Business is not just about creating new products and services and selling them in the market. Strategy is also a very important aspect of a company. Whether it's a hot dog stand or a Fortune 500 company, flying blind without a strategy can prove costly.
As a consultant, you will encounter many projects where you need to help clients develop a strategy that helps them survive and thrive in the market.
There are many strategy frameworks that can help you guide your clients in the right direction. The Blue Ocean and Red Ocean strategies are two such frameworks that consultants around the world use to help companies define and achieve 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 Strategy
This strategy involves developing ideas and plans to keep a company in a market full of competitors. Companies must 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 might be wondering: "Why is it called the Red Ocean strategy?" Well, think about it. What would happen in an ocean where many big and small fish are fighting for space? You guessed it right. The ocean turns red because of all the blood. That's why companies resort to the Red Ocean strategy to participate in this bloodshed in an industry with fierce competition. If that sounds intense to you, it is, and it's certainly not for the faint of heart.
In short, the Red Ocean encompasses all markets and industries that already exist today. There are many sharks (companies, corporations, businesses) in it, constantly fighting for a larger share to ensure their survival. Often, due to many similarities between existing products in Red Ocean industries, the competitive strategy comes down to just price.
For example, commodities like sugar, cotton, fruits, etc. can be sold under many brand names, but there is no big difference between the actual product. The sugar sold by Company A tastes just like the sugar from Company B. Why? Because it's sugar! It's just sugar. In this case, the company that can sell its sugar at the lowest price is most likely to have higher chances of achieving more sales.
"A strategy is necessary because the future is unpredictable." - Robert Waterman
The Blue Ocean Strategy
Let's first understand why this strategy is called the "Blue Ocean" strategy. What color would the ocean have if there were only a few fish in it and they weren't fighting for territory and shedding blood? Well, in this case, the ocean would have its natural color, which is blue. And that's 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 can emerge from Red Ocean companies. The idea is simple, to tap into the market that has potential but hasn't been explored by anyone yet. It's like sailing to unknown islands where no one has been before and finding a rich resource on some of them.
You need to know that the Blue Ocean strategy works when pioneers find the right opportunity at the right time and utilize it optimally. There is initially no need to worry about competitors as the pioneer has the first-mover advantage.
Red vs. Blue Ocean
To recognize when to use which strategy, let's understand the differences between the two.
Market
The Red Ocean strategy focuses on existing markets, while the whole concept of the Blue Ocean strategy is to break the status quo and come up with something unique and new. For example, soft drinks belong to the Red Ocean as there are so many companies selling them. However, a new generation of 3D printers or self-driving electric cars would belong to the Blue Ocean.
Competitors
As explained above, the Red Ocean strategy involves fierce competition, while the whole idea of competition in the Blue Ocean strategy is irrelevant. This is because it's about exploring new markets that neither other companies nor customers know about.
Differentiation Factors
Due to the commoditization of many products in the Red Ocean, the ultimate differentiation factor often tends to be price. If you remember the example of sugar traders mentioned above, you can better understand this point. In the Blue Ocean, however, there can be many differentiation factors and price can be one of them, but not necessarily the only one. For example, if a new kind of smartphone comes to market that is better than all Apple and Android smartphones, the differentiation factors could include distinctiveness, user-friendliness, better performance, etc. At this stage, companies producing the new smartphone will not be under pressure to lower their price as there are no competitors in the market.
Demand
The Red Ocean companies compete with each other to meet the current demand in the market, but Blue Ocean companies create a new kind of demand with their innovation and foresight and solve problems that customers didn't know they had before.
Additional Insights into the Blue Ocean Strategy
Value Innovation
The foundation of the Blue Ocean Strategy is value innovation, which means the simultaneous pursuit of differentiation and low costs. This means creating a leap in value for both the company and its customers. A classic example is Cirque du Soleil. They redefined the circus industry by combining elements of theater and circus, creating a unique entertainment experience that appealed to a broader audience.
Strategic Canvas
The strategic canvas is a diagnostic and action framework for building a compelling Blue Ocean Strategy. It captures the current state of play in the known market space and helps identify factors that the industry competes on and invests in. By plotting the strategic profiles of current and potential competitors, companies can visualize where they can innovate and create new value.
Four Actions Framework
This framework helps companies reconstruct buyer value elements to create a new value curve. It encompasses four key actions: Eliminate, Reduce, Raise, and Create. An example of this is Nintendo's Wii, which eliminated the race for high-definition graphics, reduced the focus on hardcore gamers, raised the importance of family-friendly games, and created a new motion-sensor controller.
Buyer Utility Map
This tool helps identify the full range of utility spaces that a product or service can fill. It maps out the buyer experience cycle and the utility levers. By understanding where the biggest blocks to utility are, companies can innovate to remove these blocks and create new demand.
Additional Insights into the Red Ocean Strategy
Competitive Advantage
The focus of the Red Ocean Strategy is on building a sustainable competitive advantage. This can be achieved through cost leadership, differentiation, or a focus strategy. An example of this is Walmart, which excels in cost leadership through leveraging economies of scale, efficient supply chain management, and a relentless focus on cost reduction.
Porter's Five Forces
This framework helps analyze the competitive strength within an industry: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or services, and the intensity of competitive rivalry. By understanding these forces, companies can develop strategies to improve their position within the industry.
SWOT Analysis
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It's a strategic planning tool used to identify and analyze the internal and external factors that can affect a company's success. This analysis helps companies understand their competitive position and develop strategies to leverage strengths, mitigate weaknesses, capitalize on opportunities, and ward off threats.
Cost Leadership vs. Differentiation
Companies can choose to compete either through costs (offering the lowest prices) or differentiation (offering unique products or services that justify a premium price). An example of this is Apple, which pursues a differentiation strategy by offering innovative, high-quality products with strong brand appeal, while companies like Ryanair pursue a cost leadership strategy by offering no-frills, low-cost air travel.
Hybrid Strategies
Navigating Both Oceans
Some companies successfully navigate both Red and Blue Oceans by maintaining a competitive advantage in existing markets while also exploring new, uncontested markets. An example of this is Amazon, which started as an online bookstore (Red Ocean) but expanded into the cloud computing industry with AWS (Blue Ocean), creating a new market with little initial competition.
Dynamic Strategy
Companies need to be adaptable and ready to change their strategies as market conditions change. This requires continuous market research, innovation, and willingness to pivot when necessary. An example of this is Netflix, which transitioned from DVD rental (Red Ocean) to streaming services (Blue Ocean) and now produces its own content, continuously evolving its strategy to stay ahead of competition.
Conclusion
Understanding and applying the Blue Ocean and Red Ocean strategies requires a deep dive into various tools, frameworks, and real-world examples. By mastering these strategies, consultants can provide valuable guidance to companies, helping them navigate competitive landscapes and discover new opportunities for growth and innovation. Formal education and certification in these frameworks can further enhance a consultant's ability to effectively communicate and implement these strategies for their clients.
If you'd like to learn more about these strategies or need assistance in implementing them in your company, don't hesitate to contact us. Our experts are available to help you develop and implement the right strategy for your business. Let's shape the future together!
