red ocean traps. mental models that undermine market-creating strategies

RED OCEAN TRAPSMental Models that Undermine Market-Creating Strategies

CREATING BLUE OCEANS

• Companies increasingly recognize the value of creating and capturing new markets

• Many attempt to make market-creating strategic moves, dedicating significant resources and efforts to do so

• Yet, our research found that few seem to crack the code

what can keep you anchored in RED OCEANS?As you set sail towards creating BLUE OCEANS of new market space,

An important factor is the RED OCEAN TRAPS

RED OCEAN TRAPS

Red Ocean Traps refer to managers’ mental models

• These are managers’ ingrained assumptions and theories about how the business world works

• They help managers navigate existing market space, yet they can prevent organizations from entering blue oceans

• There are six salient ones

Seeing Market-Creating Strategies

Customer-Oriented Approaches

TRAP ONE

The mind-set that….

…leads you to focus on making customers happier.

But NONCUSTOMERS, not customers, hold the key to creating new markets.

They provide the greatest insights into the pain points that limit the size of your industry.

TRAP TWO

Treating Market-Creating Strategies

Niche Strategies

Creating new markets is not about uncovering a niche in an existing market.

Segmentation only divides up the existing market into smaller and smaller slices by focusing on differences among customer groups.

It’s DESEGMENTION that creates new markets by focusing on commonalities across buyer groups rather than differences among them.

TRAP THREE

Confusing Market-Creating Strategies

Technology Innovation

Why did it fail to find a wide customer base?

Because it didn’t link technology to buyer value.

While technology innovation can win you accolades, it does not necessarily create new market space.

It’s, in fact, VALUE INNOVATION that launches commercially

compelling new markets by tying technology innovation to value.

TRAP FOUR

Equating Market-Creating Strategies

Creative Destruction

The theory of creative destruction conditions you to assume that the new always destroys and replaces the old.

Like Viagra!

Like Microfinance!

But new markets can also involve NONDESTRUCTIVE CREATION.

Nondestructive creation happens when new solutions are created where none previously existed.

It creates new demand without displacing existing products and services.

TRAPS FIVE

Differentiation

To position yourself well on the productivity frontier you are conditioned to accept value-cost trade-offs.

Differentiation comes with high prices for customers and high costs for your company.

But to create new markets, differentiated value for buyers must be accompanied with lower costs for your company.

It’s about breaking the value-cost trade-off.

TRAPS SIX

Low-Cost Strategies

With a low cost strategy, you compromise on value.

To create new markets you should pursue differentiation AND low-cost.

Otherwise you risk becoming just another low-cost player in an existing market.

Differentiated offerings must come with lower costs,

Differentiated offerings must come with lower costs, and low-cost offerings must be clearly differentiated in buyers’ eyes.

So, will you avoid the traps?

Or will you get stuck in red oceans?

• Be sure to check your mental models, as you go for creating BLUE OCEANS of new market space.

ALIGNING YOUR MENTAL MODELS WITH

MARKET-CREATING STRATEGIES

• Be sure to check your mental models, as you go for creating BLUE OCEANS of new market space.

• If they are misaligned with your intended strategic purpose of new market creation, you need to challenge, question, and reframe them.

ALIGNING YOUR MENTAL MODELS WITH

MARKET-CREATING STRATEGIES

To learn how to avoid RED OCEAN TRAPS

get the Expanded Edition of

BLUE OCEAN STRATEGY.

red ocean traps. mental models that undermine market-creating strategies

kim mauborgne

new markets

treating market

confusing market

existing market space

red oceans

niche strategies

customer groups

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