The metaphor of the oceans was used by Kim and Mauborgne (2015) to explain the relationships in the market: there are people with roughly the same type of needs and there are companies that satisfy these needs in approximately the same way; between people and companies there appear commercial relationships: people pay and companies provide services or sell goods. It is the market. There is the market of Internet providers and mobile phone market; there is a food market; there is a market of pizzerias and a separate market of Japanese restaurants with delivery; there is an oil market and a market of educational services. The number of existing markets is incredibly high.
If a certain company is the only company in the market and it has a lot of customers, it is in an advantageous position. It can dictate prices and define the rules. All customers go only to this company because only this company can satisfy their needs. It is a blue ocean: a market without competition. Soon other companies see how well this company performs and enter the market where it operates. They begin to provide the same services to the same people but cheaper, faster or better. The competition starts and, figuratively speaking, the blood is shed. It turns into a red ocean: a competitive market.
The essence of the blue ocean strategy is to come up with a product or service that will create a blue ocean for the company. The main point of the blue ocean strategy is to stop competing with other companies, i.e. to stop playing by their rules; to stop trying to do the same things they do but cheaper, faster or better. Instead of stiff competition Kim and Mauborgne (2015) offer to change the rules of the game and to create new markets – the blue oceans where there are no competitors yet − and to be the first there. Blue oceans are created constantly, although no one thinks of them this way. But every time a revolutionary product appears on the market – it is the blue ocean.
The importance of the blue ocean strategy is that it suggests rapid growth and high profitability of companies that can generate productive business ideas, creating a demand that did not exist earlier for a new market, where there are practically no competitors, rather than competing with a lot of competitors in the low-profit markets.
The introduction of the store brand or the private label in the food retail stores can be viewed as an example of a blue ocean strategy move. This move made it possible to stop following the rules set by the competitors, to create own rules and to make others follow them. This step creates new area for the competition and changes the existing system of relations between famous product brands of international level (such as Coca-Cola and Cheerios) and local stores that sell corresponding goods (Kiernan, 1995). Traditionally the goods that did not belong to any brand were sold at lower price and usually had lower quality and a modest packing. At the same time the famous brands require considerable additional payment simply for the brand; this additional payment is included in the price of the brand goods and partially explains the reason why brand goods are so expensive. The concept of the store brand or the private label offers something new: the products that have the quality that is not lower and sometimes even higher than that of the famous brands and the price of which is considerably lower. The store brand allows to create a unique and specific image to the store and to attract new customers.
An alternative red move for the same product would be to competing with the existing competitors, i.e. with brand goods and with goods that do not belong to any brand. Since it would be too difficult to compete with brand goods, the store could try competing with those goods that do not belong to any brand: it could try selling the product at a lower price than those goods are sold, to advertise it more or to offer a sale. The pros of this strategy is that it is not necessary to innovate and to come up with a creative idea; it is also not necessary to take time thinking of the ways how to implement that idea and to take the risk of the fact that the idea may turn out to be a failure and will not lead to the desired result. The cons of the red ocean strategy in the described case is that the competition in the existing market space is very high; in order to beat the competition it will be necessary to considerably reduce the price of the goods and to think of other ways to attract the customers to the product. That will lead to the loss of profit.
References:
Kiernan, M.J. (1995). Get Innovative or Get Dead. Douglas & Mcintyre Ltd. Vancouver: Toronto.
Kim, W.C. & Mauborgne, R. (2015). Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant. Harvard Business School Publishing Corporation. Boston: Massachusetts.
