard Prestige
Fun and Adventure
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Focus
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Divergence
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Compelling Tagline
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Focus and excel in a couple of key aspects of
the value line that your competition does not.
Don’t invest across the board!
Set your own agenda, don’t let the
competition set the agenda.
Example
Southwest focuses on 3 key factors
1. Friendly Service
2. Speed
3. Frequent Point Departures
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In the meantime their competitors invest
across the board and can’t match Southwest’s
prices
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Act don’t react
When a company has to act reactively they lose
their uniqueness by generally having the
same strategic profile as their competitors
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Stand Apart
When you have a divergent strategic profile
you can allow your company to have a blue
ocean strategy
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Example
Southwest started the point-to-point
departures instead of using hub and spoke
systems. This makes for a lot more efficient
travel for people to middle sized cities.
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Have a clear-cut tagline
Effective taglines are easier to come by when
your company has a blue ocean strategy,
because you are competing on something
different than your other competitors
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It must be truthful
An untrue tagline will lose your customers trust
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Examples of good taglines
Wal-Mart… “Save Money. Live Better”
Red Bull… “ Gives you Wings”
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When a company’s value curve meets the 3
criteria that lead to Blue Ocean strategy you
are on the right track.
When a company lacks any of these 3 criteria
it lacks the ability to live up to its full
potential.
3 signs your company is caught in a Red
Ocean:
1. Over delivery without payback… must cut
back in some areas.
2. An incoherent strategy… can’t be up and
down curves.
3. An internally driven company…. must stay
demand driven not operationally driven.
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Any Questions?