How to create blue oceans using value curves

So the first article in the blue ocean series introduced what a blue ocean was and the theory behind it. This one focuses on how you create a blue ocean. Actually there are no hard and fast rules, in my opinion most blue oceans are created by luck, experimentation or through frustration with existing industries, but there are some tools you can use if you want a more formal method.

How to create a blue ocean?

Sometimes companies can create totally new industries, as eBay did with the online auction industry. But in most cases, a blue ocean is created from within a red ocean when a company alters the existing industry boundaries. The classic example is Cirque du soleil who broke away from the highly competitive circus industry and created a new market that blurred the lines between circus and theatre.

If you are going to create a blue ocean from within a red ocean the key tool to use is a value curve.

The value curve is a graphic depiction of the way a company configures its offering to customers. It is drawn by plotting the companies offering relative to other alternatives based on key success factors in the industry. On the right you can see Quicken’s value curve which relates to the time when they first launched the business, you can see that they had a very different profile from the traditional financial software solutions on the market. A value curve is a powerful tool for pin-pointing potential points of difference and creating new market space.

Creating a new value curve

Another way to create a new value curve is to ask yourself the four questions in the graphic below.

These questions helped Formule 1 created a totally new product in budget hotels. They realised that the main thing customers wanted was a good night’s sleep so they raised the quality of the beds and the quietness of the rooms way above industry standard while removing features like lounges and restaurants. They reduced the room facilities so that they are only equipped with the bare essentials there are a few shelves and pole for clothing.

This radical approach allowed Formule 1 to capture the market share of budget French customers and now they are expanding into other countries.