Updated: May 31
Author: Anežka Hájková
Date of Publication: 11/10/2022
What is strategy?
Before explaining the difference between blue and red ocean strategy you should be aware of the term “strategy”. Strategy determines the framework and way we consciously choose our responses. These reactions are to manage something that is important to us and achieve some strategic goals.
What is the difference between blue and red ocean strategies?
After explaining the strategy term, we can continue to explain the difference between blue and red ocean. Before you start reaching the market you should know in which market you want to succeed. If it is a blue or a red market. The term blue ocean refers to all industries that don’t currently exist. It is an unknown market space that is untainted by competition. In the blue ocean you are creating demand, not fighting for it. There are many opportunities in blue oceans to grow your company that will quickly become profitable.
You can imagine the blue ocean as an analogy in a way of wider and deeper unexplored market space. The blue ocean is vast, deep and powerful when it comes to profitable growth. The goal is to break into a new market space and thus create a demand that did not exist before. In a blue ocean, competition is irrelevant because there is none.
You must know the other hand of the market. Everything that characterizes a blue ocean is the opposite of a red one. The term "red ocean" came from an analogy with products that have become commodities. This in the long run leads to ruthless or better said "bloody" competition. Every industry you can think of is already located in the red ocean. This is a well-known market space. Competitors in the blue ocean are waiting for the rules, but competitors in the red ocean are already following the specified rules. On the other hand, companies in the red ocean are trying to outperform their rivals as a result of a larger share of existing demand. The red ocean problem is the fact that a crowded market space leads to decreasing profits and market share.
So, if you have some idea which no one else had before you, good job! You will probably be alone in a deep, blue ocean and that is great. It means no competition. But good luck also with reaching the red ocean, the well- known market. You can succeed there as well, throw away all competitors!
Which companies are in the blue ocean?
Here are two examples of companies in the blue ocean:
The first company is Cirque du Soleil – established in 1984. It is a circus show that offers customers unique entertainment. The company cut costs by eliminating what had characterized a declining industry - animal performance. Cirque du Soleil focused on acrobats, clowns and a circus tent. By cutting costs and providing theater and circus performances, the company achieved value innovation. Thus, it entered the blue ocean. Its growth is all the more extraordinary because it was an upturn in a declining industry. Another success that this company gained was that Cirque du Soleil didn’t take over customers from the same industry. Instead, it gained a whole new group of customers, who are adults.
The second example is Apple. Apple observed a large amount of illegal music file sharing in the late 1990s. Therefore, in 2003, Apple launched iTunes, which opened up a new market space in digital music. With the technology available for anyone to digitally download music for free, the trend towards digital music was clear. This trend has been underlined by the rapidly growing demand for MP3 players that play mobile digital music, such as the Apple iPod. Apple capitalized on this trend to create iTunes.