Definition: The red ocean strategy helps businesses survive in a competitive market where organizations prefer aggressive growth in the existing market instead of entering into new markets.
The red ocean strategy uncovers the level of competition, risks, and profit-making opportunities. A red ocean market is characterized by stiff competition.
This article will discuss the red ocean strategy in detail and provides tips on succeeding in red ocean markets.
What Is the Red Ocean Strategy?
The red ocean strategy is a competition-based strategy that assumes that businesses operate in a highly competitive market. They aim to create advantages to compete and grab market share. The market “game” is a zero-sum game where the gain of a company is the loss of others.
The red ocean strategy helps operate in known and crowded markets.
In this strategy, the organization’s goal is to outperform the competition to maximize profits.
Strategies to Enter the Red Ocean Market
The red ocean strategy focuses on beating the competition and gaining financial gain by overcoming the competition and attracting new consumers. A company can use the following strategies before entering a red ocean market.
Creating a Disturbance
Before entering a red ocean market, a company can create a disturbance in the market. This disturbance helps them attract customers’ attention.
Innovation
To enter a red ocean market and win, the company must create a specific demand for its product through innovation or creating a new product or service.
Providing Value
Providing value is an easy-to-win tactic in a red ocean strategy. If consumers get value for their money, they will be attracted. This helps the company grab the consumer base.
Answering the following questions helps businesses enter and win in red ocean markets.
What Is the Business’s Winning Aspiration?
A winning aspiration is a far-sighted, externally-focused statement that defines winning — ambitiously. It describes who is winning and who is losing objectively.
Where Will the Business Play?
This question answers where a company will and will not compete.
How Will the Business Win?
Offering better value than competitors is an easy way of winning. This requires delivering unique, specific, and defensible advantages that provide superior value.
What Capabilities Do Businesses Need?
Capabilities are the skills that businesses need to win in the market.
To adopt the red ocean strategy, the business must identify and utilize its capabilities to succeed in the red ocean markets.
Red Ocean Strategy Examples
SpiceJet airlines and Jio Telecom in India are examples of the red ocean strategy.
SpiceJet is a low-cost airline that has built its customer base by offering lower-cost services than its competitors. Still, it is always in direct competition with other budget airways.
As Jio Telecom entered the crowded Indian market, it disrupted the telecom industry by providing free services.
Jio brought affordable tariff plans, fast internet, calling connectivity, etc., which affected the market share and the profitability of other companies like Airtel, Vodafone, IDEA, etc.
An example of a red ocean strategy is the European airline Ryanair. They operate and compete in the saturated short-haul airline business and focus on providing low-cost services.
They achieve low costs using secondary airports away from cities, using only online booking and online check-in, and having customers pay for extra services. Ryanair offers average service, is different from other carriers, and is cheap.
Pros of Red Ocean Strategies
Red Ocean Strategies are Less Risky
Minimal risk is the key advantage of the red ocean strategy. Businesses don’t have to create new demand for their products in an established market. Instead of struggling to make a new market, a company can focus on improving its customer service and revising its pricing policy.
Future Clarity
In a red ocean strategy, the company has clarity regarding the market and consumers, which allows them to focus on the product and marketing strategy.
Requires Limited Resources
A red ocean strategy is ideal for a company with limited resources as the business is already operating in an established market. In addition, working in an established market provides a margin of safety for the company.
Cons of Red Ocean Strategy
The following are the disadvantages of the red ocean strategy:
- It can be difficult to challenge and overthrow an established competitor.
- Companies have to face tough competition.
Characteristics of Red Ocean Strategy
Red ocean strategies have the following characteristics:
- Focus on competing in an existing marketplace.
- Focus on beating the competition in the market.
- Focus on the value/cost trade-off.
- Focus on exploiting the existing demand in the market.
- Focus on performance by implementing better marketing, a lower cost base, etc.
A red ocean strategy directs an organization to follow the differentiation or low-cost strategy.
Red Ocean Strategy Checklist
- Does it fall within an existing marketplace?
- Does it follow affordability or differentiation by generating the value vs. cost bargain?
- Did the business outperform the competition in the market?
Frequently Asked Questions About the Red Ocean Strategy
How Can Companies Adopt the Red Ocean Strategy?
The red ocean strategy requires a straightforward approach: branding, marketing, pricing, and offering the best solutions in an innovative way to satisfy clients’ needs.
Here are five tips on overcoming the competition by offering better value to consumers.
#1. Don’t Offer a Product; Offer a Solution.
To adopt the red ocean strategy, a business should identify and understand the client’s needs better than its opponents.
This can be achieved by talking with clients, asking straightforward questions to understand their needs, and then providing practical solutions.
#2. Find a New Audience
Find and analyze demographic categories rivals do not satisfy and tailor strategies to reach them effectively. Identifying the right target audience can lead to high growth.
#3. Pricing
Changing prices is the conventional way of acting in a competitive market, but it still works. For example, if rivals’ prices are similar, consider selling at a lower cost.
#4. Skilled Employees
Businesses must hire the best talent in the industry to develop better products or services. If it is hard to find talent, “grow” existing employees.
A company should give employees opportunities for self-improvement by providing them with training, courses, inviting special speakers, etc. In addition, creating a culture that contributes to product improvement can help a company flourish in red ocean markets.
#5. Advertising
All effort is useless if customers are not aware of the product’s benefits.
A company’s ad campaign should explain the value of the products or services to consumers. They should communicate that the company’s products are cheaper, easier to use, or suitable for different audiences than competitors.
What Are the Significant Features of the Red Ocean Strategy?
A red ocean strategy has the following features:
It Focuses on Competing in the Existing Marketplace.
Additionally, it concentrates on beating the competition since the market and market situation will remain the same for every competitor.
It Focuses on the Value/Cost Trade-off.
Value/cost trade-off is the best method to survive in the red ocean market. The red ocean strategy encourages organizations to create more value for products or services at a lesser cost.
Businesses can create more value in the existing product or create an entirely new product.
It Focuses on Utilizing Existing Demand for a Company’s Products or Services.
Regardless of current market demand, a red ocean strategy helps to capture the market share for the business. For example, Samsung Mobile caters to every user’s need, whether they fall in the high-end customer group or the low-end customer group.
The red ocean strategy concentrates on execution through a lower cost base, better marketing, improved customer service, etc.
Conclusion
Operating in the red ocean market requires applying the right strategy and constantly analyzing the market. However, businesses must not be too focused on competitors but should aim to offer better services and products. Businesses should find something that differentiates them from their rivals.