Being in business today involves making hard decisions about how to compete and expand. Two of the most popular styles of thinking about how to do this are referred to as Blue Ocean and Red Ocean strategies. These terms may seem impressive, but they refer to fairly straightforward concepts about how companies can thrive.
Consider this: suppose you’re fishing in the sea. A Red Ocean has many other fishermen competing to catch the same fish from the same places. Everyone competes for their share, and sometimes there just isn’t enough fish to share. A Blue Ocean is discovering a brand-new fishing area where no one else has been. You have all the fish to yourself, or at least until other people stumble across your secret fishing hole.
Both methods are different ways companies might approach customers and competition. Some companies will battle it out with their competition in saturated markets. Others will attempt to do something entirely different that no one else does. Either way works, but each demands a different set of skills and attitudes. Knowing these differences assists business owners in determining which path is right for their circumstances.
Fighting in Crowded Markets: The Red Ocean Way
Red Ocean strategy is the kind of competition most people envision when they think about business competition. Businesses that follow this strategy compete head-to-head with one another for the same customers in existing markets. Consider the way gasoline stations operate. They offer essentially the same product to the same customers, so they compete primarily on price and location. If one station reduces prices, the others tend to do the same. This creates fierce competition that can be detrimental to everyone’s bottom line.
The airline business illustrates Red Ocean competition beautifully. Almost all the airlines travel to the same destinations, provide the same services, and cater to the same travelers. They continuously compete with each other to undercut fares, seats, or schedules. Customers gain from this competition in the form of cheaper fares and improved services, but airlines fail to make healthy profits because they’re competing with each other all the time. Success in Red Ocean markets requires being really good at the basics, like keeping costs low, running efficient operations, and understanding what customers want better than your competitors do.
Creating New Markets: The Blue Ocean Approach
Blue Ocean strategy operates entirely in a different way. Rather than competing against competitors, firms develop new kinds of products or services that previously didn’t exist. They render competition unnecessary by altering the game altogether. The ultimate example of this strategy can be found in Cirque du Soleil. Classic circuses were failing because humans were no longer as interested in animal acts and plain entertainment. Rather than competing with other circuses, Cirque du Soleil developed something entirely different.
They mixed circus acts with theater, narrative, and live music to produce a high-end entertainment show. This drew adults who would never attend an ordinary circus but were happy to pay premium prices for this new form of entertainment. Cirque du Soleil didn’t compete against other circuses because they weren’t actually a circus anymore. They established their own genre of entertainment. This Blue Ocean strategy permitted them to command high prices without concern for direct competition, at least until others began to emulate their concept.
How to Choose the Right Strategy for Your Business
Between Blue Ocean and Red Ocean strategies, the choice depends on a number of key factors. First, consider your industry and its degree of crowding. If you’re in an industry where numerous firms provide identical products and compete primarily on price, you may do well with Blue Ocean thinking. Attempt to discover methods of providing something radically different that addresses customer issues differently. But if your business still provides an opportunity for firms to differentiate based on higher service, lower prices, or better products, Red Ocean competition may be suitable.
Your company’s culture and strengths are important as well. Blue Ocean strategies need creativity, risk tolerance, and patience since new ideas take a while to gain traction. Your team must be okay with ambiguity and willing to experiment with things that may fail. Red Ocean strategies suit companies that are efficient, know their markets well, and can execute more effectively than the competition. Think about how much time and money you can spend on new ideas versus doing more of what you’re already great at.
Employing Both Strategies Conjointly
Most successful businesses don’t choose only one strategy. They compete within existing markets and simultaneously try to establish new ones. This dual approach is less risky since you’re not placing all your eggs in one basket. Amazon does this to perfection. They compete fiercely with other online stores in traditional e-commerce segments, battling on price, assortment, and shipping speed. Simultaneously, they also developed entirely new markets with offerings such as Amazon Web Services for cloud computing and Alexa smart speakers.
This dual-prong strategy demands diligent planning and resource allocation. You need to ensure your current business remains competitive while spending enough on new concepts to render them profitable. Google does this too. They own search advertising online through fierce competition with other firms, yet they also invest in forward-thinking ventures such as driverless cars and AI that might establish completely new markets. The thing is not getting too diffuse while ensuring that you adequately invest in both existing business and future possibilities.
Making the Right Choice for Your Situation
The choice between Blue Ocean and Red Ocean strategies is not about whether one is better than the other in general. Both can become success stories if applied in appropriate circumstances. Think about Blue Ocean strategies when your market is experiencing slowing growth, competition has gotten so fierce that profits are vanishing, or customer needs are shifting in ways that existing products fail to serve effectively. This strategy also works if your organization has innovative individuals, ample resources to tinker, and leadership that is comfortable taking calculated risks on untested concepts.
Red Ocean tactics pay off when your sector keeps expanding, when you enjoy definite advantages over rivals, or when your organization is excellent at operations and customer service within established market parameters. This strategy is appropriate for companies with good market positions, effective execution capacities, and thorough knowledge of customers’ needs in mature markets. Keep in mind that these decisions are not final. Market situations change, new technologies are invented, and companies create new capabilities with the passage of time. Clever business leaders also keep revisiting their strategies and adapting them according to changing situations and new opportunities.
FAQs
1. Are Blue Ocean strategies applicable to small businesses?
Yes, small companies usually perform better with Blue Ocean strategies since they are able to act fast, experiment with innovative concepts, and take risks without being held back by large company bureaucracy.
2. How quickly does one get results from Blue Ocean strategies?
Blue Ocean strategies typically take longer to yield results compared to Red Ocean strategies, usually taking 2-5 years to reach full maturity in new markets and gain decent returns.
3. Can Red Ocean be switched to a Blue Ocean strategy?
Firms are able to switch strategies, but it involves significant company culture, skill, and resource utilization. The transition is best done gradually over time.
4. Do Blue Ocean markets eventually turn into Red Oceans?
Yes, successful Blue Ocean markets tend to invite competition in the long run, ultimately becoming Red Oceans as the industry expands and more firms enter.
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