# Blue Ocean Strategy

**Creator/Source**: W. Chan Kim & Renée Mauborgne, *Blue Ocean Strategy*
**Core Value**: Create uncontested market space through value innovation, making competition irrelevant
**One-liner**: Don't compete harder in existing markets — create new ones

---

> **Case Boundary**: Company/industry cases in this file are illustrative examples for framework structure and reasoning, not current factual claims by Alpha Insights. Before reusing any numbers, shares, dates, or conclusions in a live study, re-check sources and record them in the Evidence Claim Ledger.

## Overview

Blue Ocean Strategy helps companies create uncontested market space through "value innovation" — simultaneously pursuing differentiation and low cost — making competition irrelevant.

**Core Design Principles**:
- **Value Innovation**: Simultaneously pursue differentiation and low cost
- **Red Ocean vs. Blue Ocean**: Competing in known market spaces vs. creating uncontested market spaces
- **Non-Consumers**: Focus on non-consumers rather than existing customers

**Best Use Cases**:
- Differentiated value proposition design
- New market space exploration
- Escaping homogeneous competition
- Business model innovation

**Output Value**:
- Strategy Canvas
- Four Actions Framework (Eliminate-Reduce-Raise-Create)
- New value curve
- Blue ocean opportunity identification

---

## I. Framework Overview

### 1.1 Red Ocean vs. Blue Ocean

```
┌─────────────────────────────────────────────────────────────┐
│                    Red Ocean vs. Blue Ocean                   │
├─────────────────────────────────────────────────────────────┤
│                                                             │
│  Red Ocean                     Blue Ocean                   │
│  ──────────                    ──────────                   │
│  • Known market spaces         • Unknown market spaces      │
│  • Clear industry boundaries   • Redefined boundaries       │
│  • Established competition     • Competition rules reshaped │
│    rules                                                    │
│  • Zero-sum game               • Non-zero-sum game          │
│  • Value-cost tradeoff         • Value-cost simultaneous    │
│                                  optimization               │
│  • Beat the competition        • Make competition           │
│                                  irrelevant                 │
│                                                             │
│  Examples:                     Examples:                    │
│  • Traditional airlines        • Southwest Airlines         │
│    (fierce competition)          (low-cost carrier)         │
│  • Traditional phones          • iPhone (smart terminal)    │
│    (feature competition)                                    │
│  • Traditional e-commerce      • Pinduoduo (social          │
│    (price wars)                  commerce)                  │
│                                                             │
└─────────────────────────────────────────────────────────────┘
```

### 1.2 Value Innovation

**Core Concept**:
```
Traditional strategic thinking:
Value ↑ → Cost ↑ (differentiation)
or
Value ↓ → Cost ↓ (cost leadership)

Blue Ocean Strategy:
Value ↑ + Cost ↓ simultaneously
```

**Implementation Path**:
```
┌─────────────────────────────────────────────┐
│          Value Innovation Matrix              │
├─────────────────────────────────────────────┤
│                                             │
│  Eliminate                Raise              │
│  • Industry-standard      • Far above        │
│    but valueless factors    industry standard │
│                           • Create new demand │
│                                             │
│  Reduce                  Create              │
│  • Below industry         • Never before      │
│    standard                 offered by the    │
│  • Lower cost structure     industry          │
│                           • Create new value  │
│                                             │
└─────────────────────────────────────────────┘
```

### 1.3 Analytical Tool: Strategy Canvas

**Definition**: Maps industry competitive factors and each firm's performance across those factors.

```
Example: Traditional Cinemas vs. Netflix

Value Level
   ↑
High│                    ● Netflix
   │                   / \
   │                  /   \
   │                 /     \
   │    ● Cinemas  /       \
   │   / \        /         \
   │  /   \      /           \
   │ /     \    /             \
Low │/       \  /               \
   └────────────────────────────────→
     Film    Conven- Price Person-  Ad-
     Library ience        alized   free
                         Recs
     Competitive Factors
```

---

## II. Blue Ocean Strategy Core Tools

### 2.1 Four Actions Framework (ERRC Grid)

**Goal**: Reconstruct buyer value elements.

```
┌─────────────────────────────────────────────────────────────┐
│              Four Actions Framework (ERRC Grid)              │
├─────────────────────────────────────────────────────────────┤
│                                                             │
│  Eliminate                      Reduce                      │
│  ──────────                     ──────────                  │
│  • Which factors that the       • Which factors should be   │
│    industry takes for granted     reduced well below the    │
│    but have no value should       industry standard?        │
│    be eliminated?               • Which can be simplified?  │
│                                                             │
│  Raise                          Create                      │
│  ──────────                     ──────────                  │
│  • Which factors should be      • Which factors that the    │
│    raised well above the          industry has never         │
│    industry standard?             offered should be         │
│  • Which can create new demand?   created?                  │
│                                 • Which can change the      │
│                                   value curve?              │
│                                                             │
└─────────────────────────────────────────────────────────────┘
```

**Application Example: Yellow Tail Wine**:
| Eliminate | Reduce | Raise | Create |
|-----------|--------|-------|--------|
| Complex jargon | Winery prestige | Drinkability | Fun factor |
| Aging potential | Product range | Approachability | Sense of adventure |
| Premium image | | | |

### 2.2 Buyer Utility Map

**Goal**: Identify the full lifecycle of buyer value.

```
┌─────────────────────────────────────────────────────────────┐
│                  Buyer Utility Map                            │
├─────────────────────────────────────────────────────────────┤
│                                                             │
│  Buyer Experience Cycle:                                    │
│  Purchase → Delivery → Use → Supplement → Maintain →Dispose │
│                                                             │
│  Utility Levers:                                            │
│  • Customer productivity                                    │
│  • Simplicity                                               │
│  • Convenience                                              │
│  • Risk reduction                                           │
│  • Fun and image                                            │
│  • Environmental friendliness                               │
│                                                             │
│  6 Experiences × 6 Levers = 36 utility spaces              │
│                                                             │
└─────────────────────────────────────────────────────────────┘
```

### 2.3 Price Corridor

**Goal**: Determine the strategic pricing range.

**Steps**:
```
1. Identify substitutes
   • Different form but same function
   • Different form and function but same goal

2. Map price-volume relationship
   • X-axis: Sales volume / user count
   • Y-axis: Price

3. Determine price corridor
   • Upper bound: High-end substitute price
   • Lower bound: Low-end substitute price

4. Set strategic price
   • Choose within the corridor
   • Consider target customer willingness to pay
```

### 2.4 Overcoming Key Organizational Hurdles (Tipping Point Leadership)

**Goal**: Overcome organizational hurdles to executing Blue Ocean Strategy.

**Four Hurdles**:
| Hurdle | Manifestation | Overcoming Method |
|--------|--------------|-------------------|
| Cognitive | Resistance to change | Confront harsh reality |
| Resource | Insufficient resources | Focus on key resources |
| Motivational | Lack of motivation | Influence key people |
| Political | Internal resistance | Leverage senior support |

---

## III. Blue Ocean Strategy Execution Steps

### Step 1: Choose the Right Starting Point

**Goal**: Determine the direction for blue ocean exploration.

**Direction Options**:
```
1. Alternative Industries
   • Switch between functional and emotional orientation
   • Case: Starbucks (coffee → third place)

2. Strategic Groups
   • Cross different strategic groups
   • Case: Uniqlo (fast fashion → basics)

3. Buyer Chain
   • Change the target buyer
   • Case: Novo Nordisk (doctor → patient)

4. Complementary Offerings
   • Provide holistic solutions
   • Case: Apple (hardware + software + services)

5. Functional-Emotional Orientation
   • Functional → Emotional or Emotional → Functional
   • Case: Swatch (watch → fashion accessory)

6. Time
   • Ride irreversible trends
   • Case: Tesla (EV trend)
```

### Step 2: Draw the Strategy Canvas

**Goal**: Visualize the current industry competitive landscape.

**Drawing Steps**:
```
1. Identify industry competitive factors
   • Product factors
   • Service factors
   • Delivery factors
   • Price factors

2. Assess each player's performance on each factor
   • User surveys
   • Expert assessment
   • Competitive analysis

3. Draw value curves
   • X-axis: Competitive factors
   • Y-axis: Value level

4. Identify industry homogeneity
   • Are all curves similar?
   • Which factors are over-competed?
```

### Step 3: Apply the Four Actions Framework

**Goal**: Reconstruct the value curve.

**Analysis Framework**:
```
For each competitive factor:

1. Eliminate
   • Is this factor truly important?
   • Are users willing to pay for it?
   • Can it be completely removed?

2. Reduce
   • How much can it be reduced?
   • Will users notice?
   • Can it lower costs?

3. Raise
   • How much can it be raised?
   • Will users perceive it?
   • Can it create differentiation?

4. Create
   • What factors haven't been offered?
   • What are users' latent needs?
   • Can it create new value?
```

### Step 4: Design the New Value Curve

**Goal**: Draw the new Strategy Canvas.

**Characteristics of a Good Value Curve**:
```
1. Focus
   • Clear strategic focus
   • Resources concentrated on key factors

2. Divergence
   • Clearly different from industry curve
   • Has uniqueness

3. Compelling Tagline
   • Can be explained in one sentence
   • Authentic and attractive
```

### Step 5: Validate the Blue Ocean Opportunity

**Goal**: Verify the feasibility of the new value proposition.

**Validation Framework**:
```
1. Utility Validation
   • Does it solve user pain points?
   • Does it create new value?
   • Are users willing to pay?

2. Price Validation
   • Is the price within an acceptable range?
   • Is there sufficient profit margin?
   • Can it acquire customers at scale?

3. Cost Validation
   • Is the cost structure sustainable?
   • Are there scale effects?
   • Can it be profitable?

4. Execution Validation
   • Does organizational capability match?
   • Are resources sufficient?
   • Is the time window adequate?
```

---

## IV. Output Format

### 4.1 Blue Ocean Strategy Analysis Report

```markdown
## Blue Ocean Strategy - [Market/Business Name]

### Industry Status
- **Major players**: [...]
- **Competitive factors**: [...]
- **Degree of homogeneity**: [High/Medium/Low]

### Strategy Canvas
[Draw current industry value curves]

### Four Actions Analysis
| Eliminate | Reduce | Raise | Create |
|-----------|--------|-------|--------|
| ... | ... | ... | ... |

### New Value Curve
[Draw new value curve]

### Value Innovation Points
- **Eliminated value**: [...]
- **Reduced value**: [...]
- **Raised value**: [...]
- **Created value**: [...]

### Strategic Pricing
- **Price corridor**: [lower bound, upper bound]
- **Strategic price**: XXX
- **Basis**: [...]

### Execution Hurdles and Responses
| Hurdle | Manifestation | Response Strategy |
|--------|--------------|-------------------|
| ... | ... | ... |
```

### 4.2 Blue Ocean Opportunity Assessment

```markdown
## Blue Ocean Opportunity Assessment

### Opportunity Attractiveness
| Dimension | Score (1-10) | Notes |
|-----------|-------------|-------|
| Market space | ... | ... |
| Competitive intensity | ... | ... |
| Profit potential | ... | ... |
| Execution feasibility | ... | ... |

### Risk Assessment
| Risk | Likelihood | Impact | Response |
|------|-----------|--------|----------|
| ... | ... | ... | ... |

### Recommendation
- [ ] Pursue blue ocean opportunity
- [ ] Pursue after optimization
- [ ] Abandon; compete in red ocean
```

---

## Research Supplements: Blue Ocean Strategy Best Practices

Based on the research and practice of W. Chan Kim and Renée Mauborgne:

### 1. Strategy Canvas

**Drawing Steps**:
1. Determine competitive dimensions (5-8 key factors)
2. Draw competitor curves (each competitor's performance across dimensions)
3. Draw own curve (current value curve)
4. Design new value curve (after Four Actions)

### 2. Four Actions Framework (ERRC)

| Action | Question | Goal |
|--------|---------|------|
| **Eliminate** | Which factors should be eliminated? | Reduce costs |
| **Reduce** | Which factors should be reduced? | Optimize costs |
| **Raise** | Which factors should be raised? | Increase value |
| **Create** | Which factors should be created? | Create new demand |

### 3. Non-Consumer Tiers

| Tier | Description | Case |
|------|-----------|------|
| Tier 1 | Soon-to-be non-consumers | Switching from restaurants to delivery |
| Tier 2 | Refusing non-consumers | Rejected due to price/complexity |
| Tier 3 | Unexplored non-consumers | Never considered the market |

### 4. Common Mistakes

| Mistake | Manifestation | Correction |
|---------|--------------|-----------|
| Over-differentiation | Only focusing on differentiation, ignoring costs | Pursue both differentiation and low cost simultaneously |
| Ignoring non-consumers | Only focusing on existing customers | Study the three tiers of non-consumers |
| Premature pricing | Setting price before designing value | Design value first, then set strategic price |

---

## Case Study: Mixue Bingcheng Blue Ocean Strategy Analysis

**Background**: Around 2020, the average price in China's new tea drinks market was 15-30 RMB. Heytea and Nayuki positioned as mid-to-high-end, with competition focused on product innovation, brand positioning, and store experience — typical red ocean homogeneous competition. Mixue Bingcheng chose a completely different value curve.

### Four Actions Framework (ERRC) Analysis

| Action | Specific Operations | Cost/Value Impact |
|--------|-------------------|-------------------|
| **Eliminate** | Upscale decor, handmade-to-order, brand premium | Drastically reduced store investment and operating costs |
| **Reduce** | SKU count (focus on hero items), per-cup ingredient costs | Simplified supply chain, improved standardization |
| **Raise** | Store density (>36,000 stores, #1 globally), franchisee profit margins | Network effects + franchisee motivation |
| **Create** | 5-10 RMB ultra-low price tier, full lower-tier market coverage, self-built supply chain (upstream integration via Grand International) | Created a price range never before seen in the industry |

### Value Curve Comparison

```
Value Level
   ↑
High│  ●Heytea                        ●Mixue Bingcheng
   │ /  \                         / \
   │/    \                       /   \
   │      \        ●Mixue       /     \     ●Heytea
   │       \      / \          /       \   /
   │        \    /   \        /         \ /
Low │         \  /     \      /           ●
   └──────────────────────────────────────────→
     Brand  Store  Product Price  Store  Supply  Lower-
     Image  Decor  Innov.        Density Chain   tier
                                         Depth  Coverage
```

Mixue Bingcheng's value curve is the exact opposite of Heytea/Nayuki — drastically lowered on traditional tea drink competitive factors (brand, decor, innovation) and drastically raised on factors the industry neglected (extreme low price, store density, supply chain depth).

### Key Data

| Metric | Mixue Bingcheng | Heytea (comparison) |
|--------|----------------|---------------------|
| Avg. ticket price | 5-10 RMB | 25-35 RMB |
| Store count (2024) | >36,000 (#1 globally) | ~3,500 |
| Revenue (2024 est.) | ~20B RMB | ~7B RMB |
| Net margin | ~15% | ~10% |
| Core market | Lower-tier (Tier 3 and below) | Tier 1-2 cities |
| Supply chain model | Self-built (Grand International: sugar, dairy, tea, packaging upstream integration) | Primarily external procurement |

### Non-Consumer Analysis

| Tier | Mixue Bingcheng's Target |
|------|-------------------------|
| Tier 1 (soon-to-be non-consumers) | Price-sensitive users who feel 15-30 RMB milk tea "isn't worth it" |
| Tier 2 (refusing non-consumers) | Consumers in lower-tier markets who never buy milk tea because of high prices |
| Tier 3 (unexplored non-consumers) | Low-spending groups who previously only drank bottled beverages |

### So What

- **Blue ocean essence**: Mixue Bingcheng created an "extreme value-for-money" blue ocean within the red ocean of new tea drinks by reconstructing the value curve. Its core is not brand marketing but supply chain capability — Grand International's upstream integration enables ~15% net margin even at the 5-10 RMB price tier
- **Moat**: 36,000+ store network + self-built supply chain form a powerful moat; it's extremely difficult for newcomers to replicate at the same price tier
- **Takeaway**: When everyone is competing upward (more expensive, more refined), looking downward often reveals a larger blue ocean — provided you have the cost structure to support it

---

### Data Source Recommendations

| Analysis Need | Recommended Data Sources |
|---------------|------------------------|
| Competitive benchmarking & financials | Public company financials / prospectuses (Mixue Bingcheng A-share prospectus, Nayuki HKEX financials), brokerage research |
| Value curve drawing | User surveys, product price & spec comparisons, Dianping/Meituan rating data |
| Non-consumer identification | QuestMobile (tea drink app penetration), CNNIC internet reports, lower-tier market consumption surveys |
| Industry trends & scale | iResearch/Analysys industry reports, CCFA data, Meituan Restaurant White Paper |
| Supply chain analysis | Company prospectuses (supplier disclosure), business databases (related companies), trade shows / supply chain coverage |
| Store network data | Restaurant data platforms, company official disclosures, Meituan/Amap POI data |

---

## V. Common Mistakes

| Mistake Type | Manifestation | Correction |
|-------------|--------------|-----------|
| Innovation for innovation's sake | Creating valueless new factors | Return to user needs |
| Ignoring execution | Good strategy but can't be implemented | Assess organizational capability |
| Pricing errors | Too high or too low | Reference the price corridor |
| Premature exposure | Quickly copied by incumbents | Build barriers |
| Misjudging trends | Trends are unsustainable | Validate irreversibility of trends |
| Ignoring the red ocean | Completely avoiding competition | Some competition is necessary |

---

## VI. Integration with Other Frameworks

| Upstream Framework | Input Content | This Framework's Output | Downstream Framework |
|-------------------|--------------|------------------------|---------------------|
| Industry research | Competitive landscape | Differentiation strategy | SCP |
| Competitive analysis | Competitor positioning | Value innovation | Playing to Win |
| JTBD | User needs | Value proposition | BMC |
| Three-Layer Analysis | Business data | New opportunity identification | Disruption Theory |

**Typical Combinations**:
- **Business opportunity discovery**: JTBD → Blue Ocean → BMC
- **Market entry**: Blue Ocean → Playing to Win → TAM/SAM/SOM
- **Competitive analysis**: Strategy Canvas → Four Actions → New Positioning

---

## VII. China Market Specifics

| Dimension | China Characteristics | Case |
|-----------|----------------------|------|
| Speed-first | Blue ocean windows are extremely short, quickly turn red; first-mover advantage is decisive | Bike-sharing went from blue ocean to shakeout in under 2 years |
| Scale effects | Rapid scaling is key to blue ocean survival; slow means death | Pinduoduo reached 300M users in 3 years |
| Capital-driven | Capital accelerates market education, shortening the blue ocean window | Community group buying cash-burning wars (Meituan Select/Duoduomaicai) |
| Ecosystem competition | Major ecosystems dominate; blue oceans often embed within existing ecosystems | WeChat Mini Programs spawned many lightweight blue ocean products |
| Four Actions (Pinduoduo) | Eliminate search-based shopping, reduce brand premium, raise low prices, create social group buying | Pinduoduo redefined the e-commerce value curve |
| Four Actions (Douyin) | Eliminate active search, reduce long content, raise short video, create algorithm recommendations | Douyin disrupted traditional content distribution logic |
| Four Actions (Perfect Diary) | Eliminate department counters, reduce brand heritage premium, raise value-for-money, create private domain operations | Perfect Diary's DTC model reshaped beauty channels |
| Four Actions (Genki Forest) | Eliminate traditional channel dependence, reduce high sugar, raise health perception, create zero-sugar concept | Genki Forest opened the zero-sugar beverage blue ocean |
