Red Ocean Traps

The mental models that undermine market-creating strategies

by

W. Chan Kim

and

Renée Mauborgne

by

W. Chan Kim

and

Renée Mauborgne

From the Magazine (March 2015) · Long read

Artwork: Yayoi Kusama, Dots Obsession, 1998, Collection les Abattoirs, Toulouse, France; ©Yayoi Kusama. Courtesy of David Zwirner, Victoria Miro Gallery, Ota Fine Arts, KUSAMA Enterprise

Summary.

As established markets become less profitable, companies increasingly need to find ways to create and capture new markets. Despite much investment and commitment, most firms struggle to do this. What, exactly, is getting in their way?

The authors of the best-selling Blue Ocean Strategy have spent over a decade exploring that question. They have seen that the trouble lies in managers’ mental models—ingrained assumptions and theories about the way the world works. Though these models may work perfectly well in mature markets, they undermine executives’ attempts to discover uncontested new spaces with ample potential (blue oceans) and keep companies firmly anchored in existing spaces where competition is bloody (red oceans).

This article describes how to break free of these red ocean traps. To do that, managers need to:

focus on attracting new customers, not pleasing current customers

worry less about segmentation and more about what different segments have in common

understand that market creation is not synonymous with either technological innovation or creative destruction

stop focusing on premium versus low-cost strategies

HBR Reprint R1503D

Idea in Brief

The Problem

To succeed in the long term, companies must find ways to create new markets. Competing in existing markets is growing less profitable. But despite much investment and commitment, companies find it extraordinarily difficult to establish new market spaces.

Why It Happens

Managers’ mental models are based on their experiences in existing markets. Though these assumptions and beliefs have worked in the past, they undermine efforts to create new spaces.

The Solution

To avoid being trapped in old markets, managers need to:

focus on attracting new customers

worry less about segmentation

understand that market creation is not synonymous with either technological innovation or creative destruction

stop focusing on premium versus low-cost strategies

In America, corporate performance has been deteriorating for decades. According to Deloitte’s landmark study “The Shift Index,” the aggregate return on assets of U.S. public companies has fallen below 1%, to about a quarter of its 1965 level. As market power has moved from companies to consumers, and global competition has intensified, managers in almost all industries have come to face steep performance challenges. To turn things around, they need to be more creative in developing and executing their competitive strategies. But long-term success will not be achieved through competitiveness alone. Increasingly, it will depend on the ability to generate new demand and create and capture new markets.

A version of this article appeared in the March 2015 issue of Harvard Business Review.

W. Chan Kim is a professor of strategy and management at INSEAD and a codirector of the INSEAD Blue Ocean Strategy Institute, in Fontainebleau, France. He is a coauthor, with Renée Mauborgne, of the books Blue Ocean Strategy and Beyond Disruption: Innovate and Achieve Growth Without Displacing Industries, Companies, or Jobs (Harvard Business Review Press, 2023).
Renée Mauborgne is a professor of strategy and management at INSEAD and a codirector of the INSEAD Blue Ocean Strategy Institute, in Fontainebleau, France. She is a coauthor, with W. Chan Kim, of the books Blue Ocean Strategy and Beyond Disruption: Innovate and Achieve Growth Without Displacing Industries, Companies, or Jobs (Harvard Business Review Press, 2023).

Red Ocean Traps

Idea in Brief

The Problem

Why It Happens

The Solution

Partner Center

Explore HBR

HBR Store

About HBR

Manage My Account

Follow HBR