Red Ocean Strategy

A Red Ocean Strategy is the name of the optimal Strategy to follow in a very Competitive Market.

• The concept was invented by W. Chan Kim and Renée Mauborgne in 2004.

 

The name Red Ocean is a Metaphor for a sea where fishes eat each other to survive.

• The color of the Ocean is red, due to fish blood.

 

Red Ocean Markets are Characterized for:

• Having Lots of Competitors or a Fierce Competition.
• Well established Products that Clients know.

Therefore, the only way for a Company to grow is by “eating“ its Competitors.

According to our Professional Experience, Red Ocean Strategies should be based on:

 

Good Suppliers: Suppliers that are Competitive and Reliable.

• You cannot afford to have problems with your Supplies or Components.

 

Fight every New Player: Buy or Beat your New Competitors.

• Every “new player” is a threat since the Market is already “Saturated”.

 

Diversified Product Mix: So the Market can be Tackled in different ways.

• Substitute Products are serious Threats, it’s best to get ahead of them.

 

Taking Care of Clients: They have many Alternatives in the Market.

• Customers could easily find another company that would treat them better.

 

Competition: Study the Competitors carefully, and Beat them.

• You should never lose sight of what your Competitors are doing.

 

* We have followed Porter’s 5 Forces to design the Strategic Key Points..

• Visit our “Porter 5 Forces Page” to learn more about it.

Red Ocean Strategy

 

Before we see some examples, we’ll analyze the difference between Red Ocean and Blue Ocean Strategies:

 

As you can imagine, a Blue Ocean is the Opposite of a Red Ocean Market.

 

Blue Ocean Markets are Characterized for:

• Little or no Competitors.
• New Products or Services not yet fully Defined.
• Uncertainty (often) about the Size that the Market can reach and its Future.

 

A Blue Ocean Strategy differs completely from that required for a Red Ocean.

• Visit our “Blue Ocean Strategy” Page if you are interested in these differences.

The best way to understand Red Ocean Strategies and How to design them correctly is by sharing some examples with you:

We’ll now share 4 examples of famous Companies that were Successful in Red Oceans.

• We’ll analyze what they did Right and what we can Learn from them.

 

Let’s begin:

 

Some people see the iPhone as an example of a successful Blue Ocean Strategy.

• Assuming that Apple invented a New Market: Smartphones.

 

We don’t agree.

 

Mobile phone Industry was very Competitive in 2007:

• Nokia dominated the entire market (+60% Market Share).
• Smartphones already existed.
  • They weren’t mainstream, but they actually existed.
• There were lots of Big companies involved:
  • Sony.
  • Ericsson.
  • Motorola.
  • NEC.
  • Alcatel.
  • etc.

 

What did Apple do?

• They developed a much better mobile phone, which was years ahead of its Competitors.

That is all.

 

By the way:

• Apple’s first touch screen Supplier was Samsung… Not a bad Supplier.

 

However, they had to “fight” a few years before people agreed to spend $600 on a phone.

• At that time, there were multiple affordable alternatives.

 

In a World dominated by McDonalds, Burger King, KFC…

• How is it possible that a “simple” Hamburger company has been successful?

 

The Competition in the Fast food Industry is extremely fierce:

• Aggressive prices and discounts.
• New Products released every week.
• Expensive commercials at Sporting events.
• etc.

 

In the middle of this war, what did Five Guys do?

Simply the opposite: They Offered Stability.

• Good burgers in an Old style restaurant.
• Its quality was notably superior to that of its Competitors.
• The company’s low profile (no big commercials) conveyed Authenticity.

 

This teaches us something:

• Sometimes, the best way to Stand Out is to go back to Basics.

 

Have you ever seen a Samsung TV? Sure you have.

They are the Benchmark in TVs.

 

But, How is it possible that Samsung has beaten SONY, Grundig, LG, Panasonic, etc?

 

Because they have focused on developing only High Quality TVs.

• Specially, in the last Decade, with their flat TVs.

 

They didn’t launch a revolutionary Product.

• Or a Product with a particular peculiarity.
  • Like Apple did with the iPhone.

 

Samsung came to the throne of televisions by improving its TVs little by little over the years.

 

Remember:

Some wars are won in a great impressive battle (as Apple did with its iPhone)…

…. But others are won after dozens of small discreet victories (the case of Samsung).

 

BOSE is a good example of How a “small Company” can Succeed in the fiercest Market of all:

• The Technology Market.

 

How is possible that a Company with “only” 3.6 billion in Revenue can compete with:

• Panasonic: $70 billion in Revenue.
• SONY: $77 billion in Revenue.
• Samsung: $200 billion in Revenue.
• Apple: $370 billion in Revenue.

 

How is it possible that BOSE is the Market Benchmark for Sound Quality?

Because they have only focused on Audio Equipment.

• That is why they have the best Sound Technology.

 

And, within the Audio Equipment sector, they have a Diverse Range of Products.

• They have headphones, speakers, microphones, bluetooth equipment, etc..

A Red Ocean Strategy is the name for the optimal Strategy to follow in a very Competitive Market.

 

Red Ocean Markets are Characterized for:

• Having Lots of Competitors or a Fierce Competition.
• Well established Products that Clients know.

Therefore, the only way for a Company to grow is by “eating” its Competitors.

 

Red Ocean Strategies should be based on:

• Good Suppliers: Suppliers that are Competitive and Reliable.
• Fight every New Player: Buy or Beat your New Competitors.
• Diversified Product Mix: So the Market can be Tackled in different ways.
• Taking Care of Clients: They have many Alternatives in the Market.
• Competition: Study the Competitors carefully, and Beat them.