Introduction
The core thesis of the article by Kim & Mauborgne (2004) is centered around the concepts of red oceans and blue oceans. The former refers to existing markets and industries where competition is intense, and the latter refers to new industries and markets with untapped potential for profitability and a lack of competitors. Therefore, the authors recommend companies and entrepreneurs search for such blue oceans through strategies of expanding the boundaries of existing markets.
Discussion
The first major learning outcome is that red oceans are unsustainable and unprofitable. The main reason is that products and services become commodities, and many differentiating factors become nonexistent. In other words, various brands of red oceans become highly similar, which is why, “according to recent studies, major American brands in a variety of product and service categories have become more and more alike” (Kim & Mauborgne, 2004, p. 80). Since brands tend to lose their differences, customers’ purchasing behavior and preferences shift towards price-oriented decision-making. Thus, competition will drive prices down, lowering profit margins, which essentially turns products and services into commodities.
The second major learning outcome is that demand in blue oceans is not similar to demand in red oceans. It is stated that “in blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid” (Kim & Mauborgne, 2004, p. 82). Since blue oceans represent industries, which are newly discovered and developed, it is a commonality that customers are unaware of such a product or service. Therefore, initially, there is little to no demand for blue oceans. However, with marketing and awareness increase, consumers will shift their interests towards the newly emerging market or industry. In other words, demand is created through effort rather than competing with others because they are no rivals.
The third major learning outcome is that blue oceans offer a simultaneous pursuit of low cost and differentiation. It is stated that “cost savings are made from eliminating and reducing the factors an industry competes on. Buyer
value is lifted by raising and creating elements the industry has never offered” (Kim & Mauborgne, 2004, p. 83). In other words, a company operating in a blue ocean market can increase its price and decrease its costs at the same time, which is impossible in red oceans. Differentiation enables the creation of barriers to imitation, and it also helps to improve buyer value since any form of improvement is a novelty and innovation from the consumers’ perspective. In addition, the lack of rivaling companies allows them not to invest in unnecessary elements of a product or service, which might not provide value but would be mandatory in a red ocean. Such a saving potential translates into cost reduction, which further increases profitability.
Conclusion
The reading material had a strong impact on me as a student, where I was able to see that blue oceans are far superior to red oceans. The former provides more profits, more control over demand, and more sustainability. However, the major challenge comes in the form of the search for such markets or industries. In addition, since the search requires some quantity of resources and effort, there is only a small window of opportunity to establish superiority in the newly found blue ocean. Another impact on me was that the first-mover advantage does not always guarantee a superior position in the market. There are many examples of companies that opened or discovered a blue ocean but failed to capitalize on their first-mover advantage. For instance, MySpace lost a blue ocean to Facebook, and Netscape did the same to Microsoft.
Reference
Kim, C. W., & Mauborgne, R. (2004). Blue ocean strategy [PDF document].