Navigating entrepreneurship: Red ocean vs. blue ocean markets
Entrepreneurship is all about identifying opportunities and seizing them. However, the type of market you enter can significantly influence your strategy.
When navigating entrepreneurship, you’ll face several unexpected market shifts during the lifetime of your business. Through thorough market analysis, you can maintain the agility and foresight you need to react fast and appropriately. While each market will require a very different approach to ensure success, familiarising yourself with the concepts of ‘red ocean’ and ‘blue ocean’ strategies can help you target your tactics more accurately to gain a real first-mover advantage.
Here I’ll share the difference between the two, and how an understanding of both is one entrepreneurship lesson you don’t want to miss.
What exactly is a red ocean market?
Red ocean markets are the traditional industries where competition is fierce and the market space is well-defined. Think of industries where numerous players are fighting over a limited customer base. The fast food industry is a typical red ocean market, where companies like McDonald’s, Burger King and KFC compete head-to-head often on price and convenience.
In a red ocean, the battle for market share regularly leads to price wars and reduced profits. It’s a market that is built on intense competition, with companies competing constantly for a greater slice of the action. There are however no surprises in red ocean strategies, with the market ruled by established competitors in well-known sectors.
Businesses that rely on red ocean strategies aim to take advantage of current demand, making trade-offs between value and cost for short-term gains. With this strategy however, long term sustainability is less of a certainty, especially for start-ups. Overcrowded markets can make it difficult for new entrants to stand out unless they offer something truly unique or have significant resources to outlast the competition.
How do blue ocean markets compare?
Blue ocean markets sit at the other end of the spectrum. They represent untapped, uncontested market spaces, where competition is pretty much irrelevant.
In contrast, blue ocean businesses are driven and sustained by innovation. Instead of fighting for a share of an existing market, companies in a blue ocean create their own demand. A great example of a thriving blue ocean business is Apple. When the iPhone was first launched, it wasn’t just another phone. It redefined what a smartphone could be creating a whole new market space and a demand that has been consistent for almost two decades.
Take on a sea of competition or create your own demand?
In entrepreneurship, blue ocean markets offer the potential for high growth and profitability. Yet, identifying and creating a blue ocean isn’t easy. It requires innovation, creativity and a deep understanding of customer needs that are currently unmet. With this, entrepreneurs face a strategic decision when choosing between entering a red ocean or a blue ocean market.
Red ocean markets may offer the advantage of established demand and proven business models, but the fierce competition could make it difficult to differentiate your brand from another and achieve significant growth.
If entrepreneurship to you is innovating and creating new demand, entering a blue ocean means you set the rules. And if successful, you’ll be rewarded with a larger share of the market and even higher profit margins due to reduced competition. It is important to note however that this path carries greater risks, with the ability to pioneer untested markets and educate consumers vital to success.
Ultimately, answering this big entrepreneurship question comes down to you, and your risk tolerance, resources and capacity for innovation. Whether you navigate a red ocean or venture into a blue ocean, understanding the dynamics of each is crucial. Make sure you know where your strengths lie and choose your battles strategically.
