Blue & Red Oceans
In the business world, when thinking about starting a new business, a strategy must be considered. One of the more interesting thought experiments to apply is the consideration of whether you are intending to enter a red ocean or a blue ocean, and what this means for your business strategy. Each requires an entirely different approach. But what do these terms actually mean? It’s surprisingly simple.
Imagine every single business sector is its own ocean. There’s an ocean for fast-food, there’s an ocean for automobiles, there’s an ocean for retail clothing stores, etc. A red ocean is a sector where there is lots of competition – the ocean is full. If you start a business in a red ocean, you are fighting over demand with other businesses operating in this ocean. That doesn’t mean that you can’t succeed, but that you will require to tailor your business to compete with others.
Red oceans do not exist by coincidence – they exist because there is a clear demand in this sector, and businesses have been created to fill that demand. This means there are buyers for the product or service, and with a slight reinvention, you may be able to capture some of the market share for yourself. Therefore, a red ocean strategy is based on competition. Your strategy should be about standing out from your competitors by implementing something that gives you an edge on them.
A blue ocean, on the other hand, represents a sector with little-to-no competition in it. These are usually sectors consisting of new technologies or if a business creates its own ocean with an entirely new and groundbreaking product. A good example of a blue ocean in-the-making is self-driving autonomous vehicles. The technology isn’t there yet, so no-one has managed to capture the demand, although most automobile manufacturers are investing heavily. Another is the invention of the smartphone and the apps for them. There were only a thousand or so apps on the original Apple App store, now there are over two million as the ocean is filled with developers trying to get a slice of competition!
Blue Ocean businesses create new demand. This means that a blue ocean strategy is riskier than its counterpart, as there is no clearly defined way to operate in a new sector. A business may create a new ocean but be displaced by a new competitor. Think about social media. The creators of this ocean – sites like Myspace and Bebo. The concept was there, but the technology wasn’t. Then sites like Facebook and Twitter managed to successfully compete in this ocean. This means blue ocean strategies are focused on creating demand. Blue oceans are usually massive startups trying to solve a larger problem or create an entirely new type of product, therefore the strategy here should be based on testing viability, acquiring customers and growing at a sustainable rate.
The chart below summarises the differences.
|BLUE OCEANS||RED OCEANS|
|New Market||Existing Market|
|Create Customers||Capture Existing Customers|
|Create Demand||Compete For Demand|
|Make Competitors Irrelevant||Innovate on Existing Competition|
You can learn more about blue and red ocean strategy in Blue Ocean Shift: Beyond Competing.
You can also get any two books completely free, to keep forever, with a trial of audible here!