Blue Oceans vs Red Oceans

Blue oceans are new market spaces that are created through value innovation, this is where you do things differently and deliver increased value for your customers. In a blue ocean, competition is irrelevant. Red oceans, on the other hand, are existing market spaces where the waters have turned bloody from competition and gaining market share is a zero-sum game against the existing players.

You may be thinking that this means that you should entirely overlook red oceans when creating your products and services. This would be incorrect though. Don’t forget that red oceans are proven market spaces — you know for certain that there are existing customers and money is flowing through there. Knowing this, you can still look to red oceans to carve out your (possibly blue) piece of the pie. Here are a couple of ways you can do this:

Broadly speaking, who gets paid more in the workforce — generalists or specialists? The answer is specialists. By looking at existing red oceans and identifying new niches you can differentiate yourself from the more generalized offerings while charging a premium. For example, I have known service providers who branded themselves as the choice for celebrities — celebrity dentists, celebrity infant swim resource instructors, etc. By doing so they carved out a specialized niche and could charge a premium for that, even for non-celebrities.

Targeting niches allows you to first establish a foot-hold and then grow into other market segments as your brand and reputation grows. Today Amazon is fast becoming the “the everything store”, but remember that they started off as just an online storefront selling physical books.

Another example — my first job out of college was at a Big 4 management consulting firm. Being a big player with a strong brand and established customer base meant that we could provide a whole slew of professional services across a full range of industries. You could argue that management consulting is very much a red ocean industry and that the existing players have already created some layers of specialization (those that are familiar with that world will know you have the MBB, Big 4, Technology, etc. categories). So if you wanted to enter this market space how could you do it? Well the last firm I was at did exactly this by first positioning themselves as experts in a very particular set of financial services products. As they grew they expanded their offerings to target all types of financial service organizations. Though their fees may have still been comparable to their more generalized competitors, they were able to carve out a niche as experts in financial services and grow to over 5,000 people globally in a red ocean.

2. Throw Rocks at the Red Ocean

This is the “ everyone else is telling you x, but I’m telling you y” approach. Here you look at the red ocean and see what could be wrong with the existing products or services being offered there.

A good example is the diet industry. This is an established and proven market space where there are definitely customers and money is flowing through there. Every few years someone differentiates themselves by throwing rocks at the most popular message at the time and the market then follows. A few years ago the message came out that “everyone else was telling you to cut fat, but I’m telling you the best answer to weight loss is the Atkins diet”. Since then we’ve seen other messages like the Paleo diet being promoted as the best solution. Right now the market seems to be saying that the best answer to weigh loss is the Keto diet, but… going by history it wouldn’t be surprising that once we’ve reached a saturation in Keto offerings that someone will capture new market share by throwing rocks at the Keto diet and the cycle then starts over… “everyone else is telling you the answer is the Keto diet, but I’m telling you …” This is not to say these diets don’t deliver on their message — I’m not a dietician and they may well all work, these are just examples I’m using that you are likely already familiar with to illustrate how effective this technique can be.

“… let me talk about a category of things. The most advanced phones are called smart phones, so they say. And they typically combine a phone plus some e-mail capability, plus they say it’s the Internet. It’s sort of the baby Internet into one device, and they all have these little plastic keyboards on them. And the problem is that they’re not so smart and they’re not so easy to use, and so if you kind of make a Business School 101 graph of the smart axis and the easy-to-use axis, phones, regular cell phones are right there, they’re not so smart, and they’re not so easy to use.”

See any rocks?

I’ll further share my learnings and insights into niching to create your offerings in a market space over time in this blog…

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