Red is the color of blood and in the case of marketing red ocean strategy refers to that strategy where companies try to give wounds and indulge in a bloody competition where real blood does not come but competitors try to take each other’s market share by indulging in price war apart from other aggressive marketing tactics. In order to understand this concept in a better way, one should look at some of the advantages and disadvantages of red ocean strategy –
Advantages of Red Ocean Strategy
Less Risky
The first and foremost advantage of the red ocean strategy is that it is less risky because when you have an established market than there is no need to create any new demand for the product rather you have to concentrate only on the competitors pricing and customer service as opposed to blue ocean strategy where the company has to develop demand or find a new market for the product which we all know is not an easy thing to do and hence it is a very daunting task.
Clarity about Future
In the case of red ocean strategy company has clarity with regards to market as well as customers taste and preference which in turn helps in the company focusing on the product as well as the marketing strategy in a better way as opposed to blue ocean strategy which is like a black box as you never know what’s in store as far as market and consumer reaction to the product is concerned.
Good for Companies having Limited Resources
Red ocean strategy is ideal for those companies which have limited resources because if the company has limited resources and it follows the blue ocean strategy and if it does not succeed then it will never be able to do business again which is not the case with red ocean strategy where there is this margin of safety as the company operates in an already established market and it’s less risky. In simple words, companies that have limited resources should first adopt a red ocean strategy and once they are established and have resources to tackle any failure then they can go for a blue ocean strategy.
Disadvantages of Red Ocean Strategy
No Chance of Extraordinary Profit
The biggest disadvantage of the red ocean strategy is that in the case of this strategy there is no scope of the company earning extraordinary profit because of the presence of competitors in the market and hence company earns a normal rate of return on the cash sales or credit sales done by the company. In simple words, this strategy can help the company in surviving but it cannot help the company in attaining extraordinary growth and become a market leader in their industry.
Economics of Scale is Required
In this strategy, since there are competitors present in the market company cannot keep the price of product high rather they have to keep the prices at a competitive level, and hence the company has to achieve economics of scale so as to reduce costs and earn good profit margins. In simple words the company is not able to achieve economics of scale in the production and marketing stage under this strategy than chances are companies will not be able to compete with competitors following the red ocean strategy.
Less Exciting
In the case of blue marketing strategy companies take the risks and implement creative ideas and ways to spur demand for its products which makes it exciting as well as challenging as far as the company is concerned but in the case of red ocean strategy, there is no such excitement as the company has to follow the industry and competitors as price their products accordingly. In simple words, the red ocean strategy is a simple ride where there are no ups and downs while the blue ocean strategy is more like a roller coaster ride having many ups and downs.
As one can see from the above that red ocean strategy has pros as well as cons and that is the reason why a company should carefully analyze its product and marketing strategy and see if it can go for the blue ocean strategy because if the company goes for this strategy than the company will have to be on its toes all the time as competitors can take the market share from the company anytime.