Red Bull is a functional beverage founded by Austrian entrepreneur, Dietrich Mateschitz, in 1984. Containing ingredients such as taurine and caffeine, Red Bull beverages are specially developed for those who wish to be physically and mentally active. The various product variants under Red Bull aim to enhance performance, concentration and stimulate metabolism which improves the overall well-being of consumers. Red Bull is currently present in over 162 countries, and holds 65% of the worldwide energy drink market.
With a witty slogan “Red Bull gives you wings”, the product is marketed through advertising, extreme sports tournament sponsorships, sports team ownerships, athlete endorsements, online games and a record label, Red Bull Records.
However, in the fast progressing beverage industry cluttered with many substitutes and large competitors, Red Bull might face issues concerning its lack of product variability as well as arising health concerns with regards to its high caffeine content.
In order to tackle these issues, we will first conduct a SWOT analysis to determine the internal and external environment which Red Bull is operating in.
Secondly, we will conduct an in-depth analysis on Red Bull’s market structure and control
systems to determine if these systems are effective complementing strategy implementation. Lastly, we will provide relevant recommendations to address the issues and problems faced by Red Bull in its strive expand and grow globally.
Market share leadership with approximately 65% market share in the energy drinks market. Strong reputation especially backed up by strong customer loyalty from Generation Y Strong brand identity since its incorporation in 1987 with steady growth into a market giant and is now synonymous with brand and product excellence.
Small product base as Red Bull markets only 4 branded products (Red Bull Energy Drink, Red Bull sugarfree, Red Bull energy shot and Red Bull Cola), therefore vulnerable to market fluctuations Lack of product innovation thus being left behind when a number of new energy drinks have been launched in 2004.
Could diversify retail outlets and distribution network by means of capitalizing on vending machines as a new route to increase sales as well as keep up with industry trends. Potential to extend product lines by adding new products, such as new flavours, forms, colours, added ingredients and packages sizes. Marketing their products as functional drinks so as to capitalize on strong consumer awareness of its brand. Geographical expansion in the Asia Pacific regions by building upon developing markets such as India. Threats
Imminent threat of new entrants as the energy drink industry has always been considerably attractive due to its high profit margin Near zero switching cost for consumers makes it even easier and more attractive for new entrants to capture market share Real threat of substitute products which serve the same functional purpose of Red Bull but main ingredient of caffeine replaced by electrolytes, which is a healthier choice.
Government regulations could pose as a threat to the expansion and penetration plans of Red Bull as their products is not just another flavoured beverage in the market; the high caffeine content in the drink has always been a concern to certain interest groups. Recent popularity with organic food and drinks products could eat into Red Bull’s market share, especially when Red Bull’s market is seen to be in the maturing stage. Analysis of Red Bull’s Market Structure and Control Systems
The number of players in the Energy Drink Market Red Bull belongs to an oligopoly market structure where the market is dominated by a few large players. The degree of market concentration is relatively high with a large % of it taken up by Red Bull.
There are currently more than 30 types of energy-drink products in the market, with Red Bull occupying the largest market share of approximately 65%. With the number of players in the market, there is therefore certain degree of interdependence between firms and it is necessary for Red Bull to take into account the likely reactions of other firms during strategy planning. 3.1.2 The Degree of Product Differentiation in the Market
Being in an oligopoly market structure, Red Bull produces branded products where advertising and marketing is an important feature of competition. The different types of energy drinks in the market serve as close substitutes to Red Bull. Hence, Red Bull presents itself as a premium product, having “a unique combination of high quality ingredients” (Red Bull, n.d.) which “vitalizes body and mind” (Red Bull, n.d.). It segments its market differently from its competitors, focusing on performance-oriented individuals who want to have a clear, focused mind and a fun and active lifestyle. This has resulted in Red Bull pricing its product higher than its competitors.
For instance, an 8.4 fl oz. can of Red Bull retail for $2.59 whereas a 16 fl oz. can of Rockstar retails for $1.50, which constitute to about half the price per fl oz. as compared to Red Bull. 3.1.3 The Ease of Entry and Exit Into And Out Of the Energy Drink Market There are huge, though not insurmountable, barriers to entering the energy drink market.
One prevalent barrier is brand loyalty which Red Bull has built up over the years. This strong brand loyalty has the effect of reducing consumer consideration of alternatives in the marketplace. Also, the high initial capital cost associated with research and development prior to formulating energy drinks could deter potential competitors from entering the market. In addition, government policies pertaining to licensing and patents create the biggest barrier to entry, which aids in the dominance Red Bull enjoys today.
3.2 Marketing Control System
In order to ensure that the company’s objectives are achieved, Red Bull markets its energy drink in three ways, namely the media advertising, sports and event sponsoring as well as sampling. The three marketing techniques not only increase the brand awareness of Red Bull, but assist the management in terms of market control. Additionally, Red Bull also performs control techniques in the following ways. 3.2.1 Intensive Research Work
Firstly, Red Bull conducts on-going research to determine if consumers are satisfied with its product. This includes sampling to its primary target market – tired people who need energy. Through sampling, consumers are able to provide feedback on the product, essentially its taste, packaging and effects. If there is negative feedback received, Red Bull will then look for ways to improve so as to meet consumer needs. 3.2.2 Internal Statistics
Secondly, Red Bull uses statistics such as sales, revenue and market share to assess if its marketing strategies are successful. Based on analysis, a total of 4,204 billion cans of Red Bull were sold worldwide in 2010, which signifies an increase of 7.6% against 2009 (Red Bull, n.d.). This can be one of the factors indicating that Red Bull is heading in the right direction in marketing its product. 3.2.3 Marketing and Pricing Strategies
Thirdly, Red Bull employs advertising strategies that are suitable to its primary target market. Hence, at this moment, Red Bull does not need to adjust its strategies to change consumer perception. Nonetheless, if Red Bull has decided to introduce new uses for its product, changes have to be made to the advertising strategies to market the new uses.
However, unlike most companies which adopt pricing strategies that involve adjusting the product prices to meet market changes so as to remain competitive, Red Bull does otherwise. Consumer reviews state that Red Bull is being priced steeper as compared to other energy drinks in the market. Despite that, Red Bull continues to maintain its premium price as it has positioned itself as a premium product. 4.0 Solutions and Recommendations
Q1. Red Bull should construct a market-oriented mission statement, focusing on customer needs rather than products. A product-centered mission statement is too myopic and does not reflect the long-lasting basic market need. Red Bull’s mission statement has to reflect the company’s core product, position in the market, distinctive competencies, and lastly, it has to be motivating. Our group proposal of Red Bull’s mission statement:
“As a market leader, Red Bull promotes an active lifestyle by providing high-quality energy drinks to the global market, empowering our customers to live to their fullest potential and have the courage to achieve their dreams.”
Q2. Red Bull has managed to identify the best target market. Red Bull has segmented the market as follows: Demographic segmentation
Red Bull is targeting young teenagers to busy working adults. It targets students who often suffer from exhaustion, blue collared workers who require strength for their manual jobs, and office professionals, who require concentration to focus in meetings and their respective work.
Red Bull targets markets based on the consumers’ lifestyles. These consumers include party-goers, sportsmen and gamers. In terms of the personalities of the customers, Red Bull targets those who are able to connect with the brand image of Red Bull, which is to live with zest and lead a fun, happening and risk-taking lifestyle.
Product – Red Bull does not have a wide variety of flavours – only original, sugar free, cola and Red Bull shot. The rationale for this is mainly to establish a clear core product. Furthermore, Red Bull is recognized as an energy drink that gives a strong and immediate energy boost to improve performance. In terms of design and packaging, a Red Bull can is small and easy to carry which is chromed, making it reflective and hence, it can catch a customer’s eye easily.
As for recommendations, Red Bull could produce an alcoholic beverage of its own, which can be sold over-the-shelf in stores. This would be able to create new product that mixes Red Bull and alcohol. Thus, the non-party-goers can have a taste of an alcoholic Red Bull as well.
Promotion – One of the most well-known activities that Red Bull has been involved in for many years is Formula 1. This is a form of above-the-line advertising done by Red Bull to increase consumer awareness of Red Bull.
Other than that, Red Bull also engages in “Opinion Leader Marketing” by having more than 250 agreements with top athletes. This is to attract people who follow and look up to these athletes. Red Bull’s strategy of attracting celebrities to endorse their products is very unique because they do not pay the celebrities a single cent. Instead, they approach athletes who support Red Bull wholeheartedly.
Q5. Red bull’s competitors come in two forms – direct and indirect. This is measured by how close these competing products are in relation to Red Bull’s. The direct competitors would be those who produce similar utility/functional products, such as Monster, Rockstar and Naughty G. Indirect competitors would be other drinks that are somewhat similar but do not give the same benefits as Red Bull. Examples would be Pepsi and Coke (caffeinated and soft drinks, but not energy drinks) and 100 Plus and H20(sports and soft drinks, but not caffeinated). Clearly indirect competitors are furthest away in terms of substitutability. Examples are Nescafe (caffeine only), Sprite (soft drink only) and Gatorade (sports drink only).
Q6. Currently, we think Red Bull’s marketing strategy is already very successful. In relation to how Red Bull reaches out to ‘tired’ and ‘exhausted’ people by giving them free samples, we feel there might not be such a strong need to raise more awareness about the product as it has already established itself adequately. Instead, Red Bull can invest in product Research and Development, which might enable Red Bull to introduce more flavours and variety to its current line of products. Red Bull can introduce “limited edition” flavours, where they can bring in new flavours for a limited period of time, and then see how well the sales of the new flavours turn out to be before deciding to permanently add them to their product line. For example, Red Bull can come out with a product comprising of natural ingredients, such as Siberian/American Ginseng(natural alternatives to caffeine), or add in some vitamins like vitamin C to its existing products, which might capture more of the ‘health-conscious’ consumers. Furthermore, this might attract Asian consumers who prefer traditional/herbal ingredients.
Control measures: Analysis of how the market share amongst Asian consumers is affected(look at sales, growth, etc.). Red Bull can also give free samples to consumers, just like how it does for its existing products through its Red Bull vehicles. Along with their free samples, they can conduct surveys on the consumers and ask for their feedback. Also, they can conduct online surveys, as the use of online social media is largely pervasive today.
Red Bull can build a theme park comprising of extreme rides. It can aim to break the world records for the highest roller coaster drop or have the fastest ride. In this theme park, it can also provide complementary Red Bull drinks to its visitors. This will also be a great avenue for new flavours to be sampled. Such an extreme theme park would create much buzz all around the world, and people who visit the theme park will definitely share their extreme experiences with their friends. Thus, Red Bull would have come out with another form of its already famous buzz marketing.
Control measures: By calculating the theme park’s return on marketing investment. Building such a theme park has a lot of fixed costs, like the costs of land and constructions. Hence, it is easy to calculate total cost. Furthermore, sales can also be easily calculated by simply looking the number of tickets sold. Therefore, it would be easy to calculate the theme park’s return on marketing investment.
Q7. Small Asian Businesses have relatively lower financial power as compared to big companies. They face difficulty competing with the big companies given similar products. To simply put it, they are the small ‘fishes’ regardless of the size of the market.
Firstly, like Red bull, they can focus on a small product base and differentiate their products from the competitors’. They can identify the right market segments and target markets which have been relatively untouched and fit their products to be the most attractive for the consumers in their targeted markets. Like Red Bull, small Asian businesses should create an efficient Marketing Informatics Systems (MIS) and have an appropriate mix of marketing research and intelligence, so that they are constantly able to discover new opportunities and cater to the needs of consumers, and at the same time be aware of their competitors’ strategies.
Also, small Asian businesses can adopt Red Bull’s stealth marketing approach. This eliminates costs such as large scale advertising costs coming from big billboards or banners for example. Red Bull has also shown through stealth marketing that doing something unorthodox and not merely following what everyone else does can also lead to success. Therefore, small Asian businesses can draw inspiration from this and be creative and brave in their marketing strategies.