Small and large businesses are never guaranteed of a constant flow of customers. Demand fluctuates, technology changes, and global competitors fight for a share of the market. For instance, Coke and Pepsi have been engaged in competitive wars since the 1800s, and the competition’s end is not yet in sight. Companies develop various competitive strategies to remain on top of the competition. Coke created a unique formula to develop fresh and tasty soda at cheap prices, while Pepsi is constantly innovating to develop new product offerings.
Red and Blue Ocean strategies are some of the most recent strategic approaches that businesses can use to succeed in the market. The concepts of Red Ocean and Blue Ocean strategies were developed by W. Chan Kim and Renée Mauborgne in 2005 after carrying out a study of more than 150 strategies that have been developed by top managers over the past 100 years.
The studies revealed that managers develop strategies in two broad ways: developing demand in a new market space or competing for the same market space. The first strategy is known as a blue ocean strategy while the second one is known as a red ocean strategy.
Red Ocean Strategy: Thinking of companies within the same industry, you can only imagine competition. The automotive, retail, airline, and technology industries are examples of red ocean markets. Coke v Pepsi, Walmart v Costco, Amazon v eBay, Delta Airlines v Southwest Airlines, Toyota v Ford, Apple v Samsung, Facebook v Twitter, and Microsoft v Oracle. All these sets of companies compete in existing markets known as red oceans; they are red because brutal competition among existing firms has turned them bloody red.
Under Red Ocean strategies, companies operate within known boundaries where they compete to grab a share of the existing market. Walmart and Costco are competing in a red ocean using differentiation and cost leadership strategies. Walmart takes advantage of economies of scale and a network of suppliers to reduce prices for customers; while Costco offers unique ways of delivering value for consumers. Each strategy aims to beat competitors in the retail industry.
Blue Ocean Strategy: A blue ocean strategy represents a strategy in which companies create their own market niches and generate new demand in uncontested markets. They explore unknown market spaces where competition is little or absent. Like the blue ocean, this strategy involves a deep and powerful pool of opportunities. It is an untapped market with great potential for firms to create their own demand and achieve growth rather than competing with other companies in a saturated market.
A good example of a Blue Ocean industry is the online streaming business. Or at least it was a blue ocean when Netflix started renting movies online. Traditionally, firms mailed movies to customers using DvDs. This rental framework was operated in a competitive market where movie rental companies competed for a share of the market. Then came Netflix. The company created its own untapped market of online streaming, leading to significant growth and profitability.