The Red Ocean vs. Blue Ocean Strategy – Which One to Choose?
Business is not just about creating new products and services and selling them in the market. Strategy is also one of the very important aspects of a business. Whether it’s a hot dog cart or a Fortune 500 company, flying blind without any strategy can prove to be costly.
As a consultant, you will come across a lot of projects in which you will have to help clients create a strategy that will help them survive and thrive in the market.
There are many strategy frameworks that can help you guide your client in the right direction. The Blue and Red Ocean Strategies are two such frameworks that consultants all around the world use to assist businesses in defining and achieving their long term vision.
So, what is the Blue Ocean Strategy? And what is the Red Ocean Strategy? And what is the difference between the two?
Let’s find out : Red vs. Blue Ocean.
The Red Ocean
This strategy involves coming up with ideas and plans to sustain a business in a market that is full of competitors. Companies need to look for factors that differentiate them from their competition, and this can include a unique selling point (USP), target audience, customer experience, branding, and price.
Now, you may be wondering: “Why do they call it the Red Ocean Strategy”? Well, think about it. What would happen in an ocean where there are a lot of big and small fish fighting each other for space? You guessed it right. The ocean will turn red because of all the blood. That is why companies resort to the Red Ocean Strategy to participate in this bloodshed in an industry with cutthroat competition. If that sounds intense to you, it’s because it is, and is certainly not for the faint of the heart.
In short, the Red Ocean includes all the markets and industries that already exist today. It has lots of sharks (companies, corporations, enterprises) in them—each fighting for a larger share constantly to ensure its survival. Oftentimes, because of lots of similarities between existing products in Red Ocean Industries, the competitive strategy drops to just price.
For example, commodities like sugar, cotton, fruits, etc. can be sold under many brand names, but there isn’t much of a difference between the actual product. So, the sugar that is sold by Company A will taste exactly like sugar from Company B. Why? Because it’s sugar! It’s just sugar. So, in this case, the company that can sell its sugar for the lowest price is highly likely to have higher chances of making more sales.
The Blue Ocean
Let’s first understand why this strategy is called the “Blue Ocean” Strategy. What would be the color of the ocean in which there are only a couple of fish, and they don’t fight and draw blood for territory? Well, in this case, the ocean will have its natural color, which is blue. And that is why this strategy is called the Blue Ocean Strategy. This strategy refers to entering an uncontested market where there are no competitors.
Blue Ocean Companies may be created from within Red Ocean Companies. The idea is just to tap into the marketplace that has potential but has not been explored by anyone yet. It’s like sailing to unknown islands where no one has been before and finding a rich reserve of resources on some of them.
You must know that the Blue Ocean Strategy works when pioneers find the right opportunity at the right time and optimize it to the fullest. There is no need to worry about competitors initially because the pioneer will have the first-mover advantage.
Red vs. Blue Ocean
To recognize when to use which strategy, let’s understand the differences between both of them.
1. Market
The Red Ocean Strategy focuses on existing markets, whereas the whole concept of the Blue Ocean Strategy is to break the status quo and come up with something unique and new. For example, cold drinks belong to the Red Ocean as there are so many companies selling them. However, a new generation of 3D printers or self-driving electronic cars would belong to the Blue Ocean.
2. Competitors
As explained above, the Red Ocean Strategy involves fierce competition, whereas the whole idea of competition is irrelevant in the Blue Ocean Strategy. This is because it involves exploring new markets that neither other companies nor customers know anything about.
3. Differentiating factors
Due to the commoditization of many products in the Red Ocean, the ultimate differentiating factor often tends to be price. If you recall the example of sugar sellers that’s mentioned above, you’ll be able to understand this point better. Now, in the Blue Ocean, there can be a lot of differentiating factors and price can be one of them, but not necessarily the only one. For instance, if a new type of smartphone appears in the market, one that is better than all Apple and Android smartphones, the differentiating factors could include distinctiveness, ease of use, better performance, etc. At this stage, companies producing the new type of smartphone won’t be under pressure to decrease their price because of the absence of competitors in the market.
4. DemandThe Red Ocean Companies compete with each other in order to fulfill the current demand in the market, but Blue Ocean Companies, with their innovation and foresightedness, create a new type of demand and solve the problems that customers didn’t know they had before.
Conclusion
And that brings us to the end of this article. In conclusion, both these strategies work if one knows how and when to use them correctly. Of course, there is way more to the Blue Ocean and Red Ocean Strategies than what’s mentioned in this article. That is why taking a formal course and earning a certification in these frameworks is the way to go if you’re a consultant and want to explain these concepts to your clients like a professional.
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