Blue Ocean StrategyvsPricing Strategy

Blue Ocean Strategy is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. Instead of competing head-to-head in existing, crowded industries (Red Oceans) where competitors fight for a shrinking profit pool, you make the competition irrelevant by creating undisputed market space.

Pricing strategy determines how much you charge customers and directly impacts revenue, positioning, and perceived value. The three primary approaches: (1) Cost-Plus: price = cost + margin (lazy, leaves money on the table). (2) Competitor-Based: match or undercut competitors (race to the bottom). (3) Value-Based: charge 10-20% of the value you create for the customer (optimal). If your product saves a customer $50,000/year, charging $5,000/year (10% of value) is the sweet spot. The customer gets 10x ROI, and you capture meaningful revenue. Pricing is the fastest lever for revenue growth — a 1% price increase typically adds 11% to profits.

Accepting industry norms as permanent. When you focus solely on beating the competition, you adopt their rules, their metrics, and their cost structures. If your entire strategy is to be '10% faster' or '10% cheaper' than the incumbent, you are fighting a bloody battle in a Red Ocean.

The biggest trap is pricing based on cost ('it costs $10 to deliver, so I'll charge $15'). This leaves massive value on the table. If your product saves a customer $10,000/year, charging $50/month ($600/year) captures only 6% of value — criminally underpriced regardless of your costs. The second trap: not testing prices. Most SaaS companies set pricing once and never change it. You should test pricing quarterly. The third trap: too many tiers. More than 3-4 tiers creates decision paralysis. Dropbox went from 4 tiers to 3 and saw conversion increase 15%.

Use the Four Actions Framework. Look at the factors your industry takes for granted: What can you ELIMINATE? What can you reduce well below the industry standard? What should be raised well above the standard? What should be CREATED that the industry has never offered?

Use value-based pricing: (1) Interview 10 customers and ask: 'How much money or time does our product save you?' (2) Calculate the average value created. (3) Price at 10-20% of that value. (4) Create 3 tiers (Starter, Pro, Enterprise) with clear feature differentiation. (5) Test annually: A/B test pricing pages, conduct Van Westendorp surveys, and monitor win rates by price point.