According to W. Chan Kim and Renée Mauborgne, a business can either face competitors in the market and fight for a share, or enter a new untapped market and create its own demand. The strategy used to compete with other businesses in an existing market space is known as a Red Ocean strategy; while the strategy that taps a new market space is known as a Blue Ocean strategy.
The differences between Red and Blue Ocean strategies are:
Companies that use a Red Ocean Strategy try to position themselves in a more competitive position in the marketplace. They build competitive advantages by analyzing the actions of their competitors and trying to do better than them.
The aim of every firm in a red ocean is to grab the biggest share of the market, but this approach is always a zero-sum game where a win for one company comes with the loss of another firm. The red ocean is divided into attractive and unattractive industries, and firms decide whether to enter an industry based on their attractiveness.
On the other hand, a blue ocean strategy does not recognize market boundaries. Managers that use a blue ocean strategy tend to think beyond the existing market structures and take advantage of untapped demand in new market spaces. While red ocean strategists attempt to survive and beat competitors, blue ocean strategies try to be creative and unlock new demand. A Blue Ocean strategy does not recognize attractive or unattractive industries. Companies can take deliberate actions to improve the attractiveness of an industry. This renders competition irrelevant.
Red Ocean strategy involves either differentiation or low-cost strategy, but a Blue Ocean strategy involves the simultaneous pursuit of differentiation and low cost strategy. Blue ocean strategy also involves the creation of new wealth through the expansion of demand, hence allowing companies to pursue high pay-off opportunities.