Much of business strategy in the past few decades has focused on competition, including Michael Porter’s five forces and SWOT analysis. In these red oceans, market structures are known, and companies try to outperform rivals to grab share of existing demand.
Over time, markets become crowded, products become commodities competing on price, and profits dissipate. This trend is aggravated by technological improvements that allow incredible creation of supply that can outstrip demand, causing further price competition.
In contrast, blue ocean strategy creates new market spaces, creates new demand, and leads to profitable growth. Here, the market structure is yet to be decided, so the price competition is far less intense. In other words, a blue ocean is a new, uncontested market space where the existing competition is irrelevant.
Red Ocean vs Blue Ocean
Here’s a simple summary of how a traditional red ocean strategy matches up to a blue ocean strategy:
|Red ocean strategy||Blue ocean strategy|
|Compete in existing industry.||Create a new uncontested industry.|
|Beat the competition.||Avoid competition and make competitors irrelevant.|
|Fight for existing demand.||Create new demand.|
|Trade off value for cost.||Simultaneously increase value and decrease cost.|
|Winning is zero-sum against competitors.||Winning is non-zero-sum.|
|Market structure is fixed, and you play within the structure.||The market can be restructured.|
|Follow best practices and improve on them.||Break the best practice rules.|
Clearly, a red ocean strategy tends to invite strong competition, which often becomes a race to the bottom in terms of pricing.
If you want to avoid a red ocean, you should create a blue ocean strategy for yourself. Learn more about what a blue ocean strategy is here.
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