What happens when you are unable or unwilling to create Blue Oceans? The antithesis of Blue Ocean market spaces are Red Oceans. Red Ocean environments represent the existing boundaries of conventional wisdom. Their familiarity provides a false sense of comfort to companies, because Red Oceans are crowded, confining, and make companies focus on outdueling one another rather than delivering lifestyle enrichment to consumers. The resulting strategic emphasis is insular and resource intensive, limits growth, and runs the real danger of rendering companies or entire industries irrelevant.
A common occurrence within Red Ocean environments is the convergence of competition strictly around price, otherwise known as commoditization. When this happens, all companies simply try to provide the cheapest offering, and consumers have no emotional connection, no infatuation with any particular one. As soon as a lower priced offering becomes available, they switch to it. So unless a company is sure to be the lowest priced provider, it can quickly cease to be relevant.
In fact, back when the global financial crisis started, I shared a perfect illustration via a news story from Reuters showing that in Red Oceans every last penny counts. It still holds true today. The story went like this:
In a southern England town, families hit by the financial crisis put a pound store out of business by flocking to a 99 pence shop that opened across the road. The Pound World in Poole saw its earnings plummet by 70 percent and was forced to close within weeks of 99p Stores launching on the other side of the High Street. “It’s funny to think a shop can close down because of a penny difference, I suppose it’s a sign of the times,” customer David Fitzpatrick told The Star newspaper.
[Image via Reneedzevous.]