The Blue Ocean framework (developed by W. Chan Kim and Renée Mauborgne) is a powerful tool to identify marketspaces that are uncontested. This article explores some of the key differences between red oceans and blue oceans.
The red ocean vs. blue ocean metaphor
The red ocean and blue ocean metaphor is powerful in itself. The red ocean has fierce competition – the red indicating the blood of companies going head to head. The blue ocean is calmer – there are no other firms operating in it, so you don’t have the intense competition.
What is a Red Ocean?
In the blue ocean framework, a red ocean is considered an existing marketplace – with defined ‘rules of the game’. These are established industries, where companies each compete in set ways, with set product attributes and expectations. The competition in red oceans is considered fierce – companies are competing over the same customers.
What is a Blue Ocean?
Blue oceans are considered untapped markets. These are areas where existing companies do not compete. There may be new product dimensions that companies add – things that no other firm currently offers as part of their products. Or there may be some dimensions that the companies able to ‘substantially increase’ the extent of, separating the product offering from other companies.
Competing in blue oceans may also involve removing certain attributes that are not thought to contribute to the new value proposition for the customers. These may be features that while generally desired, there is a subset of customers that do not value (or may perfect if the product or service did not include).
Why are profit opportunities greater with blue oceans?
The key distinction between red oceans and blue oceans – whether or not there are other firms competing on these product attributes – helps explain the source of the greater profit opportunity with blue oceans. While in red oceans, companies are competing head-to-head (potentially undercutting each other on prices), there is no direct competition in a blue ocean – you are the only firm in that space.
There may also be much greater opportunities to grow a blue ocean. While the sizes of existing markets may be relatively fixed (with companies fighting over market share), in blue oceans, there is a much greater opportunity to grow the market.