In the business universe, there are two types of market spaces; they are known as the Red and Blue Ocean. The Red Ocean is industry that currently exists with defined boundaries and competitive rules accepted by all the companies. Companies in the red ocean compete furiously with one another to control the market. As more companies join the red ocean, profits and growth decreases. Blue Ocean is industry that does not exist and they have no competition. Companies in the blue ocean create demand and there is sufficient profits and growth for all competitors.
Blue Ocean is created in two ways. One way is to create a blue ocean from a red ocean company. The second way is by modifying the boundaries in an existing industry. A prime example of a blue ocean company is the Cirque du Soleil. The Cirque is a combination of a circus and theatre, two already existing industries. Many companies focus on competition and competitive advantage making them ignore two significant things. The first thing many companies forget is to develop a market without competition (Blue Ocean) and the second thing is to exploit and protect those markets. Blue oceans are created from red oceans therefore red ocean companies have the advantage of creating blue ocean companies but they are not. What many companies do not know is that, blue ocean companies are not created through R&D but through a good strategic move.
The blue ocean strategy offers a choice between differentiation and low cost as compared to the traditional red ocean strategy which gives a tradeoff between value and cost. Successful companies such as the Cirque du Soleil pursue strategies that results in differentiation and low costs. Cirque du Soleil pursues differentiation by combining a circus and theatre experience. The Cirque pursues low cost by taking out the expensive elements of the circus and the theatre to offer something unique to the consumer at an inexpensive cost. This makes Cirque du Soleil neither a circus nor a theatre but a combination of both. One of the main benefits of the blue ocean companies is that their strategies cannot be imitated. For instance, in the airline industry many companies cannot adopt the strategy of Southwest Airlines because they are not flexible enough to go through all the process to restructure their company’s strategy.
The red ocean offers a traditional strategy that makes companies fight over the demand to control the market instead of creating one. Red ocean companies also see a reduction in profits and growth due to many competitors. This is why red ocean companies should create blue ocean companies to have a market where there is no completion instead of fighting over an already limited market. Companies like Cirque du Soleil, Southwest Airlines, Intuit and many others are examples of companies that use the blue ocean strategy, and they are all successful.