In case you’re wondering, blue ocean and red ocean are not concepts in marine biology. The terms are used to describe two powerful business strategy tools that can be used to succeed in a cut-throat business environment. The terms blue ocean and red ocean were coined by Chan Kim and Renée Mauborgne in 2005. The ocean analogy has been used to describe the market space with two broad categories:
- Red ocean, which represents the existing market space characterized by ‘bloody’ competition
- Blue ocean, which is the untapped market potential, symbolized by the deep blue water
Let’s understand the underlying currents of the blue ocean and red ocean strategies. We’ll also discuss the difference between blue ocean and red ocean strategy to get a sense of the two.
Blue Ocean And Red Ocean Strategy
Companies traditionally work in a red ocean environment, where businesses compete to grab a bigger piece of the pie. The red ocean strategy aims to make your product survive in a market full of competitors. To beat the competition, companies try to differentiate their product from others. It could be through a unique product feature, a niche target audience, excellent customer service or competitive pricing.
Conversely, in a blue ocean, the aim is not to beat competitors but to make them irrelevant. The strategy is to sail into uncharted waters and discover a new business where there’s little or no competition, no pricing pressure and a possibility of significant profits.
To better understand the blue ocean and red ocean strategy, let’s look at some examples.
Blue Ocean Strategy
When Apple invented the iPod in 2001, they didn’t just create a successful product, they created a new category of product. They came out with a new kind of digital music player that, in Steve Jobs’ words, “Lets you put your entire music collection in your pocket and listen to it wherever you go.” This made the competition irrelevant.
Red Ocean Strategy
McDonald’s is a classic example of successful implementation of the red ocean strategy in the fiercely competitive fast-food industry characterized by aggressive discounts, new product variations and high-profile commercials. All McDonald’s did was offer superior-quality burgers with fresh ingredients in a traditionally styled restaurant and maintain a low profile. In the food business, where authenticity is paramount, McDonald’s delivered.
As we’ve seen, it’s possible to be highly successful in a saturated red ocean market, but there are also many examples of struggling startups. So, blue ocean versus red ocean—which should you explore? To know which strategy is right for you, take a closer look at the differences between red ocean and blue ocean strategies.
Differences Between Blue Ocean And Red Ocean Strategies
The key differences between red ocean and blue ocean strategies could be summarized as:
Existing Market Vs. New Market Creation
In the red ocean strategy, there’s no attempt to push beyond the visible boundaries of the marketplace.
The blue ocean strategy searches for opportunities to create new markets where none exist. To illustrate, Canon created a new market for small desktop printers by shifting the target customer from corporate purchasers to actual users — secretaries and assistants. The large-sized common office copier soon became redundant.
Beat Competition Vs. Make Competition Irrelevant
The focus of red ocean strategy is on beating the competition with aggressive marketing, better pricing and outstanding user experience, as is evident from the jaw-dropping success of Amazon, the shark in the world of e-commerce.
The blue ocean strategy focuses on creating alternatives, be it products or customers. For example, Uber did not create a new product, but it transformed the way the cab industry operates. It eliminated the pain points of the traditional cabs and converted non-cab users into customers.
Capture Existing Demand Vs. Create New Demand
The red ocean strategy tries to make the most of existing demand. A blue ocean strategy aims to create new demand. For example, Netflix made the strategic move of converting to a streaming service from a DVD sales and rental business. Now they only pay for licenses (instead of high rentals for retail outlets) and offer high-quality movies at an affordable price.
Make Value–Cost Trade-Off Vs. Break Value–Cost Trade-Off
In a red ocean strategy, an organization has to choose between creating more value for customers and a lower price. In contrast, those who pursue a blue ocean strategy attempt to achieve both: differentiation and a low cost, opening up a new market space. For example, Airbnb didn’t buy homes or hotels. They redefined the travel experience by connecting existing property owners and travelers on a common, easy-to-use platform.
Blue Ocean And Red Ocean: Are They Two Oceans?
Not really! It’s one vast ocean. It’s more about which is better for you and not a blue ocean versus red ocean question. Both blue ocean and red ocean strategies can be useful in the same organization when applied for different products. Apple has utilized both blue ocean and red ocean strategies to its advantage. It launched the iPhone in the smartphone market crowded with significant players, such as Nokia, Sony Ericsson and Motorola. Apple created a blue ocean within a red ocean. By exploring and stretching their boundaries, they created a product ahead of its time and made the competition irrelevant. However, when Apple launched iTunes, they utilized a blue ocean strategy. They disrupted the value–cost trade-off through value innovation, coming up with a win-win solution that allowed artists to earn royalty and consumers to buy single songs without having to pay for the entire album.
Blue Ocean Vs. Red Ocean
As you deliberate the blue ocean versus red ocean dilemma, keep in mind that whichever ocean you decide to sail in, it’s important to create value for the customer and keep improving your offering. Market disruptions can happen at any time. You may need to shift from the red ocean to the blue ocean due to a price war from an unexpected new entrant. You may have created a successful blue ocean, but competition is quick to follow and the blue ocean can soon become a red ocean. As blue oceans have a non-existent customer base, identifying and educating customers about the product benefits could be another challenge.
Are there opportunities beyond the constraints? Is it time to review your business strategy?
Now that you understand the difference between the concepts of red ocean and blue ocean, it’s important to learn to execute the blue ocean and red ocean strategies.
Harappa’s online Executing Solutions Course guides you through the tools and processes of Business Strategy. Learn the fundamentals of Red Ocean and Blue Ocean Strategy so you can apply them to your business and grow.
Dive into the course and create a business strategy that’s just right for your business!
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