Red and blue ocean strategy: what Kim and Mauborgne actually proposed, the four actions grid filled in for a small business, and the honest limits

Red ocean and blue ocean are two states of a market, named by W. Chan Kim and Renee Mauborgne of INSEAD in their 2005 book Blue Ocean Strategy, which followed their Harvard Business Review article the year before. A red ocean is an existing market with known boundaries, understood rules and competitors fighting over a fixed pool of demand, which is where almost every business operates. A blue ocean is space where demand has to be created rather than won, so there is no competition to speak of yet. Their central claim is that you reach the second by breaking the trade-off everybody accepts, between being different and being cheap, which they call value innovation.

The two states, side by side

Red ocean	Blue ocean
Compete in an existing market	Create space that does not exist yet
Beat the competition	Make the competition irrelevant
Exploit existing demand	Create and capture new demand
Accept the trade-off between value and cost	Break the trade-off, pursuing both
Align everything with differentiation or with low cost	Align everything with differentiation and low cost together

That last row is the part most summaries skip and it is the whole argument. Conventional strategy says choose: be the premium option or be the cheap one. The blue ocean claim is that a genuinely new offer can be both, because it drops the expensive things the category takes for granted and spends the saving on something the category has never offered.

The four actions grid, which is the usable part

Their framework asks four questions about the factors your industry competes on. Published as the eliminate, reduce, raise and create grid, it is the one tool here a small team can run in an afternoon.

• Eliminate. Which factors that the industry has long competed on should be eliminated entirely?
• Reduce. Which should be reduced well below the industry standard?
• Raise. Which should be raised well above it?
• Create. Which factors should be created that the industry has never offered?

The two left-hand questions are what pay for the two on the right. A grid with a long create list and an empty eliminate list is a wish list, not a strategy, and it is how most of these exercises fail.

The canonical examples, and what each one actually did

Case	Eliminated or reduced	Raised or created
Cirque du Soleil	Animal acts, star performers, multiple arena rings, the aisle concessions	Artistic production, a theme and a storyline, the venue and the price point of theatre
Southwest Airlines	Hub connections, seat assignments, meals, lounges, multiple aircraft types	Frequency on point-to-point routes, turnaround speed, friendliness of service
Nintendo Wii	Processing power, graphical fidelity, the price of the hardware	Motion control, physical play, a buyer who had never bought a console

Notice the shape each one shares. The eliminated items were the things the industry assumed were non-negotiable, and dropping them is what made the new thing affordable. A circus without animals, an airline without a hub, a console that is not the fastest.

Where the demand comes from

The other idea worth taking from the book is that new demand usually sits outside your current market rather than inside it. Kim and Mauborgne describe three tiers of people who are not your customers: those on the edge of your market who buy minimally and would leave, those who have consciously refused your category, and those who have never considered it at all. The third tier is the largest and the least studied, because no survey of your customers will ever mention them.

The practical version for a small business: ask the people who did not buy what they did instead, and ask the people who have never bought what stops them. That is the same exercise that finds indirect competitors, and the four kinds of rival plus the methods for finding them are in indirect competitors, with examples. A blue ocean and an indirect competitor are the same observation read from two directions: somebody is solving this problem in a way your category does not recognise.

A worked grid for a small business

A domestic plumbing company in a competitive town. The category competes on price per hour, speed of attendance, and being available at the weekend. Here is a filled grid, written in the shape the framework asks for.

• Eliminate: the hourly rate, and with it the entire argument about how long the job took.
• Reduce: the range of work accepted. No boilers, no bathrooms, no new builds.
• Raise: the arrival window, from a day to a named hour, and the cleanliness standard, with the floor protected and the site left photographed.
• Create: a published fixed price per named job, quoted online before anybody visits, and a two year guarantee on the repair rather than on the part.

That business is not cheaper per hour and it is not a premium brand. It is a different purchase: a known price for a known job at a known time. The eliminated hourly rate is what funds the named hour, because a fixed price lets you schedule tightly instead of padding every estimate. Whether it works is an empirical question, and the point of the grid is that it produces a proposition specific enough to test.

The three criticisms worth knowing

• The examples are chosen after the fact. A framework illustrated with winners tells you what successful companies had in common and not what will work, and the businesses that eliminated the wrong factor are not in the book. Read the cases as illustrations of a shape rather than as evidence of a method.
• Blue oceans turn red. Every example above now has imitators, and the advantage lasted as long as the imitation took. The framework describes an opening rather than a defensible position, which is why the follow-up work in this field is about moving again rather than holding.
• Most businesses do not need a new industry. For a company of ten people the realistic version is a narrow segment nobody serves properly rather than an uncontested market. That is a positioning decision rather than an industry one, and the four parts of a position plus the tests that prove you have one are in positioning in marketing explained.

None of those criticisms makes the grid less useful. They mean the output is a hypothesis to test rather than a plan to fund, which is true of every strategy framework including the portfolio one, and the honest reading of that older tool is in the BCG matrix in marketing.

How to run it without wasting a day

• List the factors your industry competes on, in the customer's words. Six to ten, no more. Price, speed, range, availability, expertise, guarantee.
• Score yourself and two competitors on each, high, medium or low. The pattern that matters is where all three of you look identical, because that is the category's assumption rather than a choice.
• Fill the four actions in order, eliminate first. If nothing can be eliminated, the exercise has not started.
• Write the resulting offer as one sentence a customer would repeat. If it needs a paragraph, it is a feature list.
• Test it on ten people who have never bought from your category, not on your best customers. Your best customers like the red ocean; they chose it.
• Price it from the eliminated cost, not from the competition. That is the step that makes the value and cost claim real rather than rhetorical.

Questions about red and blue ocean strategy

What is the difference between a red ocean and a blue ocean?

A red ocean is an existing market with known competitors fighting over existing demand. A blue ocean is space where the demand has to be created, so competition is not yet the constraint.

Who wrote Blue Ocean Strategy?

W. Chan Kim and Renee Mauborgne, both of INSEAD. The Harvard Business Review article appeared in 2004 and the book in 2005, with an expanded edition published a decade later.

What is value innovation?

Pursuing differentiation and low cost at the same time by dropping factors the industry takes for granted and spending the saving on something it has never offered. It is the mechanism underneath the whole framework.

Is blue ocean strategy still relevant?

The grid remains one of the few strategy tools that produces a concrete, testable proposition in an afternoon. The caution is the same as it was at publication: the examples are retrospective and the openings close.

Can a small business find a blue ocean?

Yes, at the scale of a segment rather than an industry. A named job, at a published price, for a buyer the category treats as too small or too awkward, is a blue ocean with ten customers in it, which for a small firm is enough.

What is the four actions framework?

Four questions about the factors your industry competes on: which to eliminate, which to reduce below the standard, which to raise above it, and which to create that nobody offers. The first two fund the last two.

One factor the whole category is competing on without noticing

Run the first step of the grid on your own market and you will list price, speed, range and expertise. One factor that will not appear is whether an assistant names you when a buyer asks who to use, and yet that answer now arrives before any of the others are compared. Almost nobody in any category is working on it, which makes it the kind of factor the framework is built to find: uncontested, cheap to start on, and invisible to everybody scoring the usual six. Reading the current answer costs nothing. AI Knows Us asks the buying questions customers ask across the main assistants and records which companies get named and what the answers were built from.