Red vs Blue Ocean Strategy

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.