# Strategic Sequence of Blue Ocean Strategy

A blue ocean idea must pass through four sequential tests before it becomes a commercially viable strategy: Buyer Utility, Strategic Price, Target Cost, and Adoption. Each test is a gate. If the idea fails at any gate, it must be reworked before proceeding. Skipping a gate or reversing the order leads to strategies that look promising on paper but fail in the market.


## Table of Contents
1. [The Four-Gate Sequence](#the-four-gate-sequence)
2. [Gate 1: Buyer Utility Map](#gate-1-buyer-utility-map)
3. [Gate 2: Strategic Pricing](#gate-2-strategic-pricing)
4. [Gate 3: Target Cost](#gate-3-target-cost)
5. [Gate 4: Adoption Hurdles](#gate-4-adoption-hurdles)
6. [Sequence Validation Checklist](#sequence-validation-checklist)
7. [Common Sequencing Mistakes](#common-sequencing-mistakes)

---

## The Four-Gate Sequence

```
Gate 1          Gate 2            Gate 3           Gate 4
BUYER      -->  STRATEGIC    -->  TARGET      -->  ADOPTION
UTILITY         PRICE             COST              HURDLES

Is there        Is pricing        Can we hit       Can we overcome
exceptional     accessible to     target cost      adoption
buyer utility?  mass buyers?      and profit?      hurdles?

If NO:          If NO:            If NO:           If NO:
Rethink the     Rethink the       Rethink the      Rethink the
offering        price point       cost structure    rollout plan
```

The sequence is deliberate. Utility comes first because without a leap in buyer value, pricing and cost are irrelevant. Price comes second because it determines the cost target. Cost comes third because it must be derived from price, not the other way around. Adoption comes last because it addresses the organizational and market barriers to execution.

## Gate 1: Buyer Utility Map

The Buyer Utility Map is a 6x6 matrix that systematically identifies where the biggest opportunities for utility innovation exist. It crosses six utility levers (what kind of value) with six stages of the buyer experience cycle (when value is delivered).

### The Six Utility Levers

| Lever | Definition | Example |
|-------|-----------|---------|
| **Customer Productivity** | Helps buyers do things faster, easier, or more effectively | Google Search vs. library research |
| **Simplicity** | Reduces complexity, eliminates confusion, makes things intuitive | iPhone vs. Blackberry interface |
| **Convenience** | Available when and where buyers need it, less effort required | ATMs vs. bank teller visits |
| **Risk Reduction** | Reduces financial, physical, or emotional risk | Money-back guarantees, free trials |
| **Fun and Image** | Makes the experience enjoyable or enhances the buyer's image | Tesla (driving is fun + green image) |
| **Environmental Friendliness** | Reduces environmental impact | Patagonia (outdoor gear + environmental mission) |

### The Six Buyer Experience Stages

| Stage | What Happens | Key Questions |
|-------|-------------|---------------|
| **1. Purchase** | How buyers find, evaluate, and buy | How long does it take to find the product? Is buying easy? Is the transaction secure? |
| **2. Delivery** | How the product/service reaches the buyer | How long does delivery take? How difficult is unpacking and setup? |
| **3. Use** | The core experience of using the product | Does it require training? Is it intuitive? Does it deliver on promises? |
| **4. Supplements** | Other products/services needed alongside | What else does the buyer need? How easy is it to obtain supplements? |
| **5. Maintenance** | Upkeep, updates, servicing | Does it require maintenance? How easy and affordable is servicing? |
| **6. Disposal** | End-of-life, replacement, switching | Is it easy to dispose of? Are there environmental concerns? Can data be transferred? |

### The Buyer Utility Map Template

Rate each cell: How well does the industry currently deliver utility here? (1 = poorly, 5 = excellently)

|  | Purchase | Delivery | Use | Supplements | Maintenance | Disposal |
|--|----------|----------|-----|-------------|-------------|----------|
| **Productivity** | | | | | | |
| **Simplicity** | | | | | | |
| **Convenience** | | | | | | |
| **Risk Reduction** | | | | | | |
| **Fun and Image** | | | | | | |
| **Environmental** | | | | | | |

**How to use the map:**
1. Fill in the matrix with industry-current scores (1-5)
2. Circle all cells rated 1-2 (these are the biggest utility gaps)
3. For each low-rated cell, ask: "What blocks utility here? What would a 5 look like?"
4. Prioritize the 3-5 cells where improvement would have the greatest impact on buyer behavior
5. Design your offering to deliver a leap in utility in those specific cells

### Buyer Utility Map Example: Traditional Banking

|  | Purchase | Delivery | Use | Supplements | Maintenance | Disposal |
|--|----------|----------|-----|-------------|-------------|----------|
| **Productivity** | 2 (slow applications) | 2 (days to open) | 3 | 2 (separate products) | 2 (branch visits) | 2 (hard to close) |
| **Simplicity** | 1 (complex forms) | 2 (paperwork) | 3 | 2 (confusing fees) | 2 (hard to reach) | 1 (switching is hard) |
| **Convenience** | 2 (branch hours) | 2 (branch required) | 3 (ATM, online) | 2 | 2 | 2 |
| **Risk Reduction** | 4 (FDIC insured) | 4 | 4 | 3 | 3 | 2 |
| **Fun and Image** | 1 | 1 | 1 | 1 | 1 | 1 |
| **Environmental** | 1 (paper) | 1 (paper) | 2 | 1 | 1 | 1 |

**Blue ocean opportunity (neo-bank):** The cells rated 1-2 cluster around simplicity, convenience, productivity, and fun across purchase, delivery, maintenance, and disposal stages. This is exactly where digital-first banks like Chime or Revolut created their blue oceans.

## Gate 2: Strategic Pricing

### The Principle

Strategic pricing in blue ocean strategy is fundamentally different from conventional pricing. You do not start with cost and add a margin. You do not benchmark against direct competitors. You price against all alternatives that buyers consider, including options from other industries.

### Step 1: Identify the Price Corridor of the Mass

The "price corridor of the mass" captures the price range that attracts the largest pool of target buyers.

**Mapping the corridor:**

List all alternatives buyers consider (not just direct competitors):

| Alternative | Type | Price Range | Volume of Buyers |
|-------------|------|-------------|-----------------|
| | Same form, different industry | | |
| | Different form, same function | | |
| | Different form, different function, same objective | | |

**Same form, different industry:** Products that look like yours but come from a different industry category. Example: For a digital learning platform, this includes physical textbooks and in-person courses.

**Different form, same function:** Products that serve the same function in a different way. Example: For a project management tool, this includes spreadsheets and email.

**Different form, different function, same objective:** Products that accomplish the same buyer objective through a completely different mechanism. Example: For a fitness app, this includes personal trainers, group classes, and home exercise DVDs.

### Step 2: Choose the Price Level Within the Corridor

Once you have mapped the corridor, choose where to price based on two factors:

| Factor | Higher Price Within Corridor | Lower Price Within Corridor |
|--------|-----------------------------|-----------------------------|
| **Legal protection** | Strong IP/patent protection | Weak protection, easy to copy |
| **Network effects** | Strong network effects | No network effects |
| **Resource barrier** | Expensive to replicate (exclusive partnerships, infrastructure) | Low barrier to replication |
| **Switching costs** | High switching costs once adopted | Easy to switch away |

**If you have strong protection:** Price toward the upper end of the corridor. You have time before competitors can match you.

**If you have weak protection:** Price toward the lower end of the corridor. Make it economically unattractive for others to enter your blue ocean.

### Step 3: Validate the Price

| Validation Check | Pass? |
|-----------------|-------|
| Is the price within the corridor of the mass (not above it)? | |
| Would a non-customer be willing to pay this price for the utility offered? | |
| Does the price make alternatives seem like poor value by comparison? | |
| Is the price sustainable (not a loss-leader that requires future increases)? | |
| Can the target cost be achieved at this price (see Gate 3)? | |

### Pricing Anti-Patterns

| Anti-Pattern | Problem | Fix |
|-------------|---------|-----|
| Cost-plus pricing | Ignores buyer value and alternatives | Price against alternatives, then work backward to cost |
| Competitor-matching | Stays in the red ocean | Price against all alternatives, not just direct competitors |
| Premium for novelty | Limits adoption to early adopters | Price for the mass market from day one |
| Free/freemium by default | May signal low value, unsustainable | Free only if network effects or data value justify it |
| Anchor to existing price | Misses the mass if existing prices are too high | Map the full corridor including non-industry alternatives |

## Gate 3: Target Cost

### The Principle

Target cost is derived from the strategic price, not the other way around. The formula is simple:

```
Strategic Price - Desired Profit Margin = Target Cost
```

If you cannot achieve the target cost, you do not raise the price. You redesign the offering to reduce cost. The ERRC grid is the primary tool for achieving target cost.

### Three Levers for Achieving Target Cost

#### Lever 1: Streamline Operations Through ERRC

The first and most powerful lever. Every factor you eliminate or reduce directly lowers cost.

| ERRC Action | Cost Impact |
|-------------|-------------|
| Factors eliminated | Direct cost removal (often the largest savings) |
| Factors reduced | Partial cost reduction |
| Factors raised | May increase cost (but funded by eliminate/reduce) |
| Factors created | May increase cost (but funded by eliminate/reduce) |

**The math must work:** Total cost of raise + create must be less than total savings from eliminate + reduce.

#### Lever 2: Partnering

If you cannot achieve the target cost alone, partner with others who have the capabilities or scale you lack.

**When to partner:**
- A capability you need would take years and significant investment to build
- A partner already has the capability at the cost level you need
- The partnership does not compromise the buyer utility

**Examples:**
- Apple partnered with music labels for iTunes (content)
- Nespresso partnered with machine manufacturers (hardware) to focus on capsules
- IKEA partners with low-cost manufacturers globally

#### Lever 3: Change the Pricing Model

Sometimes the target cost cannot be achieved with a traditional purchase model. Changing the pricing model can align cost with buyer value.

| Model | When to Use | Example |
|-------|-------------|---------|
| Subscription | High upfront cost, ongoing value | Netflix, Salesforce |
| Pay-per-use | Irregular usage patterns | Cloud computing (AWS), ride-hailing |
| Freemium | Network effects fund the model | Spotify, Zoom |
| Revenue share | Partner can fund upfront cost | JCDecaux (free shelters, ad revenue) |
| Leasing | High asset cost, ongoing need | Aircraft engines (Rolls-Royce power-by-the-hour) |

### Target Cost Template

```
Strategic Price:                    $___________
Desired Profit Margin:              ___________%
Target Cost:                        $___________

Cost Breakdown:
  Cost saved from Eliminate actions: $___________
  Cost saved from Reduce actions:    $___________
  Cost added from Raise actions:     $___________
  Cost added from Create actions:    $___________
  Net ERRC impact:                   $___________

  Partnership cost savings:          $___________
  Pricing model adjustment:          $___________

Achievable Cost:                     $___________
Gap (Target - Achievable):           $___________

If gap > 0: Revisit ERRC or pricing model
If gap <= 0: Proceed to Gate 4
```

## Gate 4: Adoption Hurdles

### The Principle

Even a brilliant blue ocean strategy will fail if the organization cannot execute it or if key stakeholders resist. The final gate addresses four categories of adoption hurdles.

### The Four Adoption Hurdles

#### Hurdle 1: Employees

**The challenge:** Internal teams may resist the new strategy because it changes their roles, threatens their expertise, or contradicts what they believe about the business.

**Common resistance patterns:**
- "Our customers do not want this" (projecting existing customer needs onto non-customers)
- "We have always done it this way" (attachment to eliminated factors)
- "This devalues our expertise" (skills built around reduced/eliminated factors)

**Mitigation strategies:**

| Strategy | How |
|----------|-----|
| Involve early | Include key employees in ERRC workshops |
| Show the data | Share non-customer research that supports the shift |
| Pilot first | Start with a small team to prove the concept |
| Retrain | Invest in developing skills for the new factors |
| Celebrate converts | Publicly recognize employees who embrace the shift |

#### Hurdle 2: Business Partners

**The challenge:** Distributors, suppliers, and channel partners may resist because the new strategy disrupts their business model or reduces their value.

**Mitigation strategies:**

| Strategy | How |
|----------|-----|
| Co-create value | Show partners how the blue ocean expands the total pie |
| Pilot with willing partners | Find one or two forward-thinking partners to prove the model |
| Provide transition support | Help partners adapt their business to the new model |
| Create new partnerships | If existing partners cannot adapt, find new ones |

#### Hurdle 3: The General Public

**The challenge:** The public (including potential buyers) may not understand the new offering or may be skeptical of unfamiliar categories.

**Mitigation strategies:**

| Strategy | How |
|----------|-----|
| Demonstrate, do not explain | Let people experience the offering (free trials, demos) |
| Leverage word-of-mouth | Design the experience to be naturally shareable |
| Use familiar reference points | "Like X but with Y" framing |
| Start with early believers | Find the community most likely to embrace the new category |

#### Hurdle 4: Regulators and Legal

**The challenge:** New categories often fall outside existing regulatory frameworks, creating uncertainty or opposition.

**Mitigation strategies:**

| Strategy | How |
|----------|-----|
| Engage proactively | Meet with regulators before launch, not after conflict |
| Frame as public benefit | Show how the blue ocean serves public interest |
| Self-regulate | Establish industry standards before regulators impose them |
| Pilot in friendly jurisdictions | Launch in markets with favorable regulatory environments |

### Adoption Hurdle Assessment Template

For each stakeholder group, rate the risk (1-5) and document the mitigation plan.

| Stakeholder | Risk Level (1-5) | Key Concern | Mitigation Plan | Owner | Timeline |
|-------------|-------------------|-------------|-----------------|-------|----------|
| Employees | | | | | |
| Partners | | | | | |
| Public/Buyers | | | | | |
| Regulators | | | | | |

## Sequence Validation Checklist

Before committing to a blue ocean strategy, verify that it passes all four gates.

### Gate 1: Buyer Utility

- [ ] The Buyer Utility Map identifies specific cells with a leap in utility
- [ ] The utility leap is obvious to a first-time buyer without explanation
- [ ] Non-customers confirm the offering would address their primary barrier
- [ ] The utility is differentiated from all alternatives, not just direct competitors

### Gate 2: Strategic Price

- [ ] Alternatives from multiple industries have been mapped
- [ ] The price corridor of the mass has been identified
- [ ] The chosen price attracts non-customers, not just existing customers
- [ ] The price level reflects the degree of legal/competitive protection
- [ ] The price makes alternatives seem like poor value by comparison

### Gate 3: Target Cost

- [ ] Target cost is derived from strategic price minus desired margin
- [ ] ERRC elimination and reduction generate sufficient cost savings
- [ ] The math works: raise + create costs are less than eliminate + reduce savings
- [ ] Partnership opportunities have been explored for cost gaps
- [ ] Alternative pricing models have been considered if needed
- [ ] Target cost is achievable from day one (not "after we scale")

### Gate 4: Adoption

- [ ] Employee resistance has been assessed and mitigation planned
- [ ] Partner impact has been evaluated and addressed
- [ ] Public/buyer education strategy is in place
- [ ] Regulatory risks have been identified and proactively addressed
- [ ] A pilot plan exists to validate before full rollout
- [ ] Fair process (engagement, explanation, expectation clarity) is being used

## Common Sequencing Mistakes

### Mistake 1: Starting with Cost Instead of Utility

Companies often begin by asking "What can we afford to build?" instead of "What utility leap would unlock new demand?" This produces cost-efficient but uninspiring offerings that stay in the red ocean.

**Fix:** Always start with the Buyer Utility Map. Define the utility leap first, then figure out how to achieve it at the right cost.

### Mistake 2: Pricing Based on Cost-Plus

Adding a margin to the production cost ignores buyer alternatives and often results in a price that is either too high (limiting adoption) or too low (leaving value on the table).

**Fix:** Map all alternatives. Set price within the corridor of the mass. Work backward to the cost target.

### Mistake 3: Assuming Scale Will Solve the Cost Problem

"We will be expensive at first but costs will come down with scale" is a dangerous assumption. If costs are too high at launch, adoption will be too slow to achieve the scale needed to reduce costs.

**Fix:** Achieve target cost at launch volume, not projected future volume. Use ERRC and partnerships to bridge the gap.

### Mistake 4: Ignoring Adoption Until Launch

Discovering that employees, partners, or regulators resist the strategy at launch is too late. Adoption hurdles must be addressed during strategy development, not after.

**Fix:** Assess adoption hurdles early. Include key stakeholders in the strategy development process. Use fair process throughout.

### Mistake 5: Skipping Gates

Each gate is a checkpoint. Proceeding to pricing without confirming buyer utility, or to cost without confirming price, creates compounding errors that surface late and expensively.

**Fix:** Treat each gate as a formal review. Do not proceed until the gate criteria are met. It is better to rework earlier than to discover a fatal flaw later.
