Taking Red Bull to Russia - Case Study Example

Taking Red Bull To Russia Executive Summary Major purpose The purpose of this study was to look into how Red Bull can be introduced into the Russian Market Method of analysis The main method of analysis was a literature review of Russian market. Macro economic situation in Russia including PESTEL analysis was conduction. The included review of research of government sources and other trusted source of information about Russia market situation Findings The study found out the as a growing market, Russia was one of the most suitable market for Red Bull. Its macro environment provided a good investment opportunity although it has few challenges here and there. It is lucrative market compared to other markets in Europe. Through joint venture, Red Bull can be well established in Russian market. Recommendations The study would recommend Red Bull management to take steps to launch their products in Russia Table of Contents Title Page ………………………………………………….. 1 Executive Summary ……………………………………….. 2 Table of Contents …………………………………………. 3 Introduction ……………………………………………….. 4 Background ……………………………………………….. 5 Market Analysis …………………………………………... 6 Market entry Strategy …………………………………….. 9 Conclusion ……………………………………………….. 10 Bibliography ……………………………………………… 12 I. Introduction Purpose The purpose of this stud is to asses the most suitable market for Red Bull. The study will look into the Russian macro economic situation to establish whether it is a lucrative market for Red Bull. Red bull is a leading energy drink in the world. Since it was launched in 1984, it has grown to become a favorite energy drink in the world. In 2006, more than 3 billion cans of Red Bull were consumed in the world which shows how the brand has grown to a household name. Through a wacky marketing plan, Red Bull has become a leading brand in 136 countries where it is currently sold. In this marketing strategy, we formulate how Red Bull can be taken to Russian market. Russia is one of the most expansive countries that occupy both Europe and Asia (BBC). Russia is an emerging market which presents unique marketing opportunities Russia is ranked as one of the countries in the world with a heavy drinking habit which means it can also be a good market for the drink. Limitations The report will be limited by availability of credible information on Russia. Since most materials are written in Russian language, the study will have to rely on analysis done by external authors who print their material in English. Scope of the Report The report will concentrate on the internal market condition on Russia. It will review the macro economic condition of the country and asses whether it provides the best investment environment for Red Bull. II. Background Red Bull has a long history that spins back to 1982 when the founder was sitting in a bar in Hong Kong sipping an energy drink. The founder, Dietrich Mteschitz was inspired to come up with a similar drink and market it outside Asia. He did not sleep on his idea and in 1984, he founded Red Bull. He fined tuned the energy drink and also laid down a comprehensive and wacky marketing concept. He first launched the drink in Austria market in 1987. The founder identified a marketing opportunity for the product in Australia. Today, the headquarters of the company still remain in Fuchsia am See, in Austria. After four years in the local market, Red Bull was expanded to foreign market touching on Hungary soil in 1992. Red Bull has become a common energy drink in all countries. Its consumption has gone extra higher. When the product was launched, a total of 1.1 million cans of the Red Bull were consumed in the world. In 2006, more than three billion cans of Red Bull were consumed in the whole. This shows that the drink has become a favorite in the world. Currently, Red Bull is marketed in more than 136 countries. In addition, the company has been expanding its portfolio of energy drinks. In 2005, it launched Sabai, an energy drink that was first launched in United Kingdom, and today, it is sold in more than 17 countries. The company has also launched Carpe Diem, which is a range of energy drinks that mainly targets health conscious consumers. Red bull has grown through brand strategy that makes consumers believe that the Red Bull gives them energy to do things. It has stimulant property that increases energy in the body. III. Market Analysis a) Political and Legal environment (i) Russia is an emerging democratic political regime where the government has overwhelming support. The country had political stability that provides enabling business environment (ii) Strong public support of Russian parliamentary government has provided growth in the business environment (iii) The business environment has stabilized over a long period of time, with less political upheavals, and this has spurred growth in hotel and motels sector (U.S Commercial Services) (iv) Russian government is committed to invest more than US$1 trillion to overhaul the business environment and this will present opportunities for investors in the industry (U.S Commercial Services) (v) However, lack of government transparency and high levels of corruption have inhibited growth in the industry, although this is cited in specific cases especially in the legal system which is still controlled by the government (vi) Russia has tried to modernize its legal system and make it compatible with the Western countries legal systems. Although the independence of the judiciary has been guaranteed through increased salaries for judges and others, most judges feel that there is political interference with their work (U.S Commercial Services). (vii) The country has conflicting commercial laws which are always changed. Its decrees and regulations show an ad hoc approach to doing business in the country. Negotiation for commercial contracts is complex and contracted and the laws are unevenly implemented. However, there is general trend of turning to courts to resolve commercial conflicts b) Economic Environment (i) With more than 140 million consumers and a large segment of growing middle class, Russia presents a unique marketing opportunity for any company (Doing Business) (ii) The country has an average large per capital disposable income which in 2009 stood at $4,830 and GDP of $15,200, the highest in the BRIC region (U.S Commercial Services) (iii) The country has experienced nine year run GDP growth of 7% (iv) Russia has emerged from Recession in 2009 and in 2010 GDP growth of 3.3% to 6.2% is projected (Federal Statistic Services). (v) The rate of inflation has decreased from 85% in 1998 to 9% by the end of 2006 and increase again to 15% (vi) The country is expansive geographically stretching over more than 11 time zones which presents a particular marketing challenge (vii) Although the country infrastructure are underdeveloped, it has taken steps to modernize infrastructure to mitigate logistic challenges (viii) Foods and drink industry which is supported by industries like tourism, restaurant, hotel and accommodation and others is on the growth path c) Cultural environment (i) Russia has a population of 141.91 million people as per 2009 records which was a slight decrease in total population from the previous year although the country recorded the highest birthrate for a period of 15 years in 2008 (U.S Commercial Services). (ii) The country has diverse social factors including diverse ethnic groups and religious groups (iii) Russian is the official language although there are other minor ethnic group languages (U.S Department of State). (iv) Russia has a strong drinking culture that started centuries ago. Russia are among the heave drinker in the world with statistic showing a probable consumption of 2.2 liters per person per day. Although there is no official data to prove it, it is believed that 70%-80% of men between 20 and 55 years and 50%-60% drink regularly to an equivalent of 100 g of alcohol per day. Outcomes and potential implications From the above environmental analysis, it is evident that Russia is one of the best markets for Red Bull although it also presents its own challenges. With a large population of more than 141.91 million people, Russia presents a unique marketing opportunity for any company. This means that the large market base can sustain the operation of the company in the Russia. In addition, statistics also shows that Russians are among the heavy drinkers in the world. This means that on average, they are likely to consumer more drinks than any other people in the world. This implies that the company should not be worried of consumption. Economically, Russia can be classified as an emerging economy. This means that there are more investment opportunities for any company willing to enter into the country. Russia economy, driven by oil gas and diversification to other industries has been recording an impressive growth of 7% for the last nine years. The fact that Russia emerged from economic crisis faster than other countries in Europe means that it has a huge growth potential. Russia is among the few countries in the region which have enjoyed relatively higher government support from the people. Although considered a semi democratic country, Russia comes out as one of the most stable countries to conduct business. The legal system has been modernized in the recent past to reflect the standards required for international business but it is still weighed down by corruption and political interferences. Therefore despite the challenges faced due to political, economical, and social issues, Russia remains a lucrative market for beer and wine companies owing to high rate of consumption of these drinks in the country. IV. Market entry strategy Market entry strategy is important in any marketing consideration as it determine the way a country can successful establish its operation in the target country and overcome potential barriers (Kotler et al., 1999: Brassington and Pettit, 2000). A good market entry strategy must be suited to the market condition (Heath and Harrison, 2002; Blythe, 2001). This means that before deciding on the market entry strategy, it is important to understand the market well. Russia is an expansive country which means the market entry strategy used and the marketing strategy must be suitable to cover large area (Made, 2009; Millicent, 1999). This is one of the challenges that most business investing in the country are likely to face because covering the large area is difficult. Some parts of the country are just rugged or forest and the distance between one commercial center and another may be quite far. This means that the distribution channel to be chosen must be taken in consideration of all these facts to understand whether it will be viable to introduce the brand in the market or not. Considering the above aspects, it is evident that Red Bull must face challenges entering into the Russia market. Practically the company entry strategy must be matched with its projected revenues to gauge whether the expected returns will cover the operation cost. Russian bear market is quite competitive as there are major operators (Brooks and Weatherston, 1997; Dickons and Ginter, 1987). This means that the company must come up with a strategy that will help it to rise above this level of competition. In consideration of the vastness of the country, it is clear that distribution channel can prove to be a major challenge for the company. Therefore, it would be advisable that the company use a joint venture. A joint venture will be advantageous to Red Bull in a number of ways. First, it will enable the company to understand Russian market conditions before it decides to enter the market in full. Second, it will assist the company with a well laid distribution channel (Kotler and Keller, 2009). This will save the company huge costs associated with establishment of individual distribution channel. Third, it will help the company avoid some of the protracted legal requirements which also make the company incur extra expense. Therefore a joint venture will be the best strategy for the company to enter into the Russian market. V. Conclusion Red Bull is a leading brand in the world. There is no doubt the brand is a market leader in energy drink segment in the world. Analysis of Russia extern market reveals that it presents a unique marketing opportunity for the brand. Russia has large population that will provide a large market base. In addition, Russians have a drinking culture and with growing concerns about alcohol, Red Bull could provide an alternative drink for millions of Russians who cannot live without a drink. In order to overcome complexities in market entry, it is recommended that the company use a joint venture as this will make it allow the company to have experience of the market and acquire a distribution chain in the largest country in Europe. Bibliography BBC. Russia Country profile. [online] available from [May 1, 2010] Blythe, J. (2001) Essentials of marketing. Prentice Hall Brassington, F. & Pettit, S. (2000) Principles of marketing. Harlow: Prentice Hall Brooks, I. & Weatherston, J. (1997) The business environment – Challenges and changes. Prentice Hall CIA, The World Factbook – Russia, 2010[online] available from [May 1, 2010] Dickons, R. & Ginter, L. (1987). Market segmentation. The Journal of Marketing, 51, (2): 1-10 Doing Business. Russian Federation. [online] available from [May 1, 2010] Federal Statistic Services ‘Russia in figures’ [online] available from [May 1, 2010] Heath, C. & Harrison, P. (2002) ‘The marketing and public relations practices.’ International Journal of Nonprofit and Voluntary Sector Marketing 7, (2): 105-17 Kotler, P, Armstrong, G, Sunders, J, & Wong, V, Principles of marketing, Prentice Hall, New Jersey, 1999 Kotler, P. & Keller, L. (2009). Framework for marketing management. Pearson Prentice Hall Made, L. (2009). Russia. London: Pearson Millicent, R. (1999). Investing in Russia. New Jersey: Prentice Hall U.S Commercial Services. Doing Business in Russia. [online] available from [May 1, 2010] U.S Department of State. Background note: Russia. [online] available from [May 1, 2010] Read More