In case you're wondering, the blue ocean and the red ocean are not marine biological concepts. These terms are used to describe two powerful business strategy tools that can be used to succeed in a highly competitive business environment. The terms “blue ocean” and “red ocean” were invented by Chan Kim and Renée Mauborgne in 2005. The ocean analogy has been used to describe market space in two broad categories:
- The Red Ocean Strategy, which represents a strategy for entering an existing market characterized by “bloody” competition.
- The Blue Ocean strategy, which represents untapped market potential or the creation of an innovative value proposition without competition, symbolized by deep blue water.
Let's understand the undercurrents of blue ocean and red ocean strategies. We will also discuss the difference between “blue ocean” and “red ocean” strategies in order to get an idea of these two types of strategies.
Strategy Blue Ocean and Red Ocean
Businesses traditionally work in a red ocean environment, where businesses compete for more of the pie. The Red Ocean Strategy aims to allow your product to survive in a market full of competitors. To beat the competition, businesses try to differentiate their product from others. This could be a unique product characteristic, a niche target audience, excellent customer service, or a competitive price.
On the other hand, in a blue ocean, the objective is not to beat the competitors, but to make them useless. The strategy is to navigate uncharted waters and discover a new business where there is little or no competition, where there is no price pressure, and where significant profits can be made.
To better understand the blue ocean and red ocean strategy, let's take a few examples.
Blue Ocean Strategy
When Apple invented the iPod in 2001, it not only created a successful product, it created a new product category. They created a new type of digital music player that, in the words of Steve Jobs, “allows you to put your entire music collection in your pocket and listen to it wherever you go.” There was no longer any competition.
Red Ocean Strategy
McDonald's is a classic example of the successful implementation of the Red Ocean Strategy in the highly competitive fast-food sector, characterized by aggressive discounts, new product variants, and high-profile advertising. All McDonald's has done is offer hamburgers of “top quality with fresh ingredients in a traditional style restaurant.” In the food sector, where authenticity is paramount, McDonald's has kept its promises.
As we have seen, it is possible to succeed in a saturated red ocean market, but there are also numerous examples of start-ups in difficulty.
So, blue ocean or red ocean, which should you choose for your business? To find out which strategy is best for you, let's take a closer look at the differences between “red ocean” and “blue ocean” strategies.
Differences between Blue Ocean and Red Ocean strategies
Existing market or creating a new market
In the red ocean strategy, there is no attempt to exceed the visible limits of the market.
The blue ocean strategy is to look for opportunities to create new markets where there are none. For example, Canon created a new market for small office printers by moving the target customer base from business buyers to real users - secretaries and assistants. The large common office copier quickly became superfluous.
Overcoming the competition or making it insignificant
The Red Ocean strategy aims to beat the competition through aggressive marketing, better prices and an exceptional user experience, as shown by the meteoric success of Amazon, the e-commerce shark.
The blue ocean strategy focuses on creating alternatives, whether they are products or customers. For example, Uber did not create a new product, but transformed the way the taxi industry worked. It eliminated the pain points of traditional taxis and turned non-taxi users into customers.
Capture existing demand or create a new demand
The Red Ocean Strategy aims to make the most of existing demand. The Blue Ocean Strategy aims to create new demand. For example, Netflix made the strategic decision to move from selling and renting DVDs to a streaming service. Now, the company only pays for licenses (instead of paying high rents at retail outlets) and offers high-quality movies at an affordable price.
Making the value-cost tradeoff Vs. Breaking the value-cost tradeoff
In a red ocean strategy, an organization must choose between creating greater value for customers and a lower price. On the other hand, those pursuing a blue ocean strategy are trying to achieve both goals: differentiation and low cost, by opening up new market space. For example, Airbnb did not buy houses or hotels. It redefined the travel experience by connecting existing owners and travelers on a common, easy-to-use platform.
Blue ocean and red ocean: are they two diametrically opposed oceans after all?
Not really! It is a vast ocean. Rather, it's about knowing what's best for you and not about pitting the blue ocean against the red ocean. Both blue ocean and red ocean strategies can be useful within the same organization when applied to different products.
Apple has used blue ocean and red ocean strategies to its advantage. It launched the iPhone into a smartphone market crowded with major players, such as Nokia, Sony Ericsson, and Motorola. Apple created a blue ocean within a red ocean. By exploring and pushing her limits, she created a product that was ahead of its time and made the competition irrelevant.
However, when Apple launched iTunes, it used a blue ocean strategy. She upset the value-cost trade-off through valuable innovation, by offering a win-win solution that allowed artists to receive royalties and consumers to buy songs individually without having to pay for the entire album.
Conclusion
As you deliberate on the blue ocean/red ocean dilemma, keep in mind that no matter what ocean you decide to sail in, it's important to create value for your customers and to always keep improving your offering. Market disruptions or new competitors can happen at any time.
You may have to switch from the red ocean to the blue ocean due to a price war led by an unexpected newcomer.
You may have created a successful blue ocean, but competition is quick to follow and the blue ocean can quickly become a red ocean. As the blue oceans have a non-existent customer base, identifying and educating customers about the benefits of the product can be another challenge.