Strategic Analysis of Red Bull GmbH Essay
Strategic Analysis of Red Bull GmbH
Arguably one of the most entrepreneurial firms of recent times, there is no denying Red Bull GmbH is a powerful force. Founded in the mid 1980’s by Austrian entrepreneur Dietrich Mateschitz created the unique formula providing millions of people with ‘wings’ on a daily basis. Back in 1984, Mateschitz discovered the need for a coffee alternative. Alongside Mr Yoovidhya they developed Red Bull from Krating Daeng – a thai version of Red Bull – turning the beverage into a carbonated, less sweet version they believed would appeal to Western tastes. The production of Red Bull led them to create a new category within the soft drinks market – that of ‘energy’ drinks. 30 years on and their original product is as strong as ever. Due to its private ownership, financial figures on Red Bull are scarce, however it’s reported that over 40billion cans have been sold worldwide, with 2012 figures demonstrating net sales of $4.9billion and 5.2billion cans being sold, representing 15.9% and 12.8% growth respectively over 2011. (Euromonitor International).
According to Marketline (2012) Red Bull holds an estimated 43% global market share of the energy drinks market by value, 21.5% by volume giving it dominant market position as its nearest competitor Monster hold 16% by value in comparison. In this case study I aim to outline Red Bulls current strategies and sources of competitive advantage, using the SWOT framework. This helps understand the reasons for the success of Red Bull and also their strategy to go beyond the international expansion with Red Bull’s focus on lifestyle rather than the energy drink in itself. In this context I will discuss Red Bull Media House, launched in 2007, a strategic move away from purely beverage production. I will review this and determine the success of this embryonic business within Red Bull GmbH using Barney’s VRIO framework, finally analysing the strategic leadership during Red Bull’s launch of their Media House, commenting on what makes an effective strategic leader in a continually changing and unstable market.
Red Bulls social media presence is huge. They are amongst the top 10 most ‘liked’ corporations on Facebook, have an extensive Twitter following and often use other social networking apps, such as Instagram in promotion and marketing campaigns. This has created a strong, vibrant online community in their target market (mostly aged 14-34) who are increasingly seeking fun and interactive services, on mobile phones and ‘smart devices’. Red Bull’s publicity stunts gain unparalleled viral attention. The most recent one, Red Bull Stratos, created a media storm, whereby an online audience of 8million watched the live stream of the jump (McNaughton, 2012) – dwarfing previous records for a live YouTube audience. As sponsors, Red Bull demonstrated (once again) their association with extreme events and appetite to take risks, which so effectively reinforces their brand image of lifestyle choice, through word of mouth in their targeted consumer market. Red Bull are pioneers in the extreme sports world, with over 500 events and athletes being sponsored by the organisation.
Teressa (2012) explains that many brands expect to sponsor an event and reap immediate rewards but consumers fail to admire those “one-off hits”. Teressa (2012) even goes on to suggest that the recent boom in extreme sports wouldn’t have happened without Red Bull’s influence. In terms of distribution and pricing, Red Bull produces all products at one factory in Austria. This results in consistent taste and also limits its exclusive recipe to one location reducing risk of intellectual property leakage. Red Bull continue to price at a premium compared to competing products because they want to segment the market with a brand that is trendy and edgy, as well as attract consumers whom are more likely to spread the word about the product. The luxury price band of a Red Bull product reflects a higher quality product than alternative brands. Red Bulls stated aim is to maintain their leadership position in the energy drinks market. This has moved their focus to Asia where there are the largest numbers of 20-24 years olds with 200 million in India, China and Indonesia.
In the 1960’s Humphrey derived a framework for identifying organizational core strengths and weaknesses, as well as determining any opportunities the firm may face whilst neutralising any threats that may come about. A SWOT analysis on Red Bull clearly demonstrates the sources of competitive advantage and highlights any disadvantages they have or future threats they face.
Market leadership – they created and are the industry leader of the energy drink market segment holding a 46% market share, with closest rivals Monster holding 16%. Marketing efforts – Their famous marketing campaigns are continuously appealing to the core 18-30 target age group, for example their sponsorship of Formula1 and BMX riding has increased consumer awareness and brand loyalty. Effective and creative use of social media greatly enhances this. Growing revenues – The energy drinks market is still growing strongly and within this market Red Bull’s net revenue and product sales grew by 13% in 2012 with net sales of $4.9billion and 5.2billion cans across 165 countries (Forbes, 2013)
Reliant on a small product base – Red Bull only markets one product, along with a few variations, for example ‘zero-calorie’, ‘sugar free’ and ‘cola’ versions. In 2013 they launched three new ‘editions’ of fruit flavoured alternatives but we are yet to see these mirror the success of their original product. This may leave Red Bull vulnerable to market fluctuations, especially as the energy drink category is the smallest within the soft drinks market. Marketing expense – Red bull spends about 40% of sales revenues on extensive marketing techniques to boost the lifestyle brand recognition and drive sales. Competition – In a recent move the two largest soft drinks companies (Coca Cola and PepsiCo) have both chosen to partner with competitors to Red Bull – Hansen Natural Corp and Rockstar. This may challenge Red Bulls established business model given the global manufacturing reach, R&D and marketing strengths of these two strong companies. Single source of manufacture – Not only does this mean high distribution costs relative to competitors, it means Red Bull is also susceptible to Austrian tax law and tariff agreements.
Further growth in key markets – With the largest population of target consumers in India, China and Indonesia Red Bulls focus and strategy in Asia will be critical if they are to continue to retain market leadership. Expanding their product line – Given the recent concentration of the market by Coca Cola and PepsiCo, new competitors may struggle to enter this market giving an opportunity for Red Bull to focus resources on their already established brand. This would capitalise on a strong consumer awareness of the brand with the potential to grow merchandising revenues. Geographical expansion – Red Bull could move to produce the products on more than one premise. If production was in different countries this could reduce distribution and logistics costs dramatically.
Public Health Concerns – We have experienced a trend by which Red Bull is used as a mixer with alcohol, for example “Jager-Bombs”. This has led to a number of studies concluding that mixing Red Bull with alcohol could be potentially dangerous, due to its high caffeine content. This inevitably has led to temporary bans in several countries including France, Denmark and Norway which inevitably creates bad press and potential damage to the brand. Consumer awareness of health and well-being – Recent trends in health and fitness has correlated with an increase in purchase of bottled water, with Forbes (2013) claiming that bottled water will be the largest segment of the US refreshment industry by the end of the decade. Although Red Bull have sugar free and calorie free alternatives, there are still consumer concerns about the caffeine in Red Bull.
Increased number of competitors – Given the premium pricing and highly differentiated product strategy Red Bull remain susceptible for increased competition. Other rival firms, for example Rock Star, Monster and Relentless are all priced cheaper than Red Bull and all growing just as fast. This SWOT analysis helps clearly outline the firms current strategies and sources of competitive advantage. Moving on, I will now discuss a recent strategic change – Red Bull Media House. This seems to be a significant development in the strategy of Red Bull to cope with the demand for an ‘in-house’ media team, saving them vast media and marketing costs whilst also increasing brand strength through increased content to their passionate consumer base. Alongside the analysis of the Media House I will discuss particular leadership challenges faced by the team at Red Bull, concluding the strategic change analysis with Mateschitz’ leadership style as a source of competitive advantage in itself.
Red Bull Media House
Europe saw the launch of Red Bull Media House in 2007, with the expansion into the US in 2011. The mission statement “We’re on a mission to fascinate” (Red Bull, 2013) demonstrates Red Bull’s passion in providing content wanted by their target market as well as appealing to a wider range of people, increasing brand recognition and directly resulting in a wider purchase of their physical product. Today we are experiencing a shift whereby companies are encouraged to consider themselves a media company (Teressa, 2012) and in 2011 Red Bull Media House filmed movies, reality television and expanded their magazine Red Bulletin into the USA. Alongside a recent partnership with YouTube to provide original content on a Red Bull channel, Brier (co-founder of Percolate) stated “Red Bull is a media company that sells drinks instead of ads”. This observation sets Red Bull Media House apart from traditional media companies because they are focused on innovating new ways to excite their target market about one product, rather than using the media team to promote and market many different products.
The Media House team have created an online catalogue of media content, split into three main categories – ‘Sports and Lifestyle’, ‘Nature and Science’ and ‘Tradition and Inspiration’. This content pool can be browsed and consumed by organisations. Scott Bradfield (Media House Head of Production) explains “We make content that (audiences) can consume the way they like”. This is alongside the Media House’s advertising branch, where organisations can purchase advertising space in their print, television or online media channels. Red Bull Media House produce content that exactly match their target market. An accumulated experience in the extreme sports world has led them to understand the ‘extreme sports lover’s’ wants, for example varying lengths of films capturing various extreme sports events, often using high definition technology showing off stunts and tricks, for example the ‘Red Bull Rampage’ – a downhill freestyle BMX competition watched by over 4million YouTube viewers.
The features produced by Red Bull Media House are inevitably sponsored by Red Bull, thus we see an influx of highly effective product placement – for example helmets and t-shirts tattooed with the Red Bull logo – constantly reinforcing Red Bull’s exciting messages to its target market – extreme achievement and risk as well as growing revenues from branded products and clothing. The innovation that Red Bull used in this strategic move wasn’t limited to the content they produce. Even the offices of the Media House reflect the organisational culture Mateschitz has drummed into employees. The “mammoth” (Teressa, 2012) skate ramp outside the offices is often scaled by skaters and climbers, even though designed with ‘holes’ to dissuade consumers from having a go. This constant interaction Red Bull makes with its consumers highlights how Mateschitz “knew that success would be in how you market the product as much as the product itself” (Brell, Media House MD, 2012)
Process of change
The process of this strategic change reflects the traditional marketing techniques used by Red Bull, in that they use an established consumer base to test the concept, then look to expand into bigger and more profitable locations. Red Bull have utilised their strong consumer base in Europe, thus launching the media house in Europe was an appropriate stage in testing whether their consumers wanted regular sporting, music and film content. Once established with a steady growth rate, Red Bull then looked to co-inside their launch of the Media House in the US along with their magazine – The Red Bulletin – that was pumped into many American newspapers, with the hope that many ‘alpha-bees’ spread the word creating a buzz around their media production.
Evaluation of results – VRIO Framework
Due to the recent launch of the Media House, expectations are that it will provide long-term financial value however it’s suggested that it is yet to product profit for the firm. Mateschitz stated that the Red Bull Media House was “our most important line extension so far. As a major content provider, it is our goal to communicate and distribute the ‘World of Red Bull’ in all major media segments, from TV to print to new media to our music record label.” In order to determine the Media House’s success we can examine Barney’s VRIO framework. If a resource or capability is valuable, rare, difficult to imitate and the organisation uses other policies to exploit this resource, the resource will ultimately be a strength for the firm. In terms of value, Red Bull Media House allows the organisation to respond to environmental threats because it provides the firm with a branch totally separate from the product it sells. If the growth of energy drinks in the soft drinks market declines, the media house allows Red Bull to create new value by utilising its huge consumer following within the media industry.
This will continue to give a strong return on the advertising, promotion and marketing expertise accumulated over time. The Media House branch of Red Bull is rare, because within the energy drinks market Red Bull is the only organisation to have its own Media House. Although rival firms could look to imitate Red Bull’s media strategy they would face a cost disadvantage in doing so given Red Bull’s market leadership and established brand image. Finally, Red Bull utilises its other expertise and policies in order to exploit the Media House branch, for example using their knowledge of their target market’s wants and turning it into content their consumers want to read and watch. Therefore this strategic move by Red Bull provides a distinct advantage for the organisation with a rare asset which is difficult to copy.
Mateschitz has been hailed as a “media mogul” since the recent launch of Red Bull Media House (Bloomburg Business week). Red Bull GmbH have always promoted a private approach with regards to behind-the-scenes management styles but the leadership strategy used by Mateschitz and the Red Bull team is a simple one – provide the example and employees will follow by creating and implementing innovative strategies of their own.
The Red Bull Media House were behind Felix Baumgartner’s record freefall stunt and this sponsorship, and thus the live stream, was due to Mateschitz’ fascination with flying and space. When you have a leader who spots marketing opportunities like the famous jump, employees are encouraged and empowered to spot unusual opportunities that could be the source of competitive advantage if exploited correctly. Browne (ex-BP CEO) explains it is effective to stimulate the organisation rather than control it. By providing gentle guidelines to where he intends the firm to be, Mateschitz empowers employees to implement strategies that achieve the desired ends. “How many companies in the World consider supporting BASE jumping.. It’s crazy. There is too much liability. And Red Bull is just like, ‘So?’” – McConkey, a previous Red Bull athlete. McConkey tragically passed away during a skiing stunt on Italy’s mountains in 2009 – in the midst of the Media House testing phase – this had the potential to damage the brand image through a negative public reaction towards Red Bull’s continuous support of extreme sports. On learning the news, Red Bull (Mateschitz) responded with “There are almost no sports within which mortal accidents aren’t a reality…
And while we were hit hard by it and deeply concerned they chose their journey long before we met.” This statement reflects Red Bull’s subtle separation from the association with fatalities, reducing the risk of a negative public backlash. In addition to this, the Media House created a feature length documentary celebrating McConkey’s life, which in turn produced goodwill value as segments of their target market mourned the loss of a Red Bull “family member” with them. It is suggested that Red Bull’s Media House employees describe Red Bull as promoting an attitude of “originality, non-conformism and dreamy reverie” (NY Times) backed up by Mateschitz – “When you are called Red Bull… this has to do with sports, flying.. with having been empowered to do whatever you want.” This reflects Red Bull’s creative and inspiring work environment – when this process is done right this results in heightened productivity and better quality of work life. Using research conducted by Ireland et al (1999) strategic leaders can ensure that leadership itself is a source of competitive advantage. Within Red Bull and the Media House we see that the vision of the organisation is clearly understood and supported by the senior team.
Mateschitz’ focus and strength in consumer marketing is illustrated well by his statement that “We don’t bring the product to consumers, we bring consumers to the product”. A successful leader also views employees as a critical resource from which competitive advantage can be achieved. In Red Bull, Mateschitz has previously reimbursed staff for flying lessons, as he believes it to ‘open horizons’. By providing employees with opportunities like this, he can expect to gain a return from them in effort and productivity. Moreover, organisational controls are effectively balanced. Red Bull have no other shareholders, thus ‘pleasing’ them isn’t as big an issue as it would be for a publicly owned company. Red Bull handle controversy – and even failure – without expending effort to maintain a stable share price.
An organisation with rigid control procedures also can inhibit employees from deriving from norms, but Mateschitz’ adventurous and free-spirit nature is personified in the organisational controls, therefore encouraging a free-thinking culture. Finally, Mateschitz is realistic when expecting return from his Media House investment. He has commented that a company has to be patient for a profit, just like his sports teams which are “not yet profitable, but in terms of value they are”. This long term approach from Mateschitz also encourages employees to derive from quick fix strategies that provide some advantage in the short term – rather focus on the long term success of the organisation.
Red Bull GmbH are constantly evolving. Their 2013 mission statement – “to spread our wings all over the World” (Red Bull,2013) is underpinned by a continued expansion in international markets coupled with the excitement and opportunities of new media business related to their brand. Despite Red Bull’s small product line, they continue to be pioneers in areas ranging from extreme sports to marketing campaigns that, until recently, was all achieved from one fundamental product – that blue and silver 250ml can. I believe that Red Bull’s success is a product of their extensive and recognised marketing strategies and their innovative culture inspired by the founding owners.
Their presence on social media, the publicity stunts and their sponsorship of sporting events underpin much of this success allowing differential pricing and distribution strategies that have contributed to their continuing double-digit growth. Along with their Media House, sports teams, music production and events the Red Bull ‘community’ is as fierce as ever and doesn’t look to be slowing down at any point soon – 30 years on and with huge numbers of students, athletes and professionals believing in the vibrant and exciting lifestyle – and purchasing and consuming the drink, it may well be that Red Bull really does Give You Wings.
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