Analysis to look at Red Bulls strategies

Red Bull has turned itself into a multinational company that offers a product that enhances the mind and the body. Their method of managing their internal and external situation and circumstances has become an interesting topic for many. Thus we conducted some analysis to look at Red Bull’s strategies, and especially the international strategies. The external analysis was a mix of positive and negative observations, for example they have the advantage of the customer loyalty and the production cost, and however, they are in the territory of major players in the beverage industry which put them at risk. Nevertheless, the industry analysis and peer review helped to shed some light on Red Bull’s external report, where we can see a substantial growth in the industry and Red Bull headship in the energy drink market.

Through the internal analysis we observed that Red Bull leads a proactive approach towards their business by adopting conventional and unconventional methods to expand their horizons. Through the value chain model, we observed that Red Bull’s internal marketing and sales strategies have shown ground breaking success on international scale. Moreover, the HR has accomplished to attract the right candidates to achieve the required goals, simple because they are young and know the young target market exactly. The generic strategy analysis of Red Bull has presented Red Bull a differentiated product within its market and a focused-differentiated product within the beverages industry. The norm is that any kind of differentiated products target few selected customers, however, Red Bull did become selective but became massively popular among the youth, and hence, they produce over 1 billion cans each year.

The SWOT analysis they was conducted on Red Bull has crystallized some Weaknesses and threats. However, the Strengths and Opportunities outweigh the downside of Red Bull; moreover, the Weaknesses and Threats that Red Bull faces can easily be managed and fixed by Red Bull.

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We can safely conclude that Red Bull has adopted the right target market and the right method to communicate with the target market. More interestingly, we can see that Red Bull has adopted a product and especially a marketing strategy that can easily be copied to different counties and culture. In other words, it has spoken the language of the youth.

History & Background

History

A red cape is not always necessary to attract a bull towards you; nowadays it has become available in a can in the hypermarket, supermarket, grocery and the club near you. This all has become possible thanks to a visionary man called Dietrich Mateschitz, who is the discoverer, modifier, and introducer of the internationally famous drink, Red Bull. It all started in Hong Kong, in 1982, when Mateschitz was at the hotel bar sipping a famous local health tonic. While he was drinking he had a vision of marketing an Asian drink in the western countries. About two years from the vision, the Austrian Mateschitz teamed up with a Thai business man called Chaleo Yoovidhya to produce this product. Together they fiddled with the product, to take out the syrup nature of the product and make it fizzy. Canned in a silver and blue container, with a brand the shows two red bulls going head-to-head against each other, hence the brand was named Red Bull. (“Red Bull Founder Rides Wave of Success”)

In 1987, the product was then taken to Austria where it had its first groundbreaking success in no time. In started going international in 1992, when they entered Hungary. Red Bull is currently active in over 100 countries, energizing the population and creating competition as they go along. One source mentioned that there are over 150 “energy drink” brands, however, all inferior to the mighty Red Bull (“A REFRESHED CREW IS AN EFFICIENT CREW”). With over 1 billion cans sold each year, Red Bull controls 70% of the world’s market share of energy drinks.

Background

Red Bull became strong when they created a high quality drink that is only made in Austria. Furthermore, all of its ingredients are synthetically made in pharmaceutical companies to grantee high quality and safety. Moreover, due to the ingredients of the product, it is said that Red bull (“Red Bull FAQ”):

Improves performance

Improves concentration and reaction speed

Improves vigilance

Improves emotional status

Stimulates metabolism

However, the main reason for the success of Red Bull is in its advertising style. Red Bull tends to spend very little on conventional or traditional marketing tools, like TV and Print ads. Their marketing strategy is usually out of the box and creative. Red Bull tends to be more active in sponsoring extreme spots and giving away samples in local events. Due to the fact that Mateschitz has been involved in Formula One racing for more than a decade, he used the events to draw attention to his brand. In addition, he sponsored the World Stunt Awards, an annual fund-raiser to help injured stunt workers (“Red Bull Founder Rides Wave of Success”). Moreover, some observers say that Red Bull uses the ‘anti-branding’ method of advertising, where they broke the usual method of marketing and branding. Actually what they did was use the “buzz marketing” strategy or better known as word of mouth. With this strategy, they associated their brand with the youth culture and extreme and adventure-related sports, such as motor sports, mountain biking, snowboarding and dance music. Thus they targeted their brand directly to people from Generation Y, the so-called ‘millennials’: people born after 1981 who were believed to be cynical of traditional marketing strategies (“A Look at a Key Feature of Red Bull’s Business”).

The Buzz over Red Bull among the youth and their underground attitude has created Red Bull’s reputation as ‘the drink’ within that community. That is why Red Bull continues to use ‘Viral’ marketing internationally, where the company would rather restrict the supply of Red Bull and not advertise it, expecting that growing numbers of target consumers to ‘catch the bug’ and its reputation would spreads. Through this strategy, Red Bull has successfully captured 70% of the ₤1.6 billion market (“A Look at a Key Feature of Red Bull’s Business”).

External Analysis

Porter Five Force Analysis

The external analysis is one of the most important steps that a company should take to achieve to its goals and objectives. Moreover, for taking this step we should be aware of the essence of formulating competitive strategy which is related to company and its external environment. Also, we know that the relevant environment is very broad; encompassing social as well as economic forces, the key aspect of the firm’s environment is the industry or industries in which it competes. In addition, taking care of industry structure which has a strong influence in determining the competitive rules is very important because it includes the game as well as the strategies potentially available to the firm. Forces outside the industry are significant primarily in a relative sense; since outside forces usually affect all firms in the industry, the key is found in the differing abilities of firms to deal with them. Michael porter has offered a unique framework for make an easy way to analyze. Michael Porter’s framework for industry analysis is described in his book Competitive Strategy (1980). In this book Porter claims that there are essentially five forces which determine the underlying structure of an industry.

Rivalry among existing competitors, buyers, suppliers, potential entrants into the business and Threat of substitute products are those five forces which can have positive or negative effects on industry structure by making the industry more or less competitive.

Potential Entrants

In this case the potential competitors of red bull are soft drinks companies, which can produce energy drink with out adding bubbles. If the barriers of entry are high, it is difficult for potential competitors to enter the market. Three main sources of barriers to new entry: brand loyalty, absolute cost advantages, and economies of scale.

Brand loyalty

Due to the done research, innovation in creating new energy drinks, proper and profession advertisement, holding many special events and sponsorships, and having high quality for its products makes Red Bull as well known brand with a strong brand loyalty which is a barrier for any new entrant to enter the energy drink industry to compete with it.

Cost advantage

According to the Michael Porter, normally cost disadvantage is a big barrier for companies to enter an industry as new entrants because it can be cost advantage for existing companies in that industry. Also, companies with the help of cost advantages can compete and beat their competitors very easily because usually it is difficult for new entrants to match their companies with the lower cost structure. Therefore, Red Bull because of Red Bull’s superior production and operation processes, and their experience in the energy drink industry, and control of its inputs according to their experience in producing red bull drinks, benefit the cost advantages with keeping its quality in the high level. Although there are many energy drinks existing in the industry with the lower price rather than Red Bull, as quality aspect they have not cost advantages both in quality and price, so Red Bull is steps ahead from its competitors in this case.

Customer switching cost

In food and beverage industry there is no switching cost for costumers with considering the level of quality, therefore it can be considered as threat for existing companies in this industry. In this case, Red Bull is not exceptional, so they need to keep their quality at the same level to not loosing their market share by coming new entrants because it is real threat for them.

Government regulations

One of big issues and always concerns for companies which like to go internationally is government regulation, also, in this case some Europe countries have problem with selling Red Bull and have tried to ban it. They claim that Red Bull was the cause of death of people in those countries. France, Belgium, and Sweden ban using the mixture of Red Bull and alcohol. So, it can be a threat for them in taking the market share and having a bad image for their brand. . (“French Ban on Red Bull (drink) Upheld By European Court”)

Intensity of Rivalry

Rivalry in some industries is characterized by such phrases as “warlike,” “bitter,” or “cutthroat,” whereas in other industries it is termed “polite” or “gentlemanly.” Energy drink industry has an intense rivalry because of a number of interacting structural factors:

Industry competitive structure

Due to the competition in the energy drink market, Red Bull focuses on non-price competitive weapon like offering exhilarating events, high quality products and sponsorship. In contrast with other competitors Red Bull attract more costumers to its company by growing in 45%marketshare [1] . Accordingly Red Bull has a major influence on its competitor’s performance in the industry because Red Bull is one of the pioneers in energy drink industry and many companies try to obey and consider Red Bull as benchmark.

Industry demand

In the energy drink industry, because of the various proper advertisements to encourage people to use and drink energy drinks (giving the image that people can fly) the demand for drinks is increasing [2] . Thus, this is a good point for the company because there are lots of opportunities for every company to fill the current demand and rivalry tend to reduce in the industry, also there is space for everyone to jump in enter the industry (growing stage), and the profit of the company is going to increase which is a goal that every company is seeking it.

Buyers

Having strong and stable costumers are suppliers and producers concerns, producers like to have costumers with large quantity level of ordering and stable financial status basically in energy drink industry especially Red Bull costumers (buyers) are wholesalers and big retailers. These buyers buy the energy drinks through the company or its representatives, and resell them to supermarket, bars, restaurants and end users. Red Bull faces buyers with high level of bargaining power, and it is real risk for Red Bull. Main reasons for this high bargaining power of buyers in this case are; the switching costs in the energy drink industry are very low. So, Red Bull buyers can switch from Red Bull to other energy drink companies which produce it with lower prices without any difficulty. Also, in most cases energy drink buyers (retailers and wholesalers) purchase products in large quantities, and it is obvious that the more buying in quantity, the more bargaining power the buyer has. So they can use their power to reduce the cost of energy drinks.

Suppliers

The bargaining power of suppliers is the same story like bargaining power of buyers but from other side. Red Bull company has both kind of suppliers as bargaining power, some very strong and others weak, so they can balance between them. For instance, the supplier of Glucuronolactone is Glaxo Smithkline Company. Red Bull energy drink buys their Glucurnopolacton inputs from this company. So the bargaining power of this supplier is very high on Red Bull. But the other ingredients are assembled from several small suppliers, and Red Bull has the bargaining power on them. Also, Red Bull has many channels and substitutes suppliers for its normal raw materials, so they can switch from any supplier to cheaper and more flexible one.

Substitutes

All producers always carry the concern of substitute products for their products and always looking for ways to protect and survive themselves from this phenomenon. Energy drink industry isn’t an exception, so players in this industry always try to keep level of quality high, convenience price and other thing which may make costumers more satisfy. Coffee industry can be a threat for energy drinks because of the existing caffeine in coffee and it can be a powerful potential product substitute for energy drink. Therefore, Red bull must take care of its pricing strategy and product quality to keep its costumers and satisfy them more day by day which they were successful due to reports not only Red Bull could protect its products against other substitutes but also, they have increased in their market share in US market by 45% [3] .

Industry Analysis and Peer Review

Industry Characteristics

Beverage industry is divided into many categories such as alcoholic vs. non alcoholic, (hard vs. soft drinks) and within soft drinks still there is other segmentation such as carbonated soft drink (CSD) and non carbonated soft drink. “Carbonated Energy Drinks account for less than half of the total volume. This figure is heavily skewed however by the popularity of still brands in Asia “(Canadean Press release)

According to Beverage Digest, “in 2004 the U.S. non-alcoholic refreshment market totaled 14 billion cases (192-oz). Carbonated soft drinks made up 73.1% of the total with non-carbonated products comprising 13.7% and packaged bottled water accounting for 13.2%. Americans spent roughly $92.9 billion annually on refreshment beverages”. [4] 

Energy drink is a relatively new product introduced in 80’s and has been growing noticeably “with the market more than doubling in size since 1998” (Canadean Press release [5] ). The following chart is evidence of this inevitable growth and the attraction of this growth for drink manufacturer. The industry has been experiencing a significant growth and still growing at the speed that draws the big players in soft like Coca Cola drink to enter to this high margin business.

Food and beverage market are critical enough that out of 100 new product development 90 NPD fails. The failure results from a poor interpretation of consumer’s trend and translation of those to opportunities [6] . Austrian company, Red Bull, as a pioneer trend settler has made its fortune from their unique strategies in advertising, marketing and other product’s characteristics such as Packaging, Flavor, color and Product claim.

Global consumption

According to Beverage digest report, Asia is the largest leading market in consumption of energy drinks followed by Western Europe and North America as the second and third markets.

Asia has been loosing some of 20% of its market share is past 6 years. However, this decline has been offset by the second and third market mainly due to the steady growth in market of carbonated E.D in North America. “North American market is now almost 40 times greater than it was in 1998”

Peer Review

In North America today more than 200 energy drinks existed in US. According to bevNET.com, after a rigorous marketing research the best energy drinks are “AMP by Pepsi Cola, KMX Red by Coca-Cola Company Red Bull by Red Bull North America”.

“Red Bull’s market dominance seems assured. No other competitors have either the distribution channels or, more importantly, the posture of rebellious infamy to be considered real threats” [7] .

Year 2001, in UK energy drinks market “21 new drinks” [8] have been introduced that would have force the red bull into a competition. However, red bull can still enjoy being a market leader.

In the following table there are representations of top 14 non- alcoholic markets where some of them are in the specific market of the energy drinks.

Coca-Cola (Juice, Soft Drinks, Water) ($21bn)

Suntory (Water, Soft Drinks) ($4.4bn)

Nestle (Coffee, Soft Drinks, Water) ($19bn)

Starbucks (Coffee) ($4.0bn)

PepsiCo (Juice, Soft Drinks, Water) ($10bn)

Sara Lee (Coffee) ($2.7bn)

Kraft Foods (Coffee, Powdered Drinks) ($4.6bn)

Tchibo (Coffee) ($2.7bn)

Unilever (Tea ) ($4.5bn)

Red Bull (Energy Drinks) ($1.6bn)

Cadbury Schweppes (Soft Drinks) ($4.5bn)

Cott Corp (Juice, Soft Drinks) ($1.4bn)

Danone (Soft Drinks, Water) ($4.5bn)

Ocean Spray

Source: http://www.mind-advertising.com/sectors/sector_softdrinks.htm

Industry Life Cycle

Energy drinks were originally pioneered by Asian companies, but they became popular in Europe the late 80’s with the arrival of Red Bull [9] . There are more than 200 energy drinks existed in US market only and this figure is increasing due to the high margin of this business.

In 2004, carbonated soft drinks posted the growth of 1% which is unlike its usual trend, case of growing 2% to 4%. Noticeably, this inevitable growth was driven by Diet and Energy drinks [10] . While other carbonated drinks posted volume change of one Digit, brands like Red Bull and Hansen Natural reported the 45% and 56% of positive volume change in 2004.

The market, now estimated to be worth $10 million, has been predicted to grow to $300 million or even as much as $2 billion in the next few years. [11] Double digit growth in the market is the main factor contributing to Energy drinks life cycle in its embryonic phase (growth).

Since the market is not old enough, the number of players are increasing and even the Coca Cola and Pepsi are the new entrant which add to the well-built assumption of embryonic phase.

Brand loyalty and high expectations are still questionable in this stage and it’s because the consumers are still exposing to new products and new claims. Thus, players are fighting for product feature extension such as low-carbs and sugar free plus new product’s claims such as “improve concentration, reaction time and endurance.” [12] 

After introduction of Red Bull in late 80’s, industry went to an introduction phase. By 1998, the size of the industry doubled and still growing with a fast pace following highlighted area in the graph is an approximate stage of the life cycle at the moment.

Internal Analysis

Value Chain

Primary Activity: Inbound & outbound logistics

Logistical issues at Red Bull in of high importance. Due to the fact that all ingredients in the Red Bull drink is synthetically made by pharmaceutical companies, they make sure that their products are carefully handled to maintain the quality and avoid unnecessary costs. Red Bull always makes sure that they align with premium logistics provider to achieve their strategic goals. Red Bull aims to have web-based visibility on their supply chain, thus they base their logistical activities or selection on:

Flexible warehouse network

Transportation management capabilities

Strong information technology offering

With 1,600 employees working for Red Bull world wide (“Gulf News, Red Bull plans to set up Dubai plant”), Red Bull required those standards as they are experiencing year-after-year of high growth, which make the inventory forecasting and management challenging. That is why logistical issues have become increasingly important, and that is why they choose to outsource the logistics to companies that can comply with their network of multi-client warehouses needs (“Red Bull & OH Logistics”). Interestingly, Red Bull uses small distributors in small regional markets, if those small distributors don’t perform up to Red Bulls standards they establish a warehouse and push young people to stuff their vans with Red Bull’s product and distribute it every where. This way, the small distributors generally break even within three months and are profitable within six (“A Bull’s Market – The marketing of Red Bull Energy Drink”).

Primary Activity: Operations

There is little information about the operations process of Red Bull. However we will enlighten you with the contents and brief information about the packaging company that Red Bull deals with.

The great product which is provided by Red Bull one of its main elements of success. Known for improving performance, improving concentration and reaction speed, improving vigilance, improving emotional status and stimulating metabolism, Red Bull’s secret is in its ingredients. The ingredients in each Red Bull drink (250ml) consist of:

Taurine (1000mg)

Glucuronolacton (600mg)

Caffeine (80mg)

Niacin (20mg)

Vitamin B6 (5mg)

Pantothenic Acid (5mg)

Vitamin B12 (0.005mg)

According to Red Bull, It is a combination of all the ingredients together, which result in Red Bull’s benefits (“Red Bull, Ingredients”)..

The packaging process of Red Bull is fully done in Austria. And the supplier of Red Bull’s cans is Rexam, and they are considered to be the world’s largest provider of beverage cans. Rexam manufactures different types of cans for different industries, however almost half of their revenues come from Coca-Cola and Pepsi Cola. Moreover, industry estimates present that Rexam gained about $22 million from the sales of Red Bull cans (“How Does Red Bull Package Its Product?”).

Primary Activity: Marketing and Sales:

With the control of 70% of the ₤1.6 billion market (about ₤1.12 billion), Red Bull has achieved all of this through intensive unconventional marketing strategies. Targeting young people, mainly the Y-generation, Red Bull has utilized eccentric marketing tools that has extremely effective on the target market. The strategy of sponsoring local activities like the Red Bull music academy in the USA, parachuting in South Africa, Go-Karts in Kuwait, and many more in different countries has achieved its target of attracting its target market which gets excited when viewing such sports. Some of the strategies used for marketing Red Bull include:

Using pick-up trucks as mobile displays, painted blue and silver with a giant can of the drink mounted on top of the vehicle.

Designed to be eye-catching, these devices were aimed at promoting the red bull brand as youthful and slightly ‘off-the-wall’.

Cans of the drink were also given out free to people on the street who had been identified as being in need of energy.

Red Bull was given to club DJs, empty cans would also be left on tables in hot spots such as trendy bars, clubs and pubs.

Secondary Activity: Technology

The information about the technology that Red Bull uses was quite scares. However we could safely say that Red Bull little activity done on their R&D side because Red Bull does enjoy any sort of economies of scale. Red Bull has only one main product, which is the Red Bull energy drink and recently they introduced the new Red Bull energy drink ‘sugar-free’. Hence, the main difference between the original Red Bull drink and the sugar-free drink is that it has 0g of sucrose and 0g of glucose, where the original product has 21.5g of sucrose and 5.25g of glucose. Moreover, each ‘sugar-free’ drink has only 8 calories (EU)/ 10 calories (USA), yet it does not loose any of its energetic effects (“Red Bull, Ingredients”).

Secondary Activity: Human Recourse

Red Bull is famous for practicing what they preach, especially when it comes to recruitment. Due to the fact that Red Bull promotes their product as a Hip and young product, they make sure to recruit staffs that are young, in touch with youth culture, dynamic and innovative. For example, they achieve that by recruiting university students as ‘student brand managers’ to promote its product among young student groups (“What Sort of People Work For Red Bull?”). However their recruiting does not happen by Red Bull themselves, but they makes sure that it is implemented by all of the outsourced activities. However, it is known that most of Red Bull’s 1,600 employees are marketing experts and are the real movers of the Red Bull drink (“Marketing Eye, Red Bull Car”).

Group Customers and Market Segmentation

As it is known any successful company should have a certain customer group. The customers that were targeted by Red Bull were the ones that were looking for excitement, alertness, and concentration depending on the age, status, and lifestyle. Four consumer categories were Red Bull’s target under the age of 16-30: students, club people, sport people, and employees.

College students were the main target of Red Bull. Since college students look for something that would enhance their concentration on doing their assignments and projects, and staying overnight for studying for exams then Red Bull is the best solution for them. It would improve their concentration in their studying Moreover; Red Bull has used this group to enhance their promotion. According to Biz/ed, throw parties those students were emboldened to market the product in the campuses of the universities as what they call them “student brand managers”. Those students collect the information and make a report of a market data research to the company. Depending on that strategy and the youth generation (high school and colleges students), Red Bull was able to spread the reputation and the popularity of the drink and concentrating on supplying the product rather than applying the traditional marketing ways of promotion (“A Look at a Key Feature of Red Bull’s Business”).

The second category of Red Bull customers are the night club people, since the drink has some substances that would increase the person’s emotional status. Moreover, Red Bull is offered in the nightclubs depending on the cultural background. For example, nightclubs in Dubai offer Red Bull for the people who do not drink alcohol like the Muslims, which made it a major substitute for alcohol to that group. However, Red Bull is still individually mixed with alcohol to create both the Red Bull highness and the alcohol sensation. Furthermore, Red Bull has also made music events for those groups of customers like the “Red Bull Music Academy in 2005” in Seattle, Washington in the United States. (“Red Bull Music Academy 2005”)

For the physical exertion that the drink offers, Red Bull has also promoted the product for the sport people. Among those people, there are the athletes, the racing drivers, the airborne-sport people, water-sport people, the bikers, the skateboarders, and the skiers. Red Bull highly endorsed this group with many sport festivals, and one of the famous one among those is the “Red Bull Dolomite Man” that took place in Austria in 2005. (“Red Bull Dolomite Man”)

Red Bull’s minor groups are the white-collar and the blue-collar workers. Red Bull can support white-collar workers to concentrate more on the job to improve their performance, and it would also help them stay overnight if he or she needed. The drink would also allow the blue-collar workers to work extra hours with out the feeling of exhaustions for the physical exertion that the drink provides. However, Red Bull did not concentrate on this group, so there were no special efforts directed towards them.

Within the four groups, there a considerable amount of customers who look for diet product. For that category, Red Bull produced the sugar-free Red Bull to combine the diet customers with rest of the customers that are within the four groups.

Business Level and Generic Strategy

In the generic strategy Red Bull there are two views, there is a generic strategy from energy drink market perspective, and there is a generic strategy from soft drink market perspective. From the energy drink market perspective, since Red Bull has few economies of scope, the strategy adopted by Red Bull to follow is differentiation. The price of the drink is about 5Dhs in the UAE, which shows the clear differentiation of the product, especially in a market where every body is competing on the same customer segment. According to Biz/ed, Red Bull was able to build a strong brand image through: using Red Bull cars that had big cans on them, giving free cans to people, and providing Red Bull cans to club DJs (“A Look at a Key Feature of Red Bull’s Business”). This strategy made Red Bull to be the market leader of 70% market in the energy drink market.

From the soft drink market industry wide perspective Red Bull applies the Focused-differentiation generic strategy. Red Bull has a very good brand image in terms of soft drinks industry. The drink can only maintain this image through focus-