Market Analysis of Energy Drinks - Assignment Example

?Marketing Analysis Red Bull Table of Contents Table of Contents 2 Introduction: Red Bull 4 Situation Analysis 4 Market Analysis of Energy Drinks 4 55C of Red Bull 5 PEST Analysis 7 Political Factors 7 SWOT Analysis 8 Strategic Options &Solutions 9 Innovation & Pricing Strategy 9 Blue Ocean Strategy 9 Brand Equity 10 Keller's Brand Equity Model 10 Distribution Strategy 11 The RATER Model 11 Marketing &production Strategy 12 The ERCC Model 12 Evaluation of Strategic Models & Solutions 13 Evaluation of Innovation &Pricing Strategy (Blue Ocean Strategy) 13 Evaluation of Brand Equity (Keller's Brand Equity Model) 13 Evaluation of Distribution Strategy (The RATER Model) 14 Evaluation of Marketing &production Strategy (ERCC Model) 14 Rationale for Proposed Solution &Strategies 14 Recommendation & Implementation 15 References 16 Introduction: Red Bull The energy drink “Red Bull” is manufactured by an Austrian company named Red Bull Gmbh which was established in the year 1987. The energy drink was inspired by a popular Thai drink named Krafting Daeng that was suggested for jet lag remedy. The owner of Krafting Daeng was requested to manufacture and market a new energy drink with completely new flavor. The main objective of Red Bull was to sell energy drink with a unique taste that appealed to the people living in the western countries. It sold more than one million cans in its first year and decided to expand into UK, USA, Hungary and Germany during the tenure 1992 to 1997. The company’s slogan “Red Bull gives you wings” defined the drink appropriately. However, there has been certain health risks associated with the drinks. The reason was that the ingredients of the drink contained high levels of caffeine which led to the cardiovascular diseases. However, the popularity of the company had soared and it began to promote a series of flagship events in the sports world. Situation Analysis Market Analysis of Energy Drinks Presently, the energy and sports drink market is increasing steadily and has been gaining popularity among the teenagers and young adults. The sports and energy drink market saw a major increase in the sales growth of 13 percent in the year 2011 compared to an industry growth of 11 percent in the year 2010 (EuroMonitor International, 2012). There has been a rapid increase in the demand of branded and local energy drinks. In the UK Lucozade, GlaxoSmithKline was a leader in the sports and nutritional drink market and accounted for a 40 percent market share (EuroMonitor International, 2012). The sales of Lucozade were ?498 million in the year 2011 (EuroMonitor International, 2012). It is estimated that the sports and energy drink market would further grow at 5 percent in the UK (EuroMonitor International, 2012).It has been observed that in spite of the economic slowdown the beverage market has been growing steadily. Among the beverages there has been a tremendous increase in the sales of soft drinks and energy drinks especially in United Kingdom. In the year 2011 there was an increase of sales of carbonated drinks by 24 percent from 2010. In spite of health risks associated with these beverages and increase in the demand and sales of the energy drinks have been commendable especially among the youth and teenagers. The industry is dominated by established and popular companies like Coca Cola, Pepsi Co ltd, Red Bull etc (Polis, 2013). Penetration of the established companies into energy and nutritional drink segment has helped the companies in diversification of risk amidst this economic slowdown (Key Note, 2012). Figure 1: Market Share of Energy Drink Brands Source: (Energy Fiend, 2013) 5C of Red Bull The 5C analysis will helps us in understanding the macro, micro environmental and internal factors that affects the beverage market. It is one of the most instrumental tools used for identifying the important issues that require immediate attention and is also regarded as a checklist for managerial decision making. Customer: The drink is available at 8 oz, 12 oz, 16 oz and 20 oz can sizes and the target customers of the brand are the teenagers, youth and young adults working in office. The drink has been prepared with the sole intention of providing energy to these customers so that they work with full zeal and concentration. The drink is usually high priced and does not attract customers with lower income. It has been noted that more than 50 percent of the young adults consume more than one energy drink in a month to increase their energy levels (Malinauskas, 2013). The drink is easily available at departmental stores, supermarkets and nightclubs. This product has been tailor-made for young people who tend to work hard in college and office during day and prefer social outing in the night. The target customer has the potential to consume the product anytime and at any place since there are no legal obligations with the consumption of the drink. Competitor: The energy drink market is mature and is composed of various leading companies like PepsiCo Ltd, Coca Cola, Monster, Rockstar etc. As observed from the above chart the energy drink market witnesses two major market players “Red Bull” and “Monster”. The major competition of Red Bull would be Monster and the companies manufacturing soft drinks, nutritional drinks and sports drinks. Companies manufacturing natural products which offer natural energy boost also form as a competition to Red Bull. Collaborators: The availability of the drinks is extended to the night clubs, retail outlets and supermarkets. The manufacturing department in Red Bull directly sell the drinks to the retail outlets, supermarkets etc. Company: The mission and vision of the company was not available in the official website however, the main objective of the company is to offer customers a multi functional drink which are filled with added nutritional ingredients and also maintain sustainability at the same time. One of the main objectives of the company is to implement environment protection measures by recycling the used packaged cans. The company launched a sugar free version of energy drinks for customers promoting which strengthened the brand image further of the company (Red Bull, 2013a). To become a prominent player in the market the company has always associated the brand with sports. It is one of the few drinks which are very prominent in the state level and national level sports. One of the company’s important events is Flugtag which is to promote different types of sports. Climate: This will help us in analyzing the various macro environmental and micro environmental factors that affect particular environment. The PEST tool will be utilized to identify the external and opportunities faced by an industry in UK. PEST Analysis Political Factors The corporate tax rate of UK has been increasing steadily since 2011 and currently the corporate tax rate of UK is 20 percent. The beverage market in UK has been growing moderately compared to the other countries. The beverage consumption was 14585 million liters in the year 2010 to 14685 million liters in the year 2011 (BSDA, 2012). Economic Most of the energy and nutritional drinks are high priced. This is because the beverage companies incur huge amount of expenditure in processing the drinks and adding nutritional requirements to the drink. In spite of the economic slowdown the beverage industry in UK has been gaining stability and generating profits. Socio Cultural Factors Sports and games form an integral part of the daily life of the people of UK and the beverage companies of UK are generally encouraged by the government to develop healthy drinks for the betterment of the society. Beverage companies usually earn their majority revenue from the energy drinks and nutritional drink segments. The social life of the UK residents is hectic and they require additional energy to improve their zeal. This is one of the major reasons that energy drinks play a pivotal role in the life of the teenagers and young adults of UK. Technology The beverage companies of UK are highly dependent on technology as it is required in the research and development purposes, manufacturing and processing the drinks. Technology also helps the beverage companies to purify their carbonated drinks. From the above PEST analysis we can observe that the present financial condition of the beverage companies in UK is strong. It is also observed that it is a good opportunity for the potential investors to invest in the beverages market presently. However, the increasing corporate tax rate of the country will act as a major barrier for entry for novice companies. SWOT Analysis A SWOT analysis will be conducted to understand the strength, weakness, opportunity and threats of Red Bull at the present moment. Strength One of the major strengths of the company is that it has been the the market leader in the energy drink market since its inception. This is mainly due to the fact that Red Bull offers a unique a taste infused with high quality Vitamin B, caffeine, sucrose and Alpine spring water (Red Bull, 2013d). The company also recycles its used packaged cans which has strengthened the image of the company. The company has expanded into more than 165 countries and is the market leader of energy drink market in most of the countries (Red Bull, 2013b). The brand image and personality of the company is very positive among the teenagers and the young adults. Weakness Although Red Bull has been regarded as a cool and effective drink which is alternative to soda and caffeine consumption energy drink have been accused by the government of several countries to be an unhealthy habit which can lead to cardiovascular diseases. The target customers of the company are limited to the teenagers, young adults and athletes. It has no scope of expanding its customer base due to health and other varies reasons. Opportunity Due to its strong brand image the company and its long association with sports the company’s popularity and image has strengthened further. Various reputed companies have made several attempts to acquire the company and Red Bull has been approached by several sports association and tournaments to sponsor their event. Threats Although, the company has been the market leader of energy drink market for several years. It is observed that the immediate competitors Monster and Rockstar have been developing innovative marketing strategies to become the leading market player in the energy drink market. There has been emergence of new beverages dilutable drinks like squashes and cordials also because of the profitability of the industry. Monster has a majority share in the energy drinks market and sells the drinks in can size of 160 oz which is almost twice the size of Red Bull cans. Just like Red Bull, Monster also sponsors NASCAR, snowboarding events and BMX. The energy drink “Rockstar” is available in 160 oz cans which gives customers twice as much as Red Bull. The energy drink of Rockstar is available in 19 different flavors. The company also sponsors sports and gaming events like snowboarding, surfing etc. As per our 5C analysis we can observe that the availability of the product is very high and the customer base very limited which makes the scope of the company very miniscule. The high price of the product has been a contributing factor in making its availability restricted to higher income group. Teenagers and the young adults often cannot afford high priced products. Red Bull being a functional drink instills a notion in the teenagers and young adults that it is alternative to high protein, vitamin food and exercises. High intake of caffeine can be a contributing factor to unhealthy lifestyle and habits. We can observe from the PEST analysis that the energy drink market is stable and has the ability of growing further which will have a direct beneficial impact on Red Bull. However the increasing tax rate in UK and various other European regions will make it difficult for Red Bull to expand further. Through SWOT analysis we can observe that strong brand image, brand features and its unique way of advertising has made it popular among the youth and teenagers. However it has also been observed that the high cut throat competition in the market compels the Red Bull to develop innovating marketing strategies continuously to retain its position as the market leader in the energy drink market. Strategic Options &Solutions Red Bull should focus on a market driven market strategy which lays emphasis on the fact that customers and the market form an integral part of the business and need to be starting point of the strategy formulation (Cravens, 2010).The key task of Red Bull should be to scrutinize their business process and understand the consequences of the orientation of the markets. Innovation & Pricing Strategy Blue Ocean Strategy This strategy was developed by authors W.C Kim and R. Mauborgne at the institute of Blue Ocean Strategy Institute (INSEAD) (Mauborgne & Kim, 2005). This strategy was developed by them to help companies generate a substantial amount of profits and growth. One of the key elements of the strategy would be implement value innovation and differentiation policy (Mauborgne & Kim, 2005). The main idea behind the implementation of this strategy would be that companies achieve a value innovation which helps in creation of value of company and buyers. Companies following the traditional and general marketing approach would are known as red ocean companies. However, companies following this strategy would be known as Blue Ocean Strategy. In this case Red Bull can adopt a marketing strategy that need not be expensive but simple and effective. The main competition of Red Bull has identified the needs of their customers and offers customers drink in all sizes of cans. These companies have designed contest which gives customers chance to win goodies like shirts, caps etc. We have observed one of the key issues of the company is to that the customer base is limited to the teenagers and young adults who compare the energy drinks as an alternative to exercise, gaming and sports. Red Bull can adopt a simple and effective marketing strategy by introducing a new sugar free energy drink which is compatible with the body needs of teenagers, young adults, and middle aged and elderly people. This energy drink should be introduced in one of their sports and gaming events where the customers should be asked to actively participate in the sports and gaming events. The energy drink must be available in 160oz and 180oz and all the retail outlets easily. Brand Equity Keller's Brand Equity Model This model is also known as Customer Based Brand Equity Model developed by Professor Kevin Lane Keller teaching at Dartmouth College. The main motive behind the implementation of the model is to develop a strong brand which helps in increasing the customer base of the company (LaPointe, 2005). In order to develop a strong brand the management needs to follow the four steps mentioned in the hierarchy. This model should be followed by Red Bull stringently to enhance the brand personality and image of the company. Brand Identity: the first step is to create brand awareness among customers and in the market. For example Red Bull should increase its availability in the supermarkets, schools, colleges and workshops or seminars should be organized by the management of the company extensively to highlight the benefits of the ingredients of Red Bull. Brand Meaning: This is a crucial stage as this stage helps in defining the brand and communicating the ideas and the objectives of the brand to the customers and the market. Red Bull uses recycled cans for the manufacturing of new product (Red Bull, 2013c). This fact is only limited to the official website and should be further noticeable in the advertisements and the packaging of the product. This is because recycling of products reflects credibility and durability of the company and its responsibility towards the society and environment. Brand Response: Customers often judge the company’s credibility using dimensions like expertise, trustworthiness and innovation. Red Bull needs to focus on improvisation of the process and also strengthen the research &development team further. This would help in enhancing the content of the product and also help in attracting customers. Brand Resonance: It is located at the top most level of the equity pyramid because it is the most desirable level to reach for the management. The resonance is categorized into four segments brand loyalty, attitude, active engagement and sense of association with the community. One of few methods to increase the regular purchase of the customers would be to enhance the quality and lower the price of the product. To increase the active participation of the customers the company can encourage the customers to participate in their sports, promotional events, rallies and online chats. Distribution Strategy The RATER Model The RATER model helps in improving the efficiency of the distribution and production process of the companies. This tool helps in highlighting the areas of improvement in the distribution and customer service (Tool Box, 2002).The model was developed by professors A. Parasuraman, Alarie Zeithaml, and Leonard Berr in the year 1990 and published in their book. This model is composed of five elements like Reliability, Assurance, Tangible, Empathy and Responsiveness. Reliability: This focuses on manufacturing products timely and accurately. Assurance: This stage lays emphasis on enhancing the knowledge and skills of the employees by imparting regular and extensive training to the workers and employees. Tangibles: In this stage the management lays emphasis on the up gradation of the communicative and office equipments. Empathy: The relationship between the customers and employees is known as empathy. In this stage the relationship is examined and focus is laid on the areas of improvement. Responsiveness: In this stage the ability of the suppliers to distribute products high quality and timely service is examined. The entire process is followed by the management of the company to understand the present strategic position of the distribution process of the company. The RATER model can be utilized by the management of Red Bull to lay emphasis on how and when it would distribute its services. Marketing &production Strategy The ERCC Model The ERCC model focuses on Elimination, Reduce, Raise &Create components. The main focus of this model is to analyze the current marketing and production strategies (Daily Navin, 2009). Red Bull management can utilize this strategy to eliminate the waste in the process and then focus on creating value for products by improving the service offerings of the product. Red Bull can align with the marketing department to focus on the current pricing strategies, advertisements, promotional offers etc. For example instead of offering goodies or discount vouchers Red Bull should design contest for the customers in which they have an opportunity of learning sports of games of their choice. This would increase the brand equity and also the customer service offerings because sports are associated with health benefits and energy. Customers would then associate the brand with a company which is responsible and reliable. Evaluation of Strategic Models & Solutions Evaluation of Innovation &Pricing Strategy (Blue Ocean Strategy) This strategy would be developed to generate a substantial amount of profit and also develop a unique product. It is observed that implementation of an innovation strategy would be time consuming and has strategic risks associated with it. Introduction of a new energy drink in the market would require a substantial amount of capital and there is no guarantee that the aged people would welcome this idea. Energy drink is often confused with alcohol by the aged people (TABC, 2013). Introducing the drink in a sports event would make it look like a profit oriented event from the customer’s perspective. This would increase the reputational risk of the company to a certain extent. However, if the strategic tool is implemented in an effective manner with proper consultation with the strategic department then it would definitely reap benefits for the company. The availability of Red Bull in 160oz cans at a moderate price would definitely attract more teenagers and young adults who have been consuming energy drinks of a local company. The costs associated with this strategy would be minimalistic as Red Bull would introduce the product in the sports and gaming event which are a part of the regular schedule of the company. However, care should be taken by the production development team not to alter the ingredients and flavor of the product which is the uniqueness of the drink. Evaluation of Brand Equity (Keller's Brand Equity Model) As the strategy recommends increasing the availability of Red Bull and lowering the price of the energy drink it would definitely lead to an increase in the capital expenditure. Although there is no definite guarantee that with the increasing availability of the energy drink it would also increase the profitability for the company. The strategy would help increasing the awareness of the brand the benefits associated with it. However, the use of recycled cans for manufacturing of cans would not only strengthen the brand image further but also help in reduction of the operational costs. As per assumptions of the author if the strategy is implemented in an effective manner then it has a higher chance of positive returns with minimalistic risks. Evaluation of Distribution Strategy (The RATER Model) Implementation of the RATER model would be expensive and also time consuming. This is because arranging for training program requires an adequate amount of training staff and capital. The RATER model has financial risk as there is no guarantee that the definite amount invested in the model would give positive returns. Evaluation of Marketing &production Strategy (ERCC Model) The ERCC model is one of the least expensive and beneficial strategic tools which is used widely by most of the organizations. The ERCC model does not require additional tools and equipments to implement making it less costly. Implementation of the strategic tool would require the management of the Red Bull to arrange for a workshop or training program to understand the functioning of the Marketing &production Strategy conceptual model. There is minimalistic risk associated with the project like the increase in the spending on advertisements and promotional events would increase the financial risk. This is because there is no guarantee of positive returns after implementation of this project. The returns from this strategy are high as it would help in reduction of unnecessary elements that hamper the productivity. Rationale for Proposed Solution &Strategies The Blue Ocean Strategy would be implemented to increase the customer base, increase the availability of the products and also enhance the brand image of the company. The main reason behind the introduction of the energy drink in the sport and gaming event would be to highlight the importance of the sports in the daily life of the customers. This would promote the company in a positive light. The major reason behind the implementation of this model is to strengthen the brand image and also increase the customer base of the company. The four steps of the model would help in building a strong brand image, personality of Red Bull by enhancing the brand features (Mick & Ratneshwar, 2005). This marketing strategy would help Red Bull to be distinctive from its competitors and create a niche market for itself. This strategy should be devised only after scrutinizing and assessing the current performance of the company and the capability to execute this strategy. The RATER model would help in analyzing the distribution process and supply chain of the company. It would help in the elimination of waste and unnecessary items from the value chain system of the company. This model should be taken as an alternative solution because this is usually a costly and time consuming model. The ERCC model should be used by the marketing department to revaluate the pricing strategy and help in monitoring the costs related to marketing activities. This would help in revaluation of the current promotional strategies. Recommendation & Implementation The main objective behind the implementation of these strategies would be increasing the market value of Red Bull and to reduce the unnecessary cost. The Blue Ocean strategy should be implemented after the main competition of Red Bull has launched a marketing strategy. Since, the Blue Ocean strategy would be unique it would help in garnering attention from potential customers. The implementation of the Keller’s brand equity model should be done before the launch of sugar free Red Bull energy drink in 160oz and 180 oz cans. This strategy would require proper assessment from the analyst of the company and include the details in advertisements. The model could also be implemented before the launch of the flagship and other gaming events of the company. The ERCC model needs to be implemented immediately to scrutiny the current distribution and value chain process so that the unnecessary wasteful elements that act as a hindrance to the company are eliminated immediately for the betterment of the process. This model should be implemented before the launch of the sugar free energy drink in 160 oz and 180 oz. References BSDA, (2012). The 2012 UK soft drink report. Retrieved from http://www.britishsoftdrinks.com/PDF/UK%20soft%20drinks%20report%202012.pdf Cravens, D. W. (2010). Strategic marketing. New Delhi: Tata McGraw-Hill Education. Daily Navin. (2009). The ERRC model. Retrieved from http://dailynavin.blogspot.in/2009/06/errc-model.html /. Energy Fiend. (2013). The top 15 energy drink brands. Retrieved from http://www.energyfiend.com/the-15-top-energy-drink-brands EuroMonitor International. (2012). Sports and energy drinks in the United Kingdom. Retrieved from http://www.euromonitor.com/sports-and-energy-drinks-in-the-united-kingdom/report Key Note. (2012). Energy drinks help keep the fizz in the UK soft drinks market. Retrieved from http://www.keynote.co.uk/media-centre/in-the-news/display/energy-drinks-help-keep-the-fizz-in-the-uk-soft-drinks-market/?articleId=930 LaPointe, P. (2005). Marketing by the dashboard light: How to get more insight, foresight, and accountability from your marketing investments. New Jersey: MarketingNPV. Malinauskas, B.M., (2013). A survey of energy drink consumption patterns among college students. Retrieved from http://www.nutritionj.com/content/6/1/35 Mauborgne, R., & Kim, W.CA. (2005). Blue Ocean Strategy: How to create uncontested market space and make competition irrelevant. (32nd ed.). Boston: Harvard Business Press. Mick, D.G., & Ratneshwar, S. (2005). Inside consumption: Perspectives on consumer motives, goals and desires. London: Routledge. Polis, C. (2013, April 11). Energy drinks survey finds confusing marketing, unclear caffeine content. The Huffingtonpost. Retrieved from http://www.huffingtonpost.com/2013/04/11/energy-drinks-survey_n_3061047.html Red Bull, (2013a). Sugarfree. Retrieved from http://energydrink.redbull.com/product/red-bull-sugarfree Red Bull, (2013b). The company behind the can. Retrieved from http://energydrink.redbull.com/company Red Bull, (2013c). Recycling cans. Retrieved from http://energydrink.redbull.com/can-lifecycle Red Bull, (2013d). What’s Inside. Retrieved from http://energydrink.redbull.com/red-bull-energy-drink#whatsinside TABC. (2013). Energy drinks – An industry commitment. Retrieved from http://australianbeverages.org/wp-content/uploads/2013/04/EnergyDrinks_AnIndustryCommitment.pdf Tool Box, (2002). Identifying customer need. Retrieved from http://toolboxes.flexiblelearning.net.au/demosites/series3/316/cs/cs_c02.html Read More