Blue/Red Ocean Strategy

In the business field, usually two worlds exist: red and blue oceans. Red oceans represent all existing industries in a known and well-defined market space. Here, competition is the main element that defines which companies exceed others based on rivalry on the known market share each company has. Red ocean is a reference to an ocean with bloody water where predators fight over prey.

Blue oceans on the other hand represent all the industries not in existence today, or in other words- the unknown market space. Here, demand is created rather than fought over. Blue ocean is a reference to an ocean with clean water without much movement as fishes' food sources are hidden.

This means that once a blue ocean is tapped into, it slowly grows bloodier until it becomes a red ocean

Understanding Blue and Red Oceans by Examples

When the early smart watches have started appearing, the product was novel and the field was a blue ocean where many customers did not know they needed such a product. Moving forward a few years, we can find plenty of smart watch options for different brands of smart phones today. The competition has grown fierece in this industry as more customers are seeking this product, as this industry is becoming more of a red ocean.
 
Another example is Cannon, the famous camera and photography equipment brand. Cannon found that in the photocopier market an opportunity to move as the market was dominated by players selling to offices and businesses durable and costly photocopier machines. The strategy that Cannon followed utilized targeting normal customers and home users with easy-to-use desktop copiers and printers, representing a blue ocean to target that has grown later to become a huge industry on its own.

"Six Paths" Framework to Create a Blue Ocean Strategy

The Six Paths Framework(developed by W. Chan Kim and Renée Mauborgne) addresses business risks and possibilities to compete, utilizing a shift towards a blue ocean.

• Industry focus: Red ocean focuses on existing competitors within the industry, while blue ocean looks to new industries to target.
• Strategic Group: Strategic groups are groups of competitors within an industry that the red ocean focuses on. Blue ocean focuses on finding new competitor groups.
• Buyer Group: Such as with industry and competitors, red ocean focuses on offering products and services to existing buyer groups, while blue ocean focuses on defining new groups.
• Scope of Product or Service Offering: in red oceans, competitors differentiate by offering different qualities and features of the product, while in the blue ocean the presented value is different in its nature.
• Functional-emotional Orientation: Emotional Appeal represents emotional aspects a buyer receives when using a product or service, while Functional Appeal refers to the functional utility buyers receive from a product or service. The red ocean is focused on serving the existing functional-emotional orientation, while the blue ocean begs to differ the orientation.
• Time: red oceans have players react to the market as market rules and customer demands differ, while blue ocean players plan and design their path and even demand well before it takes place.

Transforming an Industry into a Blue Ocean

Blue oceans can be created when businesses launch a new industries, which is not very common. More often, Blue Oceans come from within a Red Ocean when a company changes an existing industry but changing its products and services so much that they appeal to new audiences.
 
This means that even when there is a Red Ocean, a Blue Ocean can be created from within; thus the process of creating Red and Blue Oceans is interchangeable
 
The following steps should be considered in such a transition:

• Identifying the right product and fit

  Figuring out the right value proposition and value-customer fit is key to doing business in general, and is the first step in unlocking the intended blue ocean.

• Understanding the market and declaring a point for entry

  The entrepreneur should well understand the market he/she is targeting, and use this information to pin point the point of market entry.

• Understanding the hidden pains and potential customers

  Often, customers will have visible and hidden pains. Visible pains are addressed by products and services offered by businesses. Hidden pains are new pains of using technology and modern products and services that were unnoticed before. They can appear in customer behaviors and can help tap into a new target audience that was initially hidden altogether.

• Bring a new value, don't improve on existing ones

  Improving on existing products and services may help improve the competitive edge in the market, but cannot help create a new one. To initiate a blue ocean, the entrepreneur should move away from considering existing products and services for improvement and start thinking of new values that can provided for the customers.

• Study the market and test the product before launch

  Once a new innovative product or service is designed for a new market, the targeted market should be evaluated and tested for potential, and the product Minimum Viable Product MVP should be tested for compliance with the new market and intended audience expectations.