Red Ocean Strategy - How to Beat Your Competition

Red Ocean Strategy - How to Beat Your Competition

Team Inovector
21 Jan, 2022
Max 8min read

We live in a world where there are many already created things and already implemented ideas, so it's hard to come up with something truly unique. App developers also face the urge to make something one of a kind. However, despite the relative youth of the application development industry compared to, let’s say, mechanical engineering, a lot of visionary projects have long been invented. Few people manage to create something for the blue ocean - the market of exceptional developments, but you can always start app development in the red ocean - the market for already existing niches, products and services, by offering better and more convenient solutions. The right red ocean strategy will allow you to develop a product and make it successful, despite the presence of competition on the market.

Red ocean vs. Blue ocean strategies

Most players on the market operate according to the red ocean strategy. In general, the concept of a red and blue oceans was introduced into economics and business management in 2005 by scientists from INSEAD. It cannot be said that the idea was unique: there were already different approaches to the definition of highly competitive and low competitive markets, but the name has taken root in the business environment because of its imagery vibe. The red ocean does not fully describe the main idea, it should probably be called the bloody ocean: sharks eat small fish, competing for habitats, as large companies compete for niches on the market, merging and acquiring smaller companies.

The blue ocean is like a fairy tale world, where everything is fine and each Cinderella has her own fairy godmother, who will solve all problems with the carriage, dress, and even find the prince Charming. Business in real life is built more on strict regulation of everything and the struggle for a place in the sun for your product or service, just as the ancient hero Odysseus did: task management, strategic planning and competent marketing of the product. In the red ocean, a business is much more likely to develop, because competition provokes the emergence of new creative ideas and solutions, while the calmness of the blue ocean leads to stagnation and slow death in a unique, but most likely quite little demanded niche.

First of all, the red ocean strategy involves identifying the right niche for your product in order to accurately target your audience. It's not just about making a "gen Z app". The red ocean strategy assumes that you know exactly how old your future customers are, where they live, what they like, what their income level is, and what values ​​they share. An accurate socio-demographic portrait of the end consumer determines the success of the future product: this is the only way to offer the client exactly the goods or services needed. And in the case of the red ocean, it will be much better if the product is targeted at several large categories of end customers in order to maintain a sufficiently wide market coverage and have room for further growth.

A relevant example of a nowadays multiple socio-demographic approach in the implementation of their products can be considered the service for online education Udemy. Let me explain right away: the online education market is the reddest, even the bloodiest ocean on today’s market, with more and more companies’ invasions, including such giants as Google, Microsoft, and even Tesla. What makes Udemy to stand out?

The Udemy has focused on several areas that have become the foundation of their successful red ocean strategy: a user-friendly toolkit for course creators, a user-friendly toolkit for courses’ consumers, and peer-to-peer evaluation of offered courses. In the scientific community, this type of content evaluation is called a peer-to-peer review; it ensures maximum impartiality and adequacy during the evaluation of educational materials. So Udemy has managed to create an entire virtual marketplace for various courses, packaged in a user-friendly interface for both courses’ developers and end consumers, thereby attracting customers from various market niches through a comprehensive product design.

Selling solutions vs. selling products

When developing products and services for the red ocean environment, there is a necessity of understanding that primarily you need to focus on customer’s satisfaction, and not directly on competition on the market. Otherwise, the so-called survivorship’s bias occurs: a cognitive bias caused by a misunderstanding of cause and effect. Competitors are not successful because they have more customers, they are successful because they offer more interesting solutions to their customers compared to other players on the market. It is necessary to constantly increase the value of the goods or services offered to the client, taking into consideration the actions of competitors, but not to base on competitors’ products decisions regarding your own product or service. Competition forces to use more frequent brainstorming to meet the growing and changing demands of customers.

It is important to remember that the red ocean strategy is about constant movement and change. In the blue ocean there is no need for change because there is no one to compete with. In the red ocean, competition affects changes in an industry or niche, so it is always important to monitor such trends and adapt to them in time.

Adaptability to market demands will allow the client to offer not just another product or service, but to offer a comprehensive solution for the client's needs. Of course, we can sell a pen and paper to a writer to satisfy his minimum client request. Or we can follow the path of Moleskine: create a product line for writing enthusiasts, offering different formats of notebooks with different types of paper and design, as well as offering digital ones for hybrid smart notebooks.

Moreover, the stationery market is an old market that has a thousand years of development, so it is not enough just to offer a quality product. Moleskine offered its clients a story. Their red ocean marketing strategy has transformed the ordinary notebook from a particular firm to the symbol of the creative class: writers, artists, illustrators and many other content creators. Moleskine went even further in its community management and even created a Moleskine cafe, where Moleskine admirers create a special intellectual atmosphere, with which the company image is now inextricably linked. Moleskin did not just offer a product, this company offered several solutions for creative people, designing an entire mythology based on a simple notebook.

What about pricing?

Money is the ultimate goal in the development of any product or service, because without financing, normal functioning of the app development team and the processes of the product or service development are just impossible. When entering the red ocean market, newbies often think that the best strategy for pricing is offering the best product possible at the lowest price possible.

On the first view, this strategy is quite correct. But it is mainly correct for simple and basic consumer goods: for example, for manufacturers of potatoes or lighting equipment. If we are talking about digital products, everything becomes much more complicated.

First, it all depends on the niche and audience. If your target audience are students, then it makes no sense to offer them a subscription to a service for buying luxury tourist tours. At the same time, if your target audience are people from the middle class of pre-retirement or retirement age, then such an offer will become very relevant. It is mandatory to take into consideration the solvency of your customers and offer adequate prices for your digital product or service.

Secondly, the quality of a product or service is a determining factor in terms of pricing. Does your application provide a much higher level of personal data security compared to competitors, all other options being relatively equal in terms of performance indicators? A subscription to such an application will cost more and will definitely find a fairly large number of customers interested in the maximum level of security of their data.

Third, it all depends on your brand and marketing. The best example of this phenomenon is the NFT art market. A year ago it was a blue ocean market, but now it is a red one. How to raise the price of one of 500 copies of Banksy’s painting from $70,000 to $200 million? They have turned an ordinary copy into an NFT. Yes, we’ve returned to how important the brand and storytelling are, even performance in this case, in terms of digital goods and services pricing policies.

This is why in the world of red ocean strategy and red ocean market, the cheapest product doesn't always mean the best deal. This means that by properly positioning your brand and by developing a smart marketing strategy, you will be able to reach much more product value and attract a lot more new audiences than just creating a quality product or service that sells at the lowest price among competitors.

Red Ocean Strategy: conclusions

Red ocean strategy means developing a product or service in a highly competitive market. 

What should be done first for development on the red ocean market?

This type of development implies a well-thought-out strategy: marketing, pricing, branding, and most importantly, offering the best solutions in your niche on the market for satisfying client’s needs as much as possible.

What should a company in the red ocean be ready for?

The red ocean strategy is suitable for those companies that are ready to constantly change and adapt to customer needs in order to be constantly in trend. Flexibility is especially important for developers of digital products and services, as this market changes faster and more frequently.

How to compete in the red ocean?

Competition in the red ocean should not be based on price alone: the cheapest offer does not always mean the best offer. It is important to focus on the characteristics of the product and the solutions offered, providing them at an adequate price. A competent marketing strategy will help with this, turning the brand into a story that the client will want to be a part of.

Sharks in the ocean move even when they sleep - this is a great metaphor for the red ocean development from a small startup to the main player in your niche on the market.

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