Blue Ocean Strategy assists us during strategic planning. It enables us to concentrate on the creation of new markets via new offerings, with the aim being to make the competition irrelevant so that an organization can grow. Blue Oceans can be thought of as markets that do not exist yet. The microwave oven would have been a blue ocean in the 1970s. Conversely, Red Oceans can be thought of as all the marketplaces which currently exist.
As such, Red Oceans already contain a number of competitors. A Red Ocean Strategy is a strategy which is aims to fight and beat the competition. Red Ocean Strategies have the following common characteristics:
They focus on competing in a marketplace which already exists.
They focus on beating the competition.
They focus on the value/cost trade-off. The value/cost trade-off is the view that a company has the choice between creating more value for customers but at a higher cost, or reasonable value for customers at a lower cost. In contrast, those who attempt a blue ocean strategy aim to achieve differentiation and at the same time, low cost.
They focus on exploiting existing demand.
They focus on execution (better marketing, lower cost base etc).
A Red Ocean Strategy ultimately leads to an organization choosing to follow one of two strategies – differentiation or low cost. Whichever is chosen the organization must align all activities with one of these strategic directions.
A good example of Red Ocean Strategy is the European airline Ryanair. They are competing very successfully in the already saturated red ocean of the short-haul airline business. There strategy is focused on providing a low-cost no frills airline. It is able to achieve low costs through many methods including using secondary airports further away from a city than the main airport, allowing only online booking and check-in, and requiring customers to pay for all extras, amongst other methods. With Ryanair, the service isn’t great of differentiated in some way from other carriers, but it is cheap.
Blue Ocean vs. Red Ocean