Exploring Red Ocean Versus Blue Ocean Business Strategies

The question of Red Ocean Versus Blue Ocean Business Strategies is based on how business strategy guide companies in creating goals and objectives; ocean strategies are one of the factors organizations use to make business decisions.

There are two types of ocean strategies, the red and blue ocean strategies. Since the formation of both terms by Chan Kim and Renée Mauborgne, businesses have used them depending on their market situation (Cho & Jung, 2013).

Organizations analyze the market situation before coming up with a strategy for a business. The red ocean strategy symbolizes a competitive business environment where companies focus on competing with their rivals and taking the existing demand market.

Many companies use the red ocean strategy (Raman, 2014). The blue ocean business strategy aims to capture a new marketplace that makes competition irrelevant and creates new demand for products (Raman, 2014). There is overcrowding in the business world with red ocean companies, and their profits and growth are declining.

While both the red ocean and blue ocean strategies aim to create lower prices in market situations, they have different tactics of demand and features they focus on to grow profits and the business.

The Red Ocean Strategy

The red ocean strategy has fixed rules and demands that help companies easily compete. The market already exists, and companies fight to stand out in value or cost to consumers.

For a successful business and increased profit, the company must satisfy the demand while competing with many other companies in the same market (Usmani, 2022).

The name “red ocean” comes from the stiff and unavoidable competition referred to as bloodshed among companies whose products are the source of profits (Raman, 2014).

For example, the European airline operator Ryanair’s strategy is to offer low-cost airlines. Their product is the same as Etihad Airways, but they stand out due to their low-cost airlines.

Advantages of the Red Ocean Strategy

1. The strategy is less risky: There are defined boundaries, and demand exists, which is especially easy for starting businesses. Their only focus will be the competitors’ pricing and customer services (Parikh, 2021).
2. Transparency about the future: The businesses that use the red ocean strategy have a clear layout of the market needs and wants. Their only concentration is the marketing tactics, product value and pricing they will use to attract consumers (Parikh, 2021).
3. Limited resources are required: The business entering an existing market has a safety margin and will require few resources to start, which makes it easier for new companies with limited resources to use the red ocean strategy (Usmani, Red Ocean Strategy: Definition, Example, Pros and cons, 2022).

Disadvantages of the Red Ocean Strategy

1. When new businesses use the red ocean strategy, they find experienced competitors, making it hard to beat them.
2. In the red ocean strategy, there is almost no chance of earning extra profit because of the market’s stiff competition, hence making a regular income.
3. The competition is very tough, and some businesses do not last long because they mainly depend on the price-cutting technique and increasing the value of their products. The stiff competition affects the economics of scale of a company using this production and marketing strategy to stand out.

Blue Ocean Strategy

The blue ocean strategy is an uncontested market space free from competition. The uncongested marketplace in the blue ocean has yet to set rules.

Businesses with this strategy are not about technology but focus on innovative ideas. Competition is irrelevant, and the system offers the company profitable growth.

Instead of focusing on price reduction of the same products and competition like the red ocean, the blue ocean aims to create and capture new demand and rivalry is irrelevant (Rawabdeh, 2012).

Blue Ocean Features

1. Creating and catching new demand enables businesses to generate high profits and break market rules with innovative ideas (Raman, 2014)
2. Blue ocean is a new strategy; hence competition is irrelevant because the marketplace is a new place. In a case competition is developing, companies using blue ocean believe that strategy can be recreated depending on the changing trends (Raman, 2014).
3. Standing out in value and cost is another feature of the blue ocean that aims to create a fair situation for both consumers and sellers (Raman, 2014).
4. Aligning differentiation and low cost: While the red ocean aims to lower prices or increase value, the Blue ocean strategy seeks to create value by gaining a distinction in their product value and low cost. An example is Airbnb, which connects hotels and apartment owners to consumers through its platform instead of buying them (Raman, 2014).

Action Frameworks

According to Rawabdeh (2012), the blue ocean strategy uses four action frameworks to recreate elements of the buyer’s value:

1. Eliminate: The features many companies have used to compete on should be reduced or removed—for example, price.
2. Reduce: Higher products and services should decrease, or those overdesigned should get reduced.
3. Raise: The blue ocean strategy aims to capture and create new demand; hence elements that increase the value of a product should be raised/increased.
4. Create: The element of creating new innovative ideas or new sources of value to capture new demand

Risks of Blue Ocean Strategy

While the strategy is better than the red ocean in its pursuit of creating and capturing new demand, differentiating value and cost and making the competition irrelevant, the strategy has its risks. According to an article by Dada (2017):

1. Finding the right marketplace: The blue ocean is all about finding a new one, but finding the marketplace can be difficult. Creating a new demand/idea and capturing the targeted audience can be challenging, and sometimes it fails. Research is the key to succeeding in this uncontested market that is unknown and has no one.
2. The idea can be too new and very different: Some businesses have created great ideas, but the consumers were not ready for such a demand. This path affects the company leading to losses.
3. Arrive prematurely: Individuals can create great ideas, but the concepts can confuse consumers who have yet to know about the product. Products like Amiga computers arrived earlier than PCs and Macs but failed because they were too developed for consumers back then.

Conclusion

While the red and blue ocean strategies aim to create lower prices in market situations, they have different tactics of demand and features they focus on to grow profits and business growth.

Red ocean aims to decrease cost or stand out in value compared to their rival competitors, while blue ocean aims to increase value and price by creating and catching new demand. While the blue ocean can seem a better option than the red ocean, it is a new and unsearched marketplace; hence companies can quickly get into losses if the new ideas are too new or too different for consumers.

References

Cho, Y. S., & Jung, J. Y. (2013). Blue Ocean Strategy vs Competitive Strategy: The Effect of Business Strategic Choices on Firm Performance, According to the Industry Life Cycle. International Research Journal of Business and Economics, 11. Retrieved from https://www.researchgate.net/publication/326436513_Blue_Ocean_Strategy_vs_Competitive_Strategy_The_Effect_of_Business_Strategic_Choices_on_Firm_Performance_According_to_the_Industry_Life_Cycle

Parikh, V. (2021, March 12). Red Ocean Strategy advantages and disadvantages. Retrieved from LetsLearnFinance: https://www.letslearnfinance.com/red-ocean-strategy-advantages-and-disadvantages.html

Raman, P. V. (2014). Comparison Between Ocean Strategies. International Journal Of Core Engineering & Management (IJCEM), 15. Retrieved from https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.679.1023&rep=rep1&type=pdf

Rawabdeh, I. (2012). Blue Ocean Strategy as a tool for improving a company’s marketing function: The case of Jordan. Jordan Journal of Business Administration 8(2), 19. Retrieved from https://www.researchgate.net/publication/309398524_Blue_Ocean_Strategy_as_a_Tool_for_Improving_a_Company’s_Marketing_Function_The_case_of_Jordan

Usmani, F. (2022, May 18). Blue Ocean Vs Red Ocean Strategy. Retrieved from Parsadi: https://parsadi.com/blue-ocean-vs-red-ocean-strategy/

Usmani, F. (2022, May 10). Red Ocean Strategy: Definition, Example, Pros and cons. Retrieved from Parsadi: https://parsadi.com/red-ocean-strategy/

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