What is the Red Ocean? What are the differences between the Red Ocean and the Blue Ocean?

In this article, we will provide detailed explanations of the overview, advantages, disadvantages, and growth strategies for businesses to win in both the Red Ocean and Blue Ocean markets. Take a look to gain a deeper understanding!

1. What is the Red Ocean?

So what is Red Ocean and where does that name come from? Red Ocean is a term used to describe a market where there is intense competition due to the presence of numerous competitors. It is called a "red ocean" because of the fierce battles that take place among rival companies, reminiscent of bloodshed in the sea.

The strategy to survive and compete with other companies in this Red Ocean market is known as the "Red Ocean strategy." It can be seen as a corporate strategy aimed at outperforming and capturing the market share and profits of rival companies amidst intense competition.

Examples of Red Ocean Markets

Specific examples of Red Ocean markets include white goods such as washing machines and refrigerators.

In the past, the market for white goods, including washing machines, which was predominantly dominated by Japanese appliance manufacturers, has seen the entry of companies from all around the world. In particular, there has been a significant increase in the entry of Asian companies leveraging low prices as their competitive advantage. As a result, the competition in the white goods market has become even more intense, leading to the further Red Oceanization of the market.

2. What is the Blue Ocean?

On the other hand, Blue Ocean refers to a state where there are few or no competitors in the market. It is called a Blue Ocean because it appears as a clear, uncharted sea without rival companies.

Blue Ocean's strategy is about venturing into untapped markets or providing customers with entirely new and unique value propositions in existing markets where no one has ventured before.

Thus, the difference between the Red Ocean and Blue Ocean lies in the degree of competition.

2.1. Blue Ocean market example

An example of a market that has been developed as a Blue Ocean is the low-cost barbershop chain that offers affordable and standardized haircut services.

In the past, the prices for haircuts at barbershops varied widely depending on the hairstyle and the establishment.

However, emerged shops that specialized in haircutting only, excluding additional services such as face shaving and shampooing, which made it possible to provide services at a lower price. They pioneered a new market known as "low-cost barbershops."

However, with the increase in similar services and price ranges, it can be said that the market for low-cost barbershops is becoming red-oceanized.

2.2. Difference between Blue Ocean strategy and niche strategy

A strategy similar to the Blue Ocean strategy is a niche strategy. Like a Blue Ocean strategy, a niche strategy does not assume competition with other companies.

A niche strategy is a business strategy that targets small or narrow markets within existing markets. Due to the small size of the market and the inability to secure significant profits, niche strategy is primarily implemented by venture companies and small to medium-sized enterprises.

3. Advantages and disadvantages of the Red Ocean market

3.1. Benefits of the Red Ocean market

In a Red Ocean market, there are many rival companies present.

On the flip side, it can be said that intense competition exists because there is already high demand in the market.

Therefore, if a company can establish superiority within the market and secure a high market share, it can expect to generate significant profits.

Furthermore, due to the evident demand in the market, there is a characteristic that even companies that are not in the top market share can still generate profits.

3.2. Disadvantages of the Red Ocean market

3.2.1. Disadvantage 1: Difficult to survive after entering the market

The biggest drawback of a Red Ocean market is that even if a company manages to enter, it can be difficult to survive due to the high level of competition.

In markets where there are numerous rival companies and the hierarchy or rankings have been established for a long time, existing companies tend to be hesitant towards new entrants.

Due to the high number of rival companies, there is a significant possibility of losing in the competition and being forced to withdraw from the market.

3.2.2. Disadvantage 2: It costs a lot of money

To survive in a Red Ocean industry, it is necessary to differentiate from other companies by implementing large-scale advertising strategies or seeking consulting from external experts. Executing survival strategies like these can incur significant costs.

4. Advantages and disadvantages of the Blue Ocean market

4.1. Benefits of the Blue Ocean market

4.1.1. Advantage 1: Easy to create market rules and practices

In a Blue Ocean market, it is said that the barriers to entry are low due to the limited number of competing companies.

With lower entry barriers, there is a possibility for newly entering companies to establish their own rules and practices for the future market.

4.1.2. Advantage 2: Easy to secure market share

With fewer competing companies, it can be said that it is easier to expand market share.

By developing strategies to increase the perceived value and visibility of their presence in the market and attracting a larger customer base for purchase or utilization, it becomes easier to secure market share and profits.

4.2. Disadvantages of the Blue Ocean market

4.2.1. Disadvantage 1: Difficulty in finding a market

One of the drawbacks of a Blue Ocean market is the difficulty in identifying a market that goes unnoticed by other companies. It can be extremely challenging to discover such a market.

Therefore, there may be cases where a company creates a new Blue Ocean market itself. For example, the market for fleece clothing can be considered a Blue Ocean market created by Uniqlo.

4.2.2. Disadvantage 2: Potential for requiring time and cost to stimulate demand

In a market where there are few to no rival companies, the existence and value of that market may not be effectively communicated to customers, resulting in a longer time to elicit customer needs.

To stimulate such customer demand, there is a possibility of incurring significant advertising costs, such as through large-scale campaigns. This can be seen as a disadvantage.

5. Growth strategy to survive in the Red Ocean market

5.1. Survey of rival companies

Conducting a targeted analysis of successful rival companies in the Red Ocean market is a fundamental and essential growth strategy. In a highly competitive market, investigating and analyzing the strategies that rival companies execute to achieve success can be beneficial in formulating one's growth strategy.

Furthermore, investigating and analyzing the causes of failure in rival companies can also contribute to highlighting one's competitive advantage.

5.2. Differentiation strategy

A crucial element in the growth strategy for a Red Ocean market is differentiation from competing companies. Differentiation from other companies is an important strategy to attract customer interest.

Differentiation strategy involves highlighting the superiority of one's products or services to customers. It is essential to effectively communicate the unique benefits that customers can gain by using one's products or services, which they cannot obtain from competitors.

Furthermore, analyzing and segmenting existing markets can help in exploring new markets where the needs of different customers and the advantages of one's own company can be leveraged, leading to differentiation by changing the competitive landscape.

5.3. Brand strategy

Brand strategy is also highly effective as a growth strategy in a Red Ocean market. Brand strength is one of the intangible assets that is developed over the medium to long term. By enhancing brand strength, it becomes possible to demonstrate differentiation from competitors and showcase the value proposition to customers, making it less likely for customers to switch to other brands.

However, it should be noted that the formation, recognition, and penetration of a brand take time. Therefore, one possible approach is to incorporate companies or businesses with already strong brand equity through M&A. Another option is to engage external experts, such as consultants specialized in brand enhancement, for consulting on strengthening the company's brand.

5.4. Strengthen price competitiveness

Strengthening the price competitiveness of one's products or services is also an important aspect of growth strategy.

However, enhancing price competitiveness does not simply mean lowering the prices offered. While reducing prices may improve competitiveness, it can also lead to intense price competition.

The key point is to improve the quality of products or services even at the same price. By enhancing the quality and increasing customer satisfaction, it is possible to expect long-term usage of the product or service.

6. Summary

Red Ocean refers to a market with many competing companies, while Blue Ocean refers to a market with little to no competition. Both the Red Ocean and Blue Ocean markets have their own merits and drawbacks.

Even in a Red Ocean market, it is possible to survive and thrive by implementing growth strategies such as differentiation strategies and brand strategies utilizing M&A. To overcome the challenges of the Red Ocean, it is crucial to conduct market research and analysis to choose the appropriate strategies.

At INMERGERS, we provide support and consulting services for M&A strategy. For more information, please contact us.