Updated: Sep 20
The Red Ocean involves competing in industries that are currently in existence. Unlike a smooth sailing blue ocean that lacks products to compete with, the red ocean is full of blood from cutting-edge ever-improving competing products. The level of competition in the red ocean can be intense and can involve commoditization of the industry where companies are competing mainly on price. To understand the concept, it can be helpful to analyze the pros and cons of the red ocean strategy.
Advantages of a Red Ocean Strategy
Clarity about Future
As you don’t have to be the first to explore the industry and the market, there are a lot of case studies to learn from. If a company equips the red ocean strategy, there is better clarity with regard to the market and customers’ mentality. This, in turn, helps companies to position their products and frame an effective marketing strategy. Not to mention, you can learn from the failures of many other companies that have ventured into the ocean before you.
Have limited resources? Red ocean for the win!
The Red Ocean strategy can come in very handy for those companies which have limited resources. This is because there is a margin of safety as many other companies are operating in an already established market as opposed to the blue ocean. If a company is only beginning its journey, it should adopt a red ocean strategy and once they have established itself in the market and have the resources to tackle any unforeseen failures, it can approach the blue ocean strategy.
If your market is already well established, there is no need to create a new need. You don’t have to create any demands. You can focus completely on the competitor’s pricing and your customer relations. In a blue ocean strategy, companies have to develop new demands or find a new market for their product.
Disadvantages of a Red Ocean Strategy
Extraordinary profit is far-fetched.
Profit is what all companies yearn for apart from the impact they make. In the Red Ocean strategy, the presence of competitors in the market makes it hard for earning extraordinary profits. The company runs by earning a normal and gradual rate of return. It is helpful to keep companies surviving in the market but attaining extraordinary growth cannot be possible unless you’re a market leader like Samsung or Apple.
Economics of Scale comes to play.
As discussed before, the competition is very high in the red ocean. Companies cannot raise their prices but have to keep their prices at a competitive level. This cannot be done without achieving the economics of scale to reduce costs and earn a better profit margin. Companies will not be able to compete if they don’t achieve good economies of scale in their production and marketing stages.
Excitement is rare
While smooth sailing a blue ocean, companies take the risks and have creative campaigns trying to create a demand and need for their products. This makes it exciting and challenging and offers a huge area of opportunity in terms of creativity. In the case of the red ocean, companies have to follow the industry and competitors in terms of price and demand. They have to fight for the limelight. The red ocean strategy is more like cruising on a chartered course of sea, whereas the blue ocean is like riding a storm where no other ship has traveled.
After going through the pros and cons of the Red Ocean, you can take careful measures and analyze its product and marketing strategy and see which ocean strategy is best suited for you.
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