The blue ocean and red ocean strategies help businesses enter uncontested and existing markets and grow their businesses and brand.
This article will discuss the strategies of the red ocean and blue ocean and their differences.
What is the Blue Ocean Strategy?
The blue ocean represents the untapped market space, and blue ocean strategies help businesses tap into it. In the blue ocean market space, opportunities are numerous, as the businesses would cater to this new and unrealized market.
With blue ocean products and services, customers do not know their needs, or their demand is unmet. Creating blue ocean products or services is innovative because existing (a.k.a. red ocean businesses) overlook these markets, considering them insubstantial.
Since this market is untapped, it is without boundaries, with vast and unrealized potential. This allows blue ocean companies to set the boundaries of the market and earn massive profits.
What is the Red Ocean Strategy?
The red ocean represents the existing market, and red ocean strategies help businesses compete in it. There is a known demand from consumers in the red ocean market. Organizations strive and compete to satisfy the demand in this space.
To operate a successful business in the red ocean market, an organization must satisfy the demand. Here, competition is stiff and unavoidable.
The race to fulfill market demand makes businesses resolve to “bloody” marketing, advertising methods, and business strategies (hence the name red ocean). Businesses that cannot meet these aggressive strategies either make low profits or are driven out of business.
The red ocean strategy is focused on outperforming its business rivals to grab market share.
Blue Ocean Vs Red Ocean Strategy
To compare the blue and red ocean strategies, let’s assume the market “ocean” consists of
- Industries and businesses offering either a product or service
- Consumers and clients purchasing products
- A competitive business environment with multiple, similar products and services
The blue ocean strategy has different strategies than the red ocean strategy. These differences are as follows.
Existing Market Vs. New Market Creation
The red ocean strategy doesn’t grow beyond the visible boundaries of the marketplace.
In contrast, the blue ocean strategy searches for opportunities to create new markets where none exist.
For example, Canon created a new market for small desktop printers by shifting the target customers from corporate purchasers to actual users — assistants and secretaries. As a result, the bigger office photocopier soon lost control of the market.
The blue ocean strategies create uncontested market spaces. Here, demand is innovated rather than battled for, and businesses have many profitable and quick expansion opportunities.
Unique products/services are the core foundation of the blue ocean strategy. On the other hand, red ocean strategies compete in already-existing market spaces. Red ocean businesses can compete in the market by offering superior products and services.
Beat Competition Vs Render Competition Irrelevant
The red ocean strategy concentrates on beating the competition with better pricing, aggressive marketing, and excellent user experience. For example, Amazon followed this strategy and became the world leader in eCommerce.
The blue ocean strategy concentrates on creating alternatives. For example, Uber has changed the functioning of the cab industry. It eliminated the shortcomings of the traditional cabs and turned non-cab users into customers.
Blue ocean strategies create products and services to make competition irrelevant. This differs from red ocean strategies, which are focused on beating the market competition and are used in markets where supply outmatches limited demand.
Capture Existing Demand Vs. Create New Demand
Red ocean strategies target the existing markets by designing strategies that optimize existing demand through pricing strategy and product distinctiveness. On the other hand, blue ocean strategies help generate and develop new markets. An example of a blue ocean strategy is when Netflix converted DVD sales and rental business into a streaming service.
Make Value Vs. Break Value
In a red ocean strategy, a company either creates more value or lowers the price. The blue ocean strategy aims to hit both targets: creating value through differentiation and setting a low cost by opening up a new market space.
For example, Airbnb didn’t buy new apartments or hotels. Instead, they redefined the travel experience by connecting existing property owners and travelers on a standard, easy-to-use platform.
How to Move from Red Oceans to Blue Oceans
The shift from a red ocean strategy to a blue ocean strategy is gradual. The process is common for all industries, and it involves:
- Acceptance is the first step toward change; red ocean companies should define the industry they operate in and the scope of their operations. This definition is necessary to help businesses understand their operations and how they can create blue oceans from their existing businesses.
- Businesses can be classified into strategic groups based on their services or products; red ocean companies intending to shift to the blue ocean market must curate their products to stand out in these strategic groups.
- Plan to cater to a fixed group. Consumer groups can be wholesalers, retailers, or end-users. The consumer groups help narrow the focus. With focused consumer groups, red ocean companies can analyze market needs and determine how they can create demand from these groups.
- Similar businesses offer similar products to a red ocean company’s product. Since untapped value usually resides in complementary services and products, red ocean companies can steer into the blue ocean by analyzing the hypothetical consumer process and seeking to provide total solutions to consumers.
- To ensure the effectiveness of blue ocean endeavors, red ocean companies should come to terms with the realities of their product or service scope and stick to it. Red ocean products or services that are emotionally oriented should seek blue ocean creations within this line, while function oriented products and services should stay within that realm.
- Red ocean companies seeking to tap into blue oceans should not ignore the external trends. They are useful when realized and detrimental when ignored.
Summary
The difference between the blue ocean and red ocean strategy lies in the target market. The blue ocean strategy opens a new market, and the red ocean strategy competes in an existing market.