[MUSIC PLAYING] In 1984, Guy Laliberté co-founded Cirque du Soleil. Soon, Cirque was bringing in revenues that incumbents, like Ringling Brothers, had taken more than a century to attain, even though the circus business was in long term decline. How did Cirque thrive in such a dismal environment?
The answer can be found in the theory that the business universe consists of two kinds of markets, red oceans and blue oceans, a concept pioneered by inset professors, W Chan Kim and Renée Mauborgne. Red oceans represent existing industries and markets where industry boundaries and the rules of competition are well-defined. Companies strive to outperform rivals and grab a bigger share of existing demand.
As the space gets crowded, fierce competition turns the water bloody. Competitive or market competing strategy it's about how to occupy red oceans. By contrast, blue ocean, or market creating strategy, is about how to create and capture unknown markets where demand is created rather than fought over.
In some cases, this spawns entirely new industries, but most blue oceans emerge when a company alters the boundaries of an existing industry, as when Cirque du Soleil blurred the line between circus and theater. Cirque made the acts more artistic and sophisticated, attracting a whole new group of customers, adults who are prepared to pay premium ticket prices that they would for the theater or the opera. Cirque also eliminated several elements of the traditional circus, like costly animal acts and star performers.
Cirque invented a new and profitable market space without making the typical trade off between value and cost. Cirque pursued both differentiation and low cost in what Kim and Mauborgne called value innovation. The simultaneous pursuit of value and cost is the logic of Blue Ocean strategy.
Based on their study of more than 30 industries, companies that can create blue oceans usually reap the benefits for 10 to 15 years because they are hard for rivals to copy. To realize blue ocean potential, like Cirque did, companies should chart a strategic course past traditional industry boundaries to create new market space.
