RED OCEAN STRATEGY

Group 2
Saipriya R
Asvin Kumar
Anurag Gupta
Chandra kala Ch
Deepanshu Yadav
 WHAT IS RED OCEAN STRATEGY?

 A Red Ocean Strategy is a strategy which is aims to fight and beat the
competition.
 The Red Ocean companies try to outperform their rivals to grab a
greater share of existing demand.
 Red Ocean Strategy is a head-to-head battle where the players of a
particular segment compete with each other remaining in the same
market space i.e. within the boundaries of the same industry on the
principle of ‘competitive advantage.
 FOCUS

 They focus on competing in a marketplace which already exists.

 They focus on beating the competition.
 They focus on the value/cost trade-off. The value/cost trade-off is the
view that a company has the choice between creating more value for
customers but at a higher cost, or reasonable value for customers at a
lower cost. In contrast, those who attempt a blue ocean strategy aim to
achieve differentiation and at the same time, low cost.
 They focus on exploiting existing demand.
 They focus on execution (better marketing, lower cost base etc).
 CHARACTERISTICS

1) Existing Industries: Red Ocean strategy talks about existing, current

industries and product or service segment. The producer or the company
doesn't go away from its existing Industry and conduct business as competitive
with its other competitors within the industry.
2) Defined Market Space: Market space is space within which any producer
conducts business and is able to sell its produce to the possible buyers. In this
form of strategy the market space is known as it has existed since the inception
of the industry.
3) Defined Industry Boundaries: The boundaries around which the
Industries scope and span revolves around is limited and very much defined
and well accepted by the producer and his/her counterparts boundaries are
defined and accepted.
 CHARACTERISTICS (Contd.)

4) Known Competitive Rules: Competitive rules are known and defined,

the policies on which the industry is governed is updated and modernized to its
capacity of ensuring better and healthy environment within the industry.
5) Low Profit Growth Opportunity: Fairly having a divided form of market
share only ensures a low profit and growth opportunities as each producer is
capable of sustaining while providing differentiated and higher quality product.
6) Competitive Advantage: The market on a Red Ocean Strategy works on
the principle of competitive advantage where, due to a higher technology or
supply of cheaper raw material or marginally higher product quality or better
logistics can be seen as a competitive advantage.
 CHARACTERISTICS (Contd.)

7) Low Cost or Differentiation: The best way to survive or sustain in

such a market condition is to either through a strategy of low cost if the
producer has an advantage on cost of production, raw material, labour,
logistics and warehousing.
8) Beat the Competition: The company's only goal and outlook is to
beat the competition by hook or crook to render them a better margin of
profit or market share. Thus they put down every form of investment to
compete and fight for even a single percent market share.
9) Exploit Existing Demand: Pricing decisions are made tactfully to
not just cover the cost incurred on production, but also to collect enough
profits before their counterparts make a move to hamper their sales.
 NECESSITY – SOFT DRINK INDUSTRY

 This industry has been in existence for a long time, and there are many
barriers to entry.
 There are industry leaders in place such as Coke and Pepsi, and there
are also many smaller companies also in competition for market share.
 There’s also limited shelf space and vending spots, well-established
brand recognition of popular, current brands, and many other factors
that affect new competition.
 This causes the soft drink industry to be very competitive to enter and
succeed in.
 RED OCEAN ADVANTAGES

 The market is already established.

 It is clear what products and services customers want.
 RED OCEAN DISADVANTAGES

 There is usually an established market leader who will be very hard to

beat.
 There are usually numerous niche who are trying to carve out market
share in a subset of the total market.
 Competition is fierce.
 Red Ocean Vs Blue Ocean
 RED OCEAN STRATEGY
 Compete in existing Market
 Beat the competition
 Exploit the existing demand
 Make the Value cost trade off
 Align the whole system of the
firm’s activities with its
strategic choice of
differentiation OR low cost
 BLUE OCEAN STRATEGY
 Create uncontested market to
serve
 Make the competition irrelevent
 Create and capture new demand
 Break the value cost trade- off
 Align the whole system of a firm’s
activities in pursuit of
differentiation AND low cost
 RED OCEAN TRAPS

 Trap One: Seeing Market-Creating Strategies as Customer-

Oriented Approaches
 Market-creating strategies are customer led, which causes them to reflexively stick to
their focus on existing customers and how to make them happier.
 This approach, however, is unlikely to create new markets.
 Ex. Sony, Amazon
 Trap Two: Treating Market-Creating Strategies as Niche
Strategies
 Successful market-creating strategies don’t focus on finer segmentation.
 More often, they “desegment” markets by identifying key commonalities across buyer
groups that could help generate broader demand.
 Eg : Song, an airline launched in 2003 by Delta
 Trap Three: Confusing Technology Innovation with Market-
Creating Strategies
 Managers might assume that R&D and technology innovation are key drivers in the
discovery of new markets.
 But the reality is that market creation is not inevitably about technological
innovation.
 Products and services succeed because they are so simple to use, fun, and productive
that people fall in love with them. The technology that enables them essentially
disappears from buyers’ minds.
 Ex: Segway Personal Transporter
 Trap Four: Equating Creative Destruction with Market
Creation
 Creative destruction occurs when an invention disrupts a market by displacing an
earlier technology or existing product or service.
 Digital photography, for example, wiped out the photographic film industry,
becoming the new norm.
 New demand is also created without displacing existing products or services.
 Ex 1: Viagra established a new market in lifestyle drug.
 Ex 2: Grameen Bank’s creation of the microfinance industry.
 Trap Five: Equating Market-Creating Strategies with
Differentiation
 Differentiation is the strategic position on this frontier in which a
company stands out from competitors by providing premium value.
 It is about pursuing differentiation and low cost simultaneously.
 Ex. BMW
 Trap Six: Equating Market-Creating Strategies with Low-Cost
Strategies
 When organizations see market-creating strategies as synonymous with low-cost
strategies alone, they focus on what to eliminate and reduce in current offerings and
largely ignore what they should improve or create to increase the offerings’ value.
 Ex. Ouya is a video-game console maker that fell into this trap.
 Epitomes of Companies follow RED OCEAN

1.European airline operator Ryanair -:

 competing very successfully in the already saturated red ocean of the short-
haul airline business.
 Providing a low-cost no frills airline.
It achieve low costs through using secondary airports further away from a city
allowing only online booking and check-in.
2. Beverages and Soft Drink companies -: Ex Pepsi and Coke
3. Automobile Industries-: Maruti and Hundai