How is blue ocean strategy distinct from differentiation strategy?

Chan Kim & Renée Mauborgne: Blue ocean strategy is about pursuing both differentiation and low cost. Under traditional competitive strategy differentiation is achieved by providing premium value at a higher cost to the company and at a higher price for customers. Think about Mercedes Benz. Differentiation is a strategic choice that reflects the value-cost trade-off in a given market structure. Blue ocean strategy, by contrast, is about breaking the value-cost trade-off to open up new market space. It is about pursuing differentiation and low cost simultaneously. Is Casella Wine’s [yellow tail] or Southwest Airlines differentiated in terms of having a different strategic profile than other players’? Yes. But are they also low cost? Yes again. Blue ocean strategy is an “and-and,” not an “either-or,” strategy. When companies mistakenly assume that blue ocean strategy is synonymous with differentiation, they tend to focus on what to improve and create to stand apart and pay scant heed to what they can eliminate and reduce to simultaneously achieve low cost. In this way, organizations inadvertently become either premium competitors or differentiated niche players in existing industry space rather than creating value innovation that makes the competition irrelevant.

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