Kim and Mauborgne's argument that competing head-on in an established market is a bloody, low-margin game, and that the better move is to build a market where the competition is irrelevant.
Red oceans are existing markets with defined boundaries and known competitors, where firms fight over a fixed pool of demand and margins get squeezed. Blue oceans are uncontested space where demand is created rather than fought over.
The mechanism is value innovation — pursuing differentiation *and* low cost at the same time, which Porter's generic strategies say you should not attempt. It works by changing what the industry competes on rather than doing more of it.
The practical tool. Take the factors your industry competes on and ask four questions:
Eliminate — which factors that the industry takes for granted should be removed entirely? Reduce — which should be cut well below the standard? Raise — which should be lifted well above it? Create — which factors has the industry never offered at all?
Eliminate and Reduce are what fund the whole thing: they take out cost, which pays for Raise and Create. Skipping them is how firms end up adding features and calling it strategy.
The classic worked example is Cirque du Soleil: eliminate animals and star performers, reduce the multi-ring format, raise the venue and artistry, create a theatrical storyline. Not a better circus — a different thing.
Use the ERRC grid explicitly with named factors. Asserting a firm 'created a blue ocean' without the grid is description.