Blue Ocean Strategy: Definition, ERRC Grid & Examples

tl;dr

• Blue Ocean Strategy is a strategic approach that guides companies to create new, uncontested market spaces rather than competing for share in existing markets — Blue Ocean at the strategic leverage point identifies where value innovation has the greatest effect on competitive position.
• Without Blue Ocean thinking, a company remains trapped in the Red Ocean — competing on the same factors as everyone else, eroding margins, and investing in differentiation that customers do not reward.
• Those who deploy the ERRC Grid (Eliminate-Reduce-Raise-Create) and the Strategy Canvas as tools can systematically develop value curves that fundamentally diverge from industry averages.

What Is Blue Ocean Strategy?

Blue Ocean Strategy is a strategic approach by W. Chan Kim and Renée Mauborgne that guides companies to create new market spaces where competition becomes irrelevant. Kim and Mauborgne published the concept in 2005 in “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.” The core of the market creation strategy is value innovation — simultaneously lowering costs and increasing buyer value.

A Strategy Canvas reveals the difference visually: while competitors compete on the same factors (Red Ocean), a Blue Ocean shifts the value curve so radically that comparison becomes impossible. Kim and Mauborgne emphasize: “Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers.”

Blue Ocean vs. Red Ocean

A Red Ocean is an existing market with known boundaries, defined rules, and direct competition. Companies fight for market share — one’s gain is another’s loss. A Blue Ocean is a new market space that a company creates through value innovation. The goal is not to be better than the competition but to make competition irrelevant.

The market creation strategy thus differs fundamentally from classical competitive strategy, which optimizes positioning within existing industry structures. Blue Ocean Strategy questions the industry structure itself.

The Strategy Canvas — Making Value Curves Visible

The Strategy Canvas is the central diagnostic tool of Blue Ocean Strategy. It plots the value curves of all relevant competitors on the same axes. The x-axis shows the industry’s competing factors (price, quality, service, prestige, variety, etc.), the y-axis shows each provider’s investment level per factor.

Kim and Mauborgne define three qualities of a compelling Blue Ocean value curve: focus (clear priorities rather than uniform distribution), divergence (the curve visibly separates from the industry average), and compelling tagline (the value proposition is communicable in one sentence). If any of these qualities is missing, the strategy is, according to Kim and Mauborgne, “likely to be muddled, undifferentiated, and hard to communicate.”

The ERRC Grid — Four Actions for Value Innovation

The ERRC Grid (Eliminate-Reduce-Raise-Create) is the operational tool that translates the Strategy Canvas into concrete decisions. Four questions drive the market creation strategy:

Action	Question	Effect
Eliminate	Which factors that the industry takes for granted can be eliminated?	Cost reduction
Reduce	Which factors can be reduced below industry standard?	Cost reduction
Raise	Which factors can be raised above industry standard?	Value increase
Create	Which factors that the industry has never offered can be newly created?	Value increase

The top two actions (Eliminate, Reduce) lower costs. The bottom two (Raise, Create) increase buyer value. Only when all four act simultaneously does value innovation emerge — the foundation of every Blue Ocean.

Examples of Blue Ocean Strategy

Cirque du Soleil — Circus Without Animals

Cirque du Soleil eliminated animal acts, star performers, and three-ring shows. It reduced humor and thrills to a minimum. It raised the artistic quality of acrobatics. It created a theatrical experience with narrative, music, and design. The result: Cirque du Soleil achieved in less than 20 years a revenue that took Ringling Bros. over 100 years to reach — at premium prices triple those of a traditional circus ticket.

Nintendo Wii — Gaming for Non-Gamers

Nintendo eliminated graphics performance as a competing factor and reduced the console’s processing power. It raised accessibility: anyone could operate the Wii, from children to grandparents. It created motion controls. The Wii sold 101 million units and reached an audience that Sony and Microsoft had never considered as customers.

Southwest Airlines — Flying at the Price of Driving

Southwest eliminated meals, assigned seating, lounges, and connecting flights. It reduced wait times through 25-minute turnarounds. It raised flight frequency. It created a price level that competed with driving the same route by car. Southwest did not turn air travelers into customers — it turned car drivers into customers.

Yellow Tail — Wine Without Wine Jargon

Yellow Tail eliminated wine jargon, aging potential, and complexity. It reduced the range to two varieties (red, white). It raised drinkability and fun. It created an entry point for beer drinkers and cocktail drinkers who had found wine intimidating. Kim and Mauborgne document: from its market launch in July 2001, Yellow Tail rose to become the best-selling imported wine in the US — at $6.99 per bottle, double the price of a jug wine.

Distinguishing Blue Ocean Strategy from Related Concepts

Blue Ocean Strategy is not the same as disruption

Blue Ocean Strategy is a strategic approach that creates new market spaces through value innovation, while disruption describes a process in which an initially inferior product overturns an existing market from below. A Blue Ocean can be disruptive but does not have to be — Cirque du Soleil did not displace anyone but created an entirely new market.

Blue Ocean Strategy is not the same as differentiation

Blue Ocean Strategy is a strategic approach that creates new market spaces through value innovation, while differentiation according to Porter describes a position within an existing market where a company offers unique features and charges a price premium. Blue Ocean transcends the trade-off between differentiation and low costs — value innovation requires both simultaneously.

Blue Ocean Strategy is not the same as niche strategy

Blue Ocean Strategy is a strategic approach that creates new market spaces through value innovation, while a niche strategy occupies a narrow segment of an existing market. Niche strategy accepts existing industry boundaries and focuses within them. Blue Ocean Strategy redefines industry boundaries and aims for mass appeal, not a narrow segment.

Blue Ocean Strategy in Strategic Practice

Blue Ocean Strategy with validation logic connects the creative redesign of value curves with systematic market validation. Pure Blue Ocean analysis shows which factors can be shifted — but not whether the resulting market space actually exists. That is why Aydoo combines Blue Ocean tools with rapid market validation in its strategy consulting: Strategy Canvas as diagnosis, ERRC Grid as design, and hypothesis testing before execution.

Blue Ocean at the strategic leverage point means: not all competing factors are equally important. Strategic analysis identifies which factors yield the greatest effect on competitive position when shifted — and where the industry already overinvests.

Conclusion

Blue Ocean Strategy is a strategic approach that systematically guides companies to create new market spaces rather than fighting for share in crowded markets. The Strategy Canvas and ERRC Grid provide the concrete tools to diagnose and redesign value curves. Cirque du Soleil, Nintendo Wii, Southwest Airlines, and Yellow Tail demonstrate: Blue Oceans do not arise by chance but through the deliberate decision to eliminate, reduce, raise, and create industry factors.

Growth strategy defines the direction of growth. Scaling shows how to serve the new market space efficiently. And disruption describes what happens when another company finds the Blue Ocean first.

Sources

• Kim, W. Chan; Mauborgne, Renée: Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Harvard Business Review Press, 2005.
• Kim, W. Chan; Mauborgne, Renée: Blue Ocean Shift: Beyond Competing. Hachette Books, 2017.
• Cirjevskis, Andrejs; Homenko, Genadijs; Lačē, Valērija: “Exploring the Applicability of Blue Ocean Strategy to the Latvian IT Sector.” Journal of Economics and Management, 2011.
• Mi, Jun: “Blue Ocean Strategy as a Tool for Improving Corporate Competitiveness.” International Business and Management, 2015.

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Frequently Asked Questions

What is Blue Ocean Strategy in simple terms?

Blue Ocean Strategy is a strategic approach by W. Chan Kim and Renée Mauborgne that guides companies to create new, uncontested market spaces rather than competing for market share in existing markets. The core is value innovation — simultaneously lowering costs and increasing buyer value.

What is the ERRC Grid?

The ERRC Grid (Eliminate-Reduce-Raise-Create) is the operational tool of Blue Ocean Strategy. It poses four questions: Which factors can be eliminated? Which reduced below industry standard? Which raised above standard? Which created entirely new? Together, the four actions produce a new value curve that diverges from all competitors.

What is a Strategy Canvas?

A Strategy Canvas is a diagram that plots the value curves of all competitors on the same axes. The x-axis shows the industry’s competing factors, the y-axis shows the level at which companies invest in each factor. A Blue Ocean appears as a value curve that clearly stands apart from the pack — with focus, divergence, and a compelling tagline.

What is the difference between Blue Ocean and Red Ocean?

A Red Ocean is an existing market with known rules and direct competition for market share — boundaries are defined and accepted. A Blue Ocean is a new market space where competition becomes irrelevant because the company offers value that no existing provider covers. Kim and Mauborgne emphasize that Blue Oceans are not a matter of luck but the result of systematic strategic work.

Which companies have successfully applied Blue Ocean Strategy?

Four classic examples are Cirque du Soleil (circus without animals, but with theater), Nintendo Wii (gaming for non-gamers through motion controls), Southwest Airlines (short-haul flights at the price of a car ride), and Yellow Tail (wine without wine jargon for beer drinkers). All four created new demand rather than redistributing existing demand.

Related Articles

• Business strategy — Overview of strategy types and development processes
• Disruption — What happens when another company finds the Blue Ocean first
• Ansoff Matrix / Growth strategy — Which growth direction is right
• Scaling — How to serve a new market space efficiently
• Strategic analysis — Systematically identifying leverage points in competition

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