Let's go in-depth with a Blue Ocean strategy example featuring Tesla
We’ll see how Tesla’s model 3 became the best-selling luxury car in the world in 2021, beating the both BMW and Mercedes in sales. We'll give you a complete strategy canvas example in excel so you can easily make your own. You can download the strategy canvas template (in excel) and slides here.
If you know Patrick Bet David, an entrepreneur and influencer, Blue Ocean Strategy ranks as #1 on his list of 10 must read books – you can check out his list here.
First, what is the meaning of blue ocean strategy?
Michael Porter and other strategy experts typically offer an either/or approach to strategy: either pick low cost OR differentiation, but not both. Renee Moauborgne and W. Chan Kim flout this ultimatum in the book, claiming that companies can
create uncontested market space and vie for BOTH low cost and differentiation.
In this blue ocean world you’ve created, the competition is irrelevant, because you are competing on different dimensions. You break the value/cost trade off because you are creating unique value and capturing new demand.
The majority of companies, especially heritage brands and organizations, live in a red ocean of rivalry where strategies get copied and become similar, always fighting tooth and nail to eke out competitive advantage to maintain and grow market share.
There are plenty of cases - if you have some good Red or Blue Ocean examples please comment below!
Blue Oceans generate significantly more relative profit
Before we look at Tesla, take a peek at this slide demonstrating how despite red ocean products amounting to almost 90% of launches, they only deliver about 40% of profits. That small number (around 10%) of blue ocean products launches amounts to a astonishing 60% of profit. I think you get the take-away.
Creating blue oceans requires bold risk taking
Large organizations shy away from Blue Oceans because:
- Blue oceans are often too small to drive enough business at the get go (a la the
- Blue oceans represent a risk to the short term, as resources and focus get diverted
from what you’ve always done (and is proven) to and uncertainty and risky future
- Blue oceans products are often a direct threat to your core business. We’ve all
heard that Kodak had digital photography technology in the 90’s but said no to it
because quality was poor and margins were low. Why cannibalize a strong
traditional business by creating less profitable competition for yourself?
The list goes on and on.
Here we go: Blue Ocean strategy example of Tesla
Elon Musk looked at the luxury car space and noticed it was ripe for disruption. His passion for engineering technology, and the fact that he's rich and people know he'll innovate where others don’t dare, allowed him to envision a new car landscape.
The introduction of the Model 3 gave Tesla another superior electric vehicle at a price point under $40k that appeals to the masses.
As you see from the strategy canvas I put together below, Tesla makes incredibly bold strategic trade-offs in order to win. Tesla is willing to be weak in areas that were previously table stakes in order to excel across new dimensions.
Weak Areas:
- Tesla doesn’t spend on advertising in any way close to the big players
- Tesla doesn’t even have build quality or an interior on par with Lexus or
Mercedes, it’s simply “good enough” to be a luxury car
- Tesla went CRAZY and said NO to dealerships. Who else could do this???
Parity:
- Tesla is about the same in terms of its ride and design
o Sure, Tesla has quirky features like a whoopie cushion sound in some of its
seats and a nifty executive table in the back seat as an option, but it’s the
technology, not necessarily aesthetic design that Tesla competes on
Break Out Superiority:
- This is the blue ocean territory
o No one rivals Tesla on environmental impact, fuel cost, technology (think self-
driving cars you can buy NOW), and their expansive charging station network.
But will the calm seas last forever?
Tesla stock is up +19,000% since its IPO due to the blue ocean it created for itself. But Lexus, Mercedes, Audi, and BMW are introducing electric cars to compete, and the blue ocean will inevitably turn ruddy in no time.
The competition is catching up
The strategy canvas below, orange line, shows where the luxury market may be in 2025. It’s much, much closer to Tesla, eroding their differentiated stance.
That’s why Tesla purchased a solar panel company, making its products better than any other company by significant orders of magnitude, with plans to unlock incredible demand, all under the Tesla brand.
Do you think Tesla will fall victim to competitor’s red ocean strategy against it?
How will Tesla continue to navigate its business toward blue oceans?
Let us know in the comments.
Herman Melville, probably talking about the allure of blue ocean strategy
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