Red Bull and Its Opportunities for Launch in the UAE - Essay Example

? Marketing report on Red Bull and its opportunities for launch in the UAE BY YOU YOUR SCHOOL INFO HERE HERE TABLE OF CONTENTS EXECUTIVE SUMMARY1. Introduction................................................................................................................ 2. The marketing environment in the UAE................................................................. 3. Market and competitive audit................................................................................... 4. Marketing plan for Red Bull..................................................................................... 5. Conclusion................................................................................................................... References EXECUTIVE SUMMARY Red Bull has found considerable success internationally by giving consumers the impression that it is an exclusive and premium energy drink brand. This market report assesses the current marketing environment in the UAE, an environment with adequate consumerist values and attitudes that could, theoretically, support entry for Red Bull into this market. The UAE is currently becoming saturated with competitors offering different energy drinks, thereby establishing a brand presence. What conflicts market entry is that the UAE is a very risk averse culture where innovation might be rejected, making it difficult for Red Bull, as a new market entrant, to outperform many other competitors already with a brand presence and recognition in this nation. Challenges to finding profit success are not just a rapidly saturating market, but also include fiscal concerns with low exchange rates that could significantly raise the pricing structure, per can, with a product that is already highly priced compared to competition. Due to cultural, fiscal and social aspects of the UAE market environment, it is recommended for Red Bull to attempt a direct exporting market entry strategy to avoid high costs and reduce risks to the business. With recurrent promotions, Red Bull can establish brand recognition and work toward building brand loyalty post-entry. Marketing report on Red Bull and its opportunities for launch in the UAE 1. Introduction Founded in 1987, Red Bull GmbH is an Austrian beverage company that, in today’s global marketplace, produces Red Bull, the world’s most popular energy drink. A whopping 4.6 billion cans of Red Bull were sold worldwide in 2011, which represented a significant increase of 11.4 percent from 2010 (Red Bull 2012). Red Bull currently maintains a 70 percent market share in the energy drink market, hence outperforming even major brands that compete in this industry such as Coca-Cola (Field 2006). Red Bull has managed to create what is referred to in marketing literature as brand recognition, or the extent to which a brand becomes familiar to consumer segments and where consumers are able to effectively link a brand (or logo) to a product successfully (Farris, Bendle, Pfeifer and Reibstein 2010). Red Bull, globally, spends an enormous volume of its revenues on the marketing process, a total of 25 percent of corporate revenues (Boome 2011). Red Bull, through this high capital expenditure on marketing, has managed to build a brand personality domestically and in many foreign nations where Red Bull has entered, which makes it stand out to many different international energy drink producers. This report focuses on the potential for Red Bull to enter the United Arab Emirates and achieve the same consumer loyalty the brand has managed in many other nations whilst also achieving appropriate revenue growth upon entry. A market analysis, including emphasis on consumer behaviour and attitudes in the UAE, supports whether Red Bull will find success in this new market or hinder advancements of this brand. Research indicates that the UAE might be an ideal environment for gaining consumer loyalty and building brand preference based on socio-cultural aspects of UAE buyer markets. 2. The marketing environment in the UAE The United Arab Emirates has a very strong economy and consumerist culture that is supportive of new market entry into the country for Red Bull. However, it is primarily the cultural aspects of UAE society that provides the most support for selecting this market for launch of Red Bull energy drink. First and foremost, the UAE maintains consumer cultural characteristics that are highly collectivist in nature. Collectivism involves maintaining substantial loyalty to group membership and where the needs of those in the social in-group are paramount over the fulfilment of individual needs (Cheung, et al. 2008). In a collectivist culture, it is necessary to establish trust in the relationship between different parties before stakeholders in society will be responsive to business offerings. In this type of culture, loss of face (reputation) is also a considerable concern as others look toward the in-group to validate and justify their social identities. Why is this important for understanding the marketing environment in the UAE as it pertains to Red Bull? The brand has been, historically, criticised for maintaining ingredients that are not conducive to human health, with many of these reports well-publicised internationally (Johnson 2013; Jackson 2013). One of the product’s main ingredients, taurine, has also been criticised for not maintaining its alleged health benefits including metabolism enhancement benefits and detoxifying properties (EFSA 2006). With such a high volume of public and health authority scrutiny being publicised internationally, there is a risk that such claims (whether substantiated or not) could impact the collectivist culture of the UAE and erode the brand’s trust within a social context. However, outside of the risks of collectivist social attitudes, the market is conducive for potential market entry for Red Bull due to the changing consumerist culture and cosmopolitan social attitudes that are now prevalent in a nation that is becoming more progressive. Consumption rates for food and non-alcoholic beverages in the UAE has increased steadily year-on-year with a projected growth rate in this product category of 9.9 percent by 2015 (AAFC 2010). Lifestyle in the country is changing with many disparate markets as the country’s gross domestic product improves, access to education and jobs is enhanced through commercial and urban development, and where values associated with traditionalism in religion is becoming more progressive. Consumer demand for Western brands in the country continues to rise, which gives Red Bull many potential advantages for gaining consumer interest. The UAE is also becoming a consumerist culture that relies on gaining superior social status through popular brand consumption, a phenomenon known as conspicuous consumption. This theory in both marketing and psychology indicates that some consumer groups find psychological and emotional satisfaction through the outward presentation of high status brands (O’Cass and McEwen 2004). Government influence in establishing potent urban development projects has changed the dynamics of a once-developing nation to that of a highly consumerist economy with the commercial infrastructure necessary to support rises in consumption behaviour by the country’s consumer stakeholders. This has given rise to a Westernised view of consumption as a lifestyle and social activity, giving many Western brands rapid consumer loyalty upon entry of their products and services into the country. The notion that consumers in the UAE strongly value group sentiment and the outward presentation of status brands could have significant profit advantages for Red Bull. In fact, Sharpley (2008, p.15) refers to the contemporary UAE consumerist culture as “a dream world of conspicuous consumption” in which exhibition of brands justifies one’s place in a very collectivist society. To the advantage of Red Bull, the United Arab Emirates is considered a masculine society. Under Hofstede’s Cultural Dimensions, this refers to a society that is strongly driven by achievement, success in business, and maintaining a highly competitive position in society with an emphasis on personal and professional motivation (Hofstede 2001). In the professional environment, specifically, drive and determination as well as long working hours dictate the type of ambition to succeed that is highly prevalent in this nation. As a result, the foundational selling points of the Red Bull product for enhancing energy production and sustaining motivational status could be a tremendous selling point for a highly masculine society driven by competitive prowess among others in society. There is also an adequate infrastructure for retail sales and distribution of Red Bull products upon entry into the country. Hypermarkets and convenience stores have witnessed explosive growth in the country and most consumers prefer these retail channels (AAFC 2010). A recent study of UAE shoppers indicated that one of the most important factors driving their consumption habits was the convenience of the retail outlet to satisfy their needs (AAFC 2010). Only 12 percent of UAE respondents in the study highlighted pricing as an influencing factor for food consumption (AAFC 2010). This is important when assessing the potential market opportunities for Red Bull, a product which is priced much higher than competition as a result of years of brand recognition and consumer brand preference establishment. Companies that have gained consumer loyalty often experience much more superior word of mouth about the product or brand and are able to charge higher prices (Chaudhuri and Holbrook 2001). Red Bull may be able to, based on current market attitudes in the UAE, maintain its current high pricing model upon entry into the country which could have significant advantages for attaining an adequate profit margin. 3. Market and competitive audit Products that are imported into the country are subject to a five percent custom tariff (Manoukian 2012). This could complicate the process of establishing a pricing structure that is aligned with the current level of consumer price elasticity of demand in the country. Furthermore, the current fiscal exchange rate in the country is 20 percent of the Euro (XE 2013). This means that for Red Bull, there would require a 500 percent mark-up on each can of Red Bull in order to achieve the same profitability that the company boasts in nations utilising the Euro as national currency. There is not enough market research evidence available in market reports to determine the current level of price elasticity that UAE consumers maintain. However, in the UK, an average per can price of ?2 meets with considerable consumer demand and willingness to consume the product. With such a low exchange rate compared to the Euro, it would not be difficult to predict a price per can approaching 10AED to meet with profitability objectives of the company. Red Bull would have to test this higher pricing model in certain markets prior to full-scale national launch of the product to determine how consumer will respond to such a significant price mark-up. There are also many competitive forces in the energy drink market in the UAE which could conflict finding success as a new market entrant for Red Bull. A total of 16.1 million litres of energy drinks were consumed in the country in 2012 (Khaleej Times 2013). Monster Energy Drink has also been launched in the country, along with Coca-Cola’s Full Throttle Energy Drink. Why is this important in understanding whether Red Bull can be competitively successful? According to business and marketing theory, first movers in a new market often have significant competitive advantages over late entrants. First movers in a market often define the product category and become a model by which consumers judge late movers against (Kalyanaram and Gurumurthy 2008; Agarwal and Gort 2001). If an existing competitor product is able to provide consumers with minimal satisfaction, consumers in some market environments will not want to defect to other brands. This is important as the UAE is a very risk-averse culture where ambiguities and uncertainties are not highly tolerated by society (Hofstede Centre 2013). Innovation is often rejected in societies such as the UAE in which there is a dedication to maintaining strict rules and where society is often uncompromising about change. Therefore, it may be likely that existing energy drink competitors maintain a strong brand recognition and brand preference which could, theoretically, complicate the process of getting consumers loyal to a late entrant in this market. 4. Marketing plan for Red Bull As indicated by the research, Red Bull faces many challenges to establishing a brand that will gain consumer loyalty and brand preference in the mind of very cosmopolitan consumers with very rigid beliefs regarding the viability of innovation and new market entrants. However, Red Bull has been very successful with its substantial investment into the marketing function that could quickly build brand recognition and even brand preference. The company should be conducting pre-launch market research on what drives consumer attitudes toward the energy drink industry as well as their potential sensitivity to high prices for food and beverages. The company is going to have to mark-up its per can price on Red Bull due to the low exchange rate in the country which could make consumer reject this new entrant into what is becoming an already-saturated competitive environment. The company should be test launching a 500 percent mark-up price in the most developed urban regions to determine whether customers will be turned away through price inflexibility. At the same time, using concurrent promotional campaigns to build brand recognition, the business can supply limited quantities to witness whether the product will sell successfully. The collectivist nature of society also represents significant potential advantages for gaining positive consumer sentiment toward the Red Bull brand. The company should be utilising pre-launch and post-launch advertisements illustrating a variety of aspirational social groups enjoying Red Bull, which can accompany billboard advertisements, magazine and television ads. It was determined that in-group status and loyalty for social groups is highly paramount to the value systems of consumers in the UAE. The company should be hiring relevant actors that maintain the characteristics (i.e. physical and lifestyle) of UAE consumers, depicting their enjoyment of Red Bull in a variety of social scenarios. Many countries where Red Bull already maintains competitive presence are non-collectivist, meaning that there are disparate needs in a variety of target markets. By creating a cohesive set of integrated marketing communications throughout a variety of different media outlets (i.e. magazine, television and radio), Red Bull can send a singular, consistent message about the social benefits of the brand. It might actually be easier to establish loyalty to the brand in an environment where collectivist values are so highly prevalent. Market entry for Red Bull in the UAE should consist of direct exporting of the product using established channels in the country with a well-developed distribution infrastructure. This will avoid the costs of establishing new production facilities and provides an insulation for liquidity risks. The business does not require its own production systems in the country and can subcontract third party distribution/logistics partners to handle nationwide distribution to a variety of retail stores, hypermarkets and convenience stores. This will avoid the high costs of inventory management and inventory housing costs, thereby not burdening the company’s operational model in terms of labour cost increases and various local taxations for inventory. Direct exporting will allow Red Bull, in the event of market failures, to quickly exit this market without incurring substantial expenditures. The main competitors already maintaining a brand presence in the UAE are too large for acquisitions to occur and there is no research evidence available showing that consumers have been rejecting the competitive offerings of such competitors as Real Madrid and Full Throttle. There are simply too many unknown variables which make direct exporting the most viable market entry strategy. The main goal of promotion is to get consumers in the country to believe that Red Bull is a premium brand. Under the theory of conspicuous consumption, a phenomenon currently found in the cosmopolitan United Arab Emirates, when consumers believe a brand can provide them with self-expansion and lifestyle enhancement, they are more likely to develop strong and lasting emotional connections with the brand or product (Zhang and Chan 2009). UAE consumers already have a need to gain social approval through aspirational reference groups and this provides opportunities for Red Bull to consistently send the message that it is a lifestyle enhancing product capable of providing social self-expansion to consumers who strongly value belonging within an in-group dynamic. 5. Conclusion Even though there are many challenges and unknown variables about the UAE market and its consumers, the UAE does seem to be an ideal market for entry especially with the lower costs of direct exporting as the appropriate strategy for entry. Preliminary market research to gain perspectives about consumer price sensitivity and competitive brands in the energy drink industry, coupled with test marketing with higher prices per can, as well as concentrated promotions to gain brand recognition with markets will provide Red Bull with ample profit opportunities. References AAFC. (2010). The United Arab Emirates Consumer Behaviour, Attitudes and Perceptions toward food products, Agriculture and Agri-Food Canada. [online] Available at: http://www.ats-sea.agr.gc.ca/afr/5661-eng.htm (accessed 17 November 2013). Agarwal, R. and Gort, M. (2001). First mover advantage and the speed of competitive entry, Journal of Law and Economics, 44, pp.161-177. Boome, A. (2011). How food superbrands manage to become your family, BBC News Business. [online] Available at: http://www.bbc.co.uk/news/business-13598581 (accessed 18 November 2013). Chaudhuri, A. and Holbrook, M. (2001). The chain of effects from brand trust and brand effect to brand performance: the role of brand loyalty, Journal of Marketing, 65(2), pp.81-92. Cheung, F., Cheung, S., Zhang, J., Leung, K., Leong, F. and Yeh, K. (2008). Relevance for openness as a personality dimension in Chinese culture, Journal of Cross-Cultural Psychology, 39(1), pp.81-107. EFSA. (2006). Scientific Opinion on the substantiation of health claims related to taurine and protection of DNA, proteins and lipids from oxidative damage (ID 612, 1658, 1959), energy-yielding metabolism (ID 614), and delay in the onset of fatigue and enhancement of physical performance (ID 1660) pursuant to Article 13(1) of Regulation (EC) No 1924/2006, European Food Safety Authority. [online] Available at: http://www.efsa.europa.eu/fr/efsajournal/doc/1260.pdf (accessed 17 November 2013). Farris, P., Bendle, N., Pfeifer, P. and Reibstein, D. (2010). Marketing metrics: the definitive guide to measuring marketing performance. Pearson Education Inc. Field, R. (2006). Battling the Bull, Arabian Business.com. [online] Available at: http://www.arabianbusiness.com/battling-bull-60465.html (accessed 18 November 2013). Hofstede, G. (2001). Culture’s consequences, 2nd edn. London: Sage. Hofstede Centre. (2013). What about the UAE?. [online] Available at: http://geert-hofstede.com/arab-emirates.html (accessed 17 November 2013). Jackson, I. (2013). Red Bull lawsuit filed over wrongful death from energy drink. [online] Available at: http://www.aboutlawsuits.com/red-bull-lawsuit-wrongful-death-55483/ (accessed 18 November 2013). Johnson, A. (2013). Family pursues Red Bull lawsuit after man dies, American Injury Attorney Group. [online] Available at: http://attorney-group.com/family-pursues-red-bull-lawsuit-man-dies/ (accessed 17 November 2013). Kalyanaram, G. and Gurumurthy, R. (2008). Market entry strategies: pioneers versus late arrivals, Wright University. [online] Available at: http://www.wright.edu/~tdung/entry.pdf (accessed 17 November 2013). Khaleej Times. (2013). Eurostar to market Real Madrid beverage in UAE. [online] Available at: http://www.khaleejtimes.com/kt-article-display-1.asp?xfile=/data/uaebusiness/2013/March/uaebusiness_March20.xml§ion=uaebusiness (accessed 18 November 2013). Manoukian, S. (2012). UAE alcoholic beverages report. [online] Available at: http://www.globaltrade.net/f/market-research/pdf/United-Arab-Emirates/Processing-of-Food-and-Agricultural-Products-UAE-Alcoholic-Beverages-Report.html (accessed 14 November 2013). O’Cass, A. and McEwen, H. (2004). Exploring consumer status and conspicuous consumption, Journal of Consumer Behaviour, 4(1), pp.25-39. Red Bull. (2012). Company Figures. [online] Available at: http://www.redbull.com/cs/Satellite/en_INT/company-figures/001242939605518?pcs_c=PCS_Product&pcs_cid=1242937556133 (accessed 17 November 2013). Sharpley, R. (2008). Planning for tourism: the case of Dubai, Tourism and Hospitality Planning and Development, 5(1), pp.13-29. XE. (2013). XE Currency converter – EUR to AED. [online] Available at: http://www.xe.com/currencyconverter/convert/?Amount=1&From=EUR&To=AED (accessed 16 November 2013). Zhang, Hong and Darius K-S. Chan (2009). Self-Esteem as a Source of Evaluative Conditioning, European Journal of Social Psychology, 39, pp. 1065-74. APPENDIX A: Market Audit of UAE Porter’s Five Forces Analysis Michael Porter identified five threats to a business that are externally driven by market scenarios. These include supplier power, buyer power, competitive rivalry, threat of new entrants and threat of substitutes. Supplier power is not of considerable concern for Red Bull in the UAE as the company has a well-established supply chain infrastructure for raw product procurement. Red Bull maintains considerable buying and negotiating power along the supply chain and, with having selected a direct exportation market entry strategy, there is no reliance on suppliers since the product is already manufactured outside of the UAE. Red Bull should have no influence of supplier power for entering the new market as now UAE supplier would dominate production of the product. Buyer power, however, is of concern to Red Bull. The switching costs for consumers to defect to other lower-priced, existing energy drink brands in the country are extremely low. When there are many more product options available, at different pricing structures, consumers have control over price bargaining and can easily reject a brand in favour of another without incurring costs to themselves. Furthermore, with such a low exchange rate compared to the Euro, it is likely that Red Bull will be forced to put a significant price mark-up on its cans of energy drinks to realise a profit. Price sensitive buyers with the ability to reject Red Bull could seriously complicate market success in the UAE. Threat of new entrants is also of significant concern as it is next to impossible, in this particular industry, to establish barriers to new market entry by potential competitors. Many companies utilise intellectual property protections and patents as a means of setting barriers to new entry, however there are consistently new formulations and competitive ingredients being added to new energy drink products which would render these protections relatively useful for the brand. Furthermore, the UAE maintains an adequate distribution infrastructure that will allow companies to simply begin direct exporting, especially in an environment where tariffs are only five percent (which is much lower than many other nations). Red Bull will have to conduct regular environmental audits to review competitive activity and new entrants to determine an appropriate marketing strategy and positioning strategy to outperform new, potential rivals. There is always the threat of substitutes, also, to Red Bull. Coffee and tea, major commodities in the UAE, provide rapid energy and vibrancy to consumers at a much lower per-glass price than energy drink products. New entrants would also provide additional energy-producing substitutes. To combat this, Red Bull will have to establish a premium brand personality in which consumers have it reinforced that there are no alternatives to the powerful and mood enhancing benefits of Red Bull. Heavy emphasis on promotion and consistent integrated marketing communications activities will assist in reducing the threat of substitutes. Furthermore, main competitors such as Coca-Cola and Real Madrid have considerable marketing experience and understanding of buyer markets that has been produced through years of competitive behaviour and rivalry. It is possible, in a market that is approaching an oligopoly with few suppliers dominating the market, that Red Bull will have to invest even more financial and labour capital into creating relevant and lifestyle-related marketing materials to gain consumer interest and loyalty to the Red Bull brand. Routine and recurrent competitor analyses will be crucial to combating the problems of competitive rivalry in this new market environment. SWOT Analysis Strengths High capital availability Considerable knowledge of consumer behaviour created through years of marketing experience A great tasting product A globally recognised brand well-publicised in a variety of international media mediums. Weaknesses Little available market research data on price sensitivity of buyer markets in disparate target segments Inability to insulate the brand from new entrants and other competitive behaviours No experience with third party contracting for logistics and distribution No strategic alliances established in the UAE which could limit the expansion possibilities for this brand Opportunities Sponsorship of local UAE sporting teams – Has brought the business considerable successes in other international markets Guerrilla marketing to bring the brand into the mainstream consumer consciousness in their living and working environments Establish strategic alliances with various logistical companies to reduce costs and exchange knowledge resources Threats Poor, unfavourable exchange rate compared to the Euro New market entrants Rising tariff and other taxation rates in a country that is well-developed Inflation rates in the consumer environment Competitive prowess of major competition with established brand presences in the country. Points for consideration 1. Only 31 percent of consumers in the UAE are influenced by brand strategies of major products. 2. The government has banned the utilisation of aluminium cans in the school environment which could limit some target market opportunities with the youth markets. 3. There are opportunities for using corporate social responsibility as a potential marketing activity considering that the country takes recycling and environmentalism very seriously. Consumers who purchase under ethical consumption theory might be driven toward trusting the brand, which is important in a country where collectivist values drive a need for trust and relationship development between consumer and brand. Read More