Introduction
“Blue Ocean Strategy” by W. Chan Kim and Renee Mauborgne is a strategy that challenges companies to distance itself away from fierce competition by establishing uncontested market space that makes existing competition irrelevant. One of the reasons why the authors have used the colours red and blue is to describe the market. Red ocean is the market space where industry boundaries are defined and known. The red ocean contains a massive conflict between companies where they are constantly trying to outperform each other to achieve a greater share or demand. Kim and Mauborgne explains in an interview that when market spaces become crowded with competitors, companies try out perform each other and profits and growth is greatly reduced due to cutthroat style competition which turns the red ocean bloody.
In contrast, blue oceans is the unknown market space where it is unaffected by competition and demand is created rather than fought for. In blue oceans, competition is not relevant because the rules or barriers to the market space is not set yet and is often waiting to be set. The Authors uses the blue ocean analogy to describe the uncontested market space with no competitors and the opportunity to explore. The analogy of a blue ocean can be associated with profitability and growth being “vast”, “deep” and “powerful”.
Traditional approaches to competitive strategies are highly influenced by Michael E. Porter. Kim and Mauborgne present to us in their book a fresh approach to make the competition irrelevant. In this paper I will discuss the differences between conventional red ocean strategies which are influenced by Porter and Kim and Mauborgne’s blue ocean strategy. Furthermore, the paper will discuss the differences between the SWOT analysis and the four actions framework.
Competing in existing market space versus Creating new market space
The red ocean represents the existing market space where there is always a constant intensity of rivalry to fight for market share. To successfully operate in a red ocean, it is important for companies to conduct competitor analysis to allow them to stay updated on what their competitors are doing and what they are planning to do. Red ocean strategies represent approaches to protecting and stealing market share from competitors. According to D’Aveni, market share can be stolen by companies satisfying their competitor’s customers better. To compete in the existing market space, companies need to mould their services or products in line with the customer’s liking through refining existing products or creating new to the world products. However, the bloody cutthroat competition of the red ocean most often causes companies to develop similar or replications of products or services of the competitor that has done well.
In the red ocean where competition is based on price and quality, being a first mover is an important advantage because by being flexible a company can adjust easily to external changes such as customer demands and trends. By being a first mover, the company gets benefits such as low costs and economies of scale. I think this is also the reason why the red ocean is so bloody because similar products and services have been refined and replicated over and over again with low cost, it has caused companies to be afraid to look into new options and therefore in a constant battle to fight for market share by cutting profit margins lower and lower. For the companies that succeed in gaining a competitive advantage by being a first mover, it is important for them to exploit the opportunity of that advantage as much as they can because very soon the competition will catch on to it. The tradition theory to competing in existing market space is focused on building your company through analysing competitors.