Red Oceans & Blue Oceans
Imagine a market universe composed of two sorts of oceans: red oceans and blue oceans. Red oceans represent all industries in existence today. This is the known market space. Blue Oceans denote all the industries not in existence today. This is the unknown market space.
In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rival to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the read ocean bloody.
Blue oceans, in contrast, are defined by the untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.
It will always be important to swim successfully in the red ocean by outcompeting rivals. Red oceans will always matter and will always be a fact of business life. But with supply exceeding demand in more industries, competing for a share of contracting markets, while necessary, will not be sufficient to sustain high performance. Companies need to go beyond competing. To seize new profit and growth opportunities, they also need to create blue oceans.
Unfortunately, blue oceans are largely uncharted. The dominant focus of strategy work over the past several decades has been on competition-based red ocean strategies. The result has been a fairly good understanding of how to compete skilfully in red waters, from analysing the underlying economic structure of an existing industry, to choosing a strategic position of low cost or differentiation or focus, to benchmarking the competition.
[The above excerpt has been taken from the book – The Blue Ocean Strategy by W. Chan Kim. A matter of fact is that Kim & I have done our masters from the same university 🙂 ]