What Is The Difference Between A Blue Ocean And A Red Ocean Company?

What Is The Difference Between A Blue Ocean And A Red Ocean Company?

When it comes to competition, not every company has the same amount. Some companies compete in what are called red ocean spaces — so called because the oceans are red with blood. Competitors attack each other in order to feed on a limited number of customers.

On the other hand, there are companies who compete in blue ocean spaces. A company that operates in a blue ocean space is a company that has plenty of customers to sell to and little competition which they must beat to do so.

Obviously, everyone wants to compete in a blue ocean space. The reason most companies don’t do so, however, is because moving to a blue ocean requires a whole new way of thinking about your business. Most businesses think in term of incremental value addition — shaving a few bucks off the price here, adding a feature there, redesigning their product every few years. This kind of thinking keeps businesses in red oceans. Blue oceans require a whole new way of thinking about your product; they require a business to think outside the box, creating products to fill needs customers are not aware they even have.

“Value innovation is the cornerstone of blue ocean strategy. We call it value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.”
―W. Chan Kim, Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant

When talking about blue ocean strategy, it’s best not to think in terms of companies, but in terms of products. And the best example of a blue ocean product is Apple’s iPhone.
Source

At the time, most of Apple’s products were red ocean products. They sold desktops, laptops and computer accessories that competed with major companies like HP, Dell, and Lenovo. While they were doing well in these markets, they were fighting viciously for each percentage point of dominance in the market.

The iPhone, however, was blue ocean. When the iPhone was released, it had no competitors. Anyone who wanted one of the new “smartphones” had to buy an iPhone. The newly created “smartphone” market exploded to a billion-dollar-plus market within just a few years, with the iPhone capturing the lion’s share of it.

Another great example of a blue ocean product is the Cirque du Soleil, highlighted in the book Blue Ocean Strategy.

Cirque du Soleil took the world by storm. It created a blue ocean of new market space. Its blue ocean strategic move challenged the conventions of the circus industry. Cirque’s productions have been seen by more than 150 million spectators in more than 300 cities around the world. In less than twenty years since its creation, Cirque du Soleil achieved a level of revenues that took Ringling Bros. and Barnum & Bailey — the once global champion of the circus industry — more than one hundred years to attain.

What makes this rapid growth all the more remarkable is that it was not achieved in a declining industry in which traditional strategic analysis pointed to limited potential for growth. Supplier power on the part of star performers was strong. So was buyer power. Alternative forms of entertainment — ranging from various kinds of urban live entertainment to sporting events to home entertainment — cast an increasingly long shadow. Children cried out for video games rather than a visit to the travelling circus. Partially as a result, the industry was suffering from steadily decreasing audiences and, in turn, declining revenue and profits. There was also increasing sentiment against the use of animals in circuses by animal rights groups. Ringling Bros. and Barnum & Bailey set the standard, and competing smaller circuses essentially followed with scaled-down versions. From the perspective of competition-based strategy, the circus industry appeared unattractive.

Another compelling aspect of Cirque du Soleil’s success is that it did not win by taking customers from the already shrinking circus industry, which historically catered to children. Instead it created uncontested market space that made the competition irrelevant. It appealed to a whole new group of customers: adults and corporate clients prepared to pay a price several times as great as traditional circuses for an unprecedented entertainment experience. Significantly, one of the first Cirque productions was titled “We Reinvent the Circus.”

Cirque du Soleil succeeded because it realized that to win in the future, companies must stop competing in red oceans. Instead they should create blue oceans of uncontested market space and make the competition irrelevant.

— Blue Ocean Strategy Cirque du Soleil Case Study

If you run a company that is struggling and want to leap forward in your performance, research what it would take to pivot your products to a blue ocean strategy.

From the book Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne

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