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There has been a lot of discussion and consideration when it comes to the red or blue ocean approach to marketing strategies for businesses both already established and newly founded. Red oceans refer to the known market space – all the industries in existence today. In red oceans, industry boundaries are clearly delineated and accepted, and the competitive rules of the game are known. Companies try to outperform their rivals to grab a greater share of existing demand, usually through marginal changes in offering level and price.
As the market space gets crowded, prospects for profits and growth are reduced products become commodities, and cut-throat competition turns the red ocean bloody.
On the other hand, the blue ocean approach uses a strategy to create new demand. Therefore, under the reconstructionist view, attention shifts from supply to demand, from a focus on competition to a focus on value innovation―that is, the creation of innovative value that will unlock new demand. With this new focus in mind, it is possible to systematically look across established boundaries of competition and reconstruct existing elements in different markets to create all new market space.
Competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space, making the competition irrelevant. A blue ocean strategic move can create brand equity that lasts for decades. A blue ocean is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers.
Cost savings are made from eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value, without the competition generates.
The blue ocean strategy is one of the latest business ideas in the world. Even though it was created recently, it immediately gained recognition among experts, and presidents and directors of many companies. Blue ocean strategy is a strategy that differs significantly from most business strategies. Blue ocean, denotes all the industries not in existence today—the unknown market space, where there is no current competition. In blue oceans, demand is created rather than fought over. There is opportunity for growth that is both profitable and rapid. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored. EBay would be a good example of blue ocean strategy. EBay was the first of its kind to initiate a service of online auctions reaching an enormous target market that had never been targeted before in this manner by offering an online auctioning service to customers from the convenience of their homes.
Red oceans are all the industries in existence today—the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. Red ocean strategy is designed to gain the greatest possible number of customers and to sell as many of their products. Companies that select this strategy do not create a new service without competition, they advertise their products in every way possible. The fight between competing companies is constant. Some of these companies are trying to create exclusive product lines to increase the range of their brand but never consider stepping outside of their comfort zone and bringing a new strategy to the table by creating a service that has not yet been marketed in order to increase profit without the worries of competition. An example of a company that uses the red ocean strategy would be Nike.
Nike jumped into the market ready to compete amongst already existing competitors not on a mission to create a service that was without competition. Once Nike was in the market and above its competition, it could now venture into other ocean strategies to continue to be innovative, creative, and provide a service to their current market as well as look for services to uncharted markets. Red Ocean Pros: If you are a successful company like Nike, you are already at the top of the chain and your services are still continuously sought after; so providing a new service that doesn’t currently exists doesn’t necessary mean profit and sustainability. Nike wasn’t the first athletic shoe provider. There was competition that existed before Nike became known.
Nike was able to enter a market using the red ocean strategy approach and add creativity and innovation to an athletic industry that was already established and climb to the top without the blue ocean approach. Red Ocean Cons: As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the red ocean bloody. Hence, the term red oceans. The red ocean, players want to produce products and provide services cheaper and better than the competition but that doesn’t always mean the product they offer are in-fact better than products of their competitors.
A company must master its traditional markets using conventional strategic planning tools. It will always be a competitive advantage to successfully incorporate the red ocean approach and beating the competition. Red oceans will always matter and will always be a fact of business life. Businesses that tend to only focus on the red ocean approach must accept the key constraining factors – limited terrain and the need to beat an enemy in order to succeed – and to deny the distinctive strength of the business world: the capacity to create a new service and gain a new market space that is uncontested.
In order to sustain high performance, companies must create their own blue oceans, and make the competition irrelevant! Even though the blue ocean strategy is uncharted territory, and no measurements or feedback exists, it can be considered a risky approach that’s why many businesses today, get in business using one approach and sustain business or rebrand their business with the implementation of both strategic approaches. (Kim, 2005)
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