Blue Ocean / Red Ocean: Definition, issues and explanations

The Blue Ocean/Red Ocean strategy is a conceptual framework used in business management and marketing to describe two different approaches to competition and value creation in a market.

The Red Ocean symbolizes existing markets where competition is fierce. In these spaces, companies fight for a share of existing demand, often at the cost of strong rivalries and price wars. The term evokes a "red sea" tinged by the "battle" between competitors.

The Blue Ocean, meanwhile, represents as yet untapped or uncompetitive market space. This strategy aims to create new demand by innovating and breaking out of the sector's traditional boundaries, thus enabling the company to differentiate itself strongly and avoid direct competition.

Using the Blue Ocean / Red Ocean strategy allows companies to choose between fighting in sectors saturated with competitors or innovating to create a unique space.

The main interest is in understanding that competition is not inevitable. The strategy encourages rejection of the traditional logic of price wars, in favor of creating value through innovation.

It offers a useful methodological framework for analyzing one's market, identifying untapped opportunities, and developing products or services that meet unmet needs, thereby increasing the chances of success and sustainable growth.

Concretely, the Red Ocean approach involves optimizing competitiveness in a saturated market. This involves improving quality, cutting costs, or using aggressive strategies to capture market share.

In contrast, the Blue Ocean strategy takes an innovative approach, seeking to create a new offering that changes the rules of the market. This may involve combining new features, redefining services, or introducing revolutionary technologies.

The process is based on analyzing the key success factors in a sector, identifying the elements that can be eliminated, reduced, increased or created in order to offer novel value. This method is often formalized by a tool called the "ERAC grid" (Eliminate, Reduce, Increase, Create) to guide the approach.

Advantages of the Blue Ocean strategy:

• Avoids direct competition by creating a new market.
• Favors innovation and differentiation.
• Can lead to higher profit margins thanks to unique added value.

Disadvantages of the Blue Ocean strategy:

• Often involves high risk due to the uncertainty of the new market.
• Requires significant R&D resources.
• Can be difficult to implement in certain highly regulated or conservative sectors.

Advantages of the Red Ocean strategy:

• Uses proven methods that are well understood by the market.
• Can be effective in the short term to gain market share.
• Mobilizes resources to strengthen operational competitiveness.

Disadvantages of the Red Ocean strategy:

• High level of competitive pressure that can lead to margin erosion.
• Leads to a price war that is harmful in the long term.
• Difficult to differentiate, which can limit growth.

A classic example of Blue Ocean is Cirque du Soleil, which revolutionized the circus sector by creating an artistic show combining theater, music and acrobatic performance, moving away from the traditional animal- and clown-centric circus. This innovation created an entirely new market with few similar competitors.

In the Red Ocean, we can cite the automotive or cell phone industries, where competition is intense and companies are always vying for the same customers through incremental improvements, price reductions, or aggressive promotional strategies.

Many startups consciously or unconsciously choose between these two strategies to position themselves in their market and steer their business model towards competitive combat or disruptive innovation.

• Official Blue Ocean Strategy website : A must-have resource for an in-depth look at the concept.
• Harvard Business Review - Blue Ocean Strategy : In-depth article on the Blue Ocean strategy.
• McKinsey & Company - How to create blue oceans : Strategic analysis for creating unexplored market spaces.
• Investopedia - Blue Ocean Strategy : Definitions and practical explanations.
• Strategy+Business - Blue Ocean Strategy : Articles and case studies on the application of the strategy.