UTS24760 Chap.5 Blue Ocean Strategy and Price Positioning
Blue Ocean Strategy and Price Positioning
The strategy half of Module 1 reaches pricing by an indirect route. It begins with two gaps that a strategy has to close: the strategic gap between the environment's opportunities and threats and the business, marketing and new product strategy a firm has chosen, and the capability gap between that strategy and the firm's actual strengths and weaknesses. Competing harder closes neither.
Red ocean and blue ocean strategies are then contrasted across six rows, and the pricing row is the fourth: a red ocean strategy makes the value cost trade off, while a blue ocean strategy breaks it.
Underneath sits a difference of mindset, structuralist against reconstructionist, where the first takes structural conditions as given, focuses on competition and serves current customers, and the second holds that market boundaries can be reconstructed, focuses on alternatives and pursues non customers.
The operating tool is the eliminate, reduce, raise and create grid: which long assumed feature could be dropped altogether, which one could be pulled far below the level everyone else works at, which deserves to go far past that level, and what could be added that nobody in the market supplies.
Two questions take cost out and two put perceived value in, which is how a firm achieves differentiation and low cost together rather than choosing between them. The chapter works two cases the subject uses.
A circus in long term decline was reinvented by eliminating the animal show and star performers, keeping and elevating emotion, humour, danger and the tent, and creating a theme, a refined environment, multiple productions and an original score, with tickets priced against opera at $60 to over $100 while the big league rival charged under $50. An Australian wine producer with no marketing budget raised its price to $6.99, the average price of a premium six pack of beer, eliminated label jargon, mass advertising, aging quality and vineyard prestige, reduced complexity and range to two wines, and created easy drinking, ease of selection and fun.
The pricing lesson in both is the same: reconstructing the industry boundary reconstructs the reference price.
What this chapter covers
- 01
The strategic gap and the capability gap
- 02
Six contrasts between red and blue ocean strategy
- 03
Structuralist and reconstructionist mindsets
- 04
The eliminate reduce raise create grid
- 05
Which half of the grid is a cost decision and which is a price decision
- 06
Reinventing a declining entertainment industry
- 07
The strategic canvas and the value curve
- 08
Why the wine entrant raised price rather than cutting it
Building a grid and reading the price that follows from it
- +1Eliminate a factor the industry takes for granted. The twelve month contract exists to protect the operator, not to serve the member, and removing it takes out debt collection and churn management cost while removing the largest objection at sign up.
- +1Reduce what the industry over supplies. Equipment breadth: most members use a fraction of the floor, so a smaller, better maintained equipment set cuts capital and maintenance cost with little perceived loss.
- +1Raise an underserved factor and create one drawn from the alternative. Raise coaching contact, which is what members actually attribute results to; create a scheduled outdoor session, drawn from the run club the non customer currently chooses instead of a gym.
- +1Read the price. Two eliminated or reduced cost factors and two added value factors support a monthly price between the incumbent gyms and the alternative the non customer is buying, not below the cheapest gym. Underpricing here would discard the value created and put the offer back into the red ocean it was designed to leave.
Key terms
- Red ocean strategy
- Competing in existing market space to beat the competition and exploit existing demand, accepting the value cost trade off and aligning the whole system of activities with a choice of either differentiation or low cost.
- Blue ocean strategy
- Opening ground nobody is fighting over, so that rivals become beside the point and fresh demand is brought into being, refusing the trade off between value and cost and lining every activity up behind both at once.
- Reconstructionist view
- The position that market boundaries can be reconstructed, so the relevant focus is alternatives rather than competitors and non customers rather than current customers. It is the mindset that makes the eliminate, reduce, raise and create questions answerable.
- Strategic canvas
- A chart of the factors an industry competes on against the level of emphasis each player gives them, producing a value curve for each competitor. Incumbents in a mature industry usually trace near parallel curves, and a new value curve has a visibly different shape rather than a lower level.
Blue Ocean Strategy and Price Positioning FAQ
Why is this a pricing topic rather than a strategy topic?
Because of the reference price. A firm that accepts the value cost trade off chooses a point on the price value map and defends it against the same set of competitors, so its price is judged against their prices.
A firm that reconstructs the factors an industry competes on changes what the customer is comparing against: the wine entrant benchmarked its price against a premium six pack of beer, not against other wine, which is why a price rise was available to a producer with no marketing budget. You do not win a price argument by being cheaper than the comparison, you win it by changing the comparison.
Does a blue ocean move always mean a higher price?
Not always, but it usually means a different price level rather than a discount, and often a higher one. Eliminating and reducing factors lowers the cost base, which creates room to price below incumbents if that is strategically useful; raising and creating factors lifts perceived value, which creates room to price above them.
The circus case priced against opera and the wine case priced against beer, and in both the price was set by the alternative the target customer was actually buying rather than by the industry being left behind.
How much of the case detail do I need to remember?
Remember the structure and the direction of the price move, not every action. For each case you should be able to say what was eliminated, what was created, and what the price was benchmarked against. The examinable content is the method: a grid with entries in all four cells, a value curve whose shape differs from the incumbents, and a price justified by the new reference point.
Reproducing lists of actions without the price logic scores in the descriptive band.
Assessment move
Work backwards from the price. For each of the two cases, write the price decision first and then list the grid entries that made it possible. Doing it in that order trains the habit the assessment rewards, because a case report that reaches a price and then justifies it with the grid reads as analysis, while one that lists grid entries and mentions price at the end reads as a summary.
Then apply the grid to an industry you know well enough to argue about, and force yourself to put something in the eliminate cell that the industry genuinely treats as non negotiable. That cell is where the discomfort is, and it is the one students leave empty.
Bring the result to a workshop and see whether anyone can defend the factor you removed; a disagreement of that kind is exactly the sort of specific workshop moment the reflective note rubric is asking for.
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