Red vs Blue Ocean Strategy

Study Notes

Red Ocean Strategy

A red ocean represents existing markets with well-established competitors.
Competition is intense, characterized by price wars, product differentiation battles, and aggressive marketing campaigns.
Companies focus on capturing market share from existing competitors.
Growth typically comes at the expense of competitors, with limited room for expansion.
Often involves attracting customers of existing competitors.
Strategies are focused on doing things better than competitors within existing industry boundaries.
Differentiation is emphasized, but it's a race to the bottom in terms of price competition.
A fixed pie mentality prevails, meaning the total market size is assumed to be limited.

Blue Ocean Strategy

A blue ocean represents previously unexplored market space.
It signifies a market with high growth potential and fewer competitors.
Companies focus on creating new markets, not just conquering existing ones.
Growth is driven by creating new demand and industry space.
Strategies emphasize creating new value propositions that satisfy unaddressed customer needs.
It aims to increase the size of the market and create new demand.
Innovative and value creation and differentiation are core strategies.
The goal is to establish a uniquely differentiated position in the marketplace.
No reliance on competing directly with existing competitors in order to advance.

Key Differences between Red and Blue Ocean Strategies

Competition: Red ocean strategies focus on competing in existing markets, while blue ocean strategies aim to create new markets.
Growth: Red ocean growth often comes at the expense of competitors, blue ocean growth comes by creating demand in a new or existing market for unaddressed needs.
Value: Red ocean often focuses on lowest price point or differentiation. Blue ocean focused on unique value creation and differentiation.
Innovation: Both strategies involve innovation, but blue ocean innovation is more ambitious, focused on creating entirely new products and services.
Market Size: Red oceans assume a fixed market size in which success involves taking market share from competitors. Blue oceans aim to create and expand the market itself.

Implementing Blue Ocean Strategies

Identify Unmet Needs: Companies first need to determine what specific needs customers are not being met and that could be addressed.
Competition Analysis: Competitive analysis is used to understand the common strategic choices, but the focus is not just on the competition but on unaddressed needs.
Value Innovation: The concept of value innovation is central—finding ways to lower costs while also increasing customer value proposition.
Strategic Positioning: Strategic positioning involves creating a unique value proposition within a new market space.
Customer Validation: Validating the customer segment and its demand for the product or service is an essential step.

Elements of Value Innovation

Reduce: Reduce the use of some existing features or costs.
Eliminate: Eliminate some features from existing products or processes.
Raise: Increase the value of particular existing features.
Create: Create new features or elements that were not there before.

Framework, steps, and tools examples for identifying Blue Oceans

Strategic Analysis Tools:
- SWOT Analysis
- Porter's Five Forces

General Market Competition Considerations

Competitive rivalry: The intensity of competition among existing competitors.
New entrants: The potential for new companies to enter the market.
Substitute products or services: The threat of products or services that could replace the existing ones.
Bargaining power of buyers: The ability of customers to negotiate prices and terms with businesses.
Bargaining power of suppliers: The ability of suppliers to negotiate prices and terms with businesses.

Description

Explore the key differences between Red Ocean and Blue Ocean strategies in business. This quiz will test your understanding of market competition, strategic positioning, and growth opportunities. Learn how companies can choose between competing in crowded markets or creating new market spaces.