Energy Drink Industry: Red Bull - Case Study Example

Energy Drink Industry: Red Bull Q.1 In 2001, Red Bull energy drink dominated the ‘energy drink’ market as indicated by Griffiths (2001). To date, Red Bull still holds on to its market dominance despite the entry of competitors in the market (Brad 2012; Michelle, Bichler & Annika 2012). Using Porter’s five forces, Red Bull’s external market is defined as follows: Threat of substitutes: Low Red Bull’s target market (people aged 16-29 years) is not price sensitive. Additionally, Red Bull is purchased for its convenience to a particular situation based on in its brand power and loyal consumer base (Chaundy 2001). As such, there is less likelihood for substituting the product with other beverages. As a premium product, Red Bull’s high prices are perceived as a reflection of its high quality (Griffiths 2001; Wipperfurth 2003). Substitutes that compete on a price platform therefore stand the risk of being perceived as being of lesser quality. Although Jones (2001) indicates that imitators of Red Bull are not able to stay in the market for long, the energy drinks market has some players whose longevity has passed the test of time. Such include Lucozade energy, Irn-Bru 32, Carlsberg’s Shark, Battery (in Finland), Pepsi’s Amp, and Coca-Cola’s Burn among others (Dahlen, Lange & Smith 2010). According to Dahlen et al. (2010) most of these new products mimicked the Red Bull mystique, which include the youth culture, anti-establishment and sexual virility. Fortunately for Red Bull, its manufacturer has successfully reaffirmed its image through multimedia exposure throughout the years, thus downplaying the threat posed by substitute products. The differentiation tactic has also helped Red Bull’s brand image by creating perceptions in consumers’ minds that the energy drink is unique, and it delivers superior benefits that no other energy drink can give (Lidsz 2003). In some markets, Red Bull has cultivated street credible images that have earned it nicknames such as ‘liquid Viagra’, ‘speed-in-a-can’, and ‘liquid cocaine’ (Dahlen et al. 2010, p. 316). Substitutes such as energy smoothies and coffee among others do not have the caloric content, the stimulation duration and the convenience of Red Bull. As such, the product has successfully established a niche market owing to its combination of characteristics. Bargaining power of suppliers: Low The production of Red Bull is uncomplicated and requires little input from external suppliers (Hanrahan 2010). As such, the bargaining power of suppliers is low. The short supply chain assures suppliers of significant profits. However, their only way of accessing such profits is through the Red Bull brand owner. Such a relationship tilts the balance of power in favour of the brand owner. The possibility of a huge number of suppliers who would be willing to work with Red Bull also tilts the balance of power in favour of the brand owner, hence meaning that suppliers do not have as much bargaining power as would happen if suppliers were limited. Bargaining power of buyers: Low Derived demand in the market does not afford retailers much bargaining power hence making it unlikely for consumers/buyers to have similar powers (Kumar, Linguri & Tavassoli 2004; Sursuk 2008). The strong consumer loyalty gives most pricing powers to the product manufacturer. Industry rivalry/current competitors: Low From a niche market, Red Bull has successfully managed to appeal to the mass market, hence getting more people to purchase the product around the world. Red Bull’s brand has earned recognition globally, and hence acts as a source of competitive advantage. Red Bull has established global distribution channels thus making it hard for competitors to match their penetration of international markets. Loyalty among consumers gives Red Bull a competitive edge above its competitors, with a research conducted by the company in 2009 revealing that 40 percent of customers would search the energy drink in different stores if their local (or regular) store did not have the product in stock (Hanrahan 2010). Threat of new market entrants: Medium Established soft drink manufacturers such as Coca-Cola are targeting the energy drinks market. Coca-Cola has already launched ‘Relentless’, which is a competing product to Red Bull. As a marketing tactic, ‘Relentless’ is packaged in larger cans and is also cheaper compared to Red Bull (Hanrahan 2010). The maturing energy drink market no longer affords first-mover advantage to Red Bull Red Bull achieves economies of scale in its production and marketing functions, but has deliberately opted not to pass the price advantage to consumers; instead, the firm spends money in fun-enhancing equipment such as race cars (Hanrahan 2010). Complaints that energy drinks are highly priced create a potential for lower-priced products. The challenge however appears to be in providing a quality product (of equal or higher value to Red Bull). What lies ahead within the energy drink industry Based on the foregoing Porter’s analysis, the energy drink industry is bound to get competitive. As indicated by Hillam(2003), the market can benefit from lower priced items. Notably however, competition will only be possible if the new market entrants have the staying power demonstrated by Red Bull. As indicated by Irish Independent (2007), several energy drinks have been launched and later pulled out of the market because they were not able to break even as sooner as they would have expected. Considering that the energy drinks market has hit the maturity stage of its lifecycle, new entrants would have to be innovative in how they market their products. Additionally, they may want to target developing markets in Asia and Africa, where the dominance of established brands like Red Bull is not yet present. Going forward however, and considering the interest shown by established companies – e.g. Coca-Cola, SmithKline and Pepsi in the market, increased competition is highly likely. Such companies will most likely challenge the dominance of Red Bull as an energy drink due to their existing distribution channels and the financial abilities to roll out marketing campaigns. The main challenge for players in the market is however living up to expectations. Implications of the threat posed by new market entrants The medium threat posed by new market entrants will no doubt force Red Bull to think of new ways to retain and enhance its market share amid growing competition. As indicated by Hoskisson, Hitt, Ireland and Harrison (2008, p. 79), “often, new entrants have a keen interest in gaining a large market share. As a result, new competitors may force existing firms to be more effective and efficient and to learn how to compete in new dimension”. Potential strategies to reduce the effect of the risk posed by new market entrants Existing players in the energy drink market can react to the risk posed by new market entrants by raising the barriers to entry, thus making it hard for new players to enter or make profits in the industry. Hitt and Ireland (2008) note that some of the main ways that existing players can enhance barriers to market entry include: enhancing product differentiation, enhancing the switching costs, enhancing penetration of the consumer market through better distribution networks, and government policy. The latter is especially relevant to the energy drink market since some governments have already banned the sale of some energy drinks due to alleged health concerns. New market entrants are therefore likely to perceive the energy drink market as having multiple risks. As Barnatt (2005) indicates, governments can use interventions such as tariffs and other trade restrictions to raise the entry barriers of new players into the market. Existing products like Red Bull already have a global distribution system, and this means that they would not be as much affected by regulatory barriers as new products would. Q. 3 Red Bull’s strategic position within the industry is perhaps best described by Kastner & Partners (n.d., p. 2) who term the energy drink as a “premium brand with continued growth”. According to Kastner & Partners, the Red Bull launch registered unique success never seen before in the energy drinks market, something that is closely linked to the manufacturer’s ability to combine the quality product with a well-designed communication strategy. Red Bull’s positioning strategy and its sustainability Borrowing from product attributes, Red Bull has adopted a positioning strategy that indicates that the product “vitalises body and mind” (Kastner & Partners n.d., p. 3). Closely related to the foregoing brand proposition is the unique branding personality that creates the impression that Red Bull consumers are innovative, self-confident, non-conformist, intelligent, self-ironic, unpredictable, polarising, witty and charming. Clearly, such brand personality appeals to the target young and energetic consumers between the ages of 16 and 29 years. In other words, the brand has positioned itself as the ideal energy drink for the young people. Red Bull has also taken a unique approach to marketing and distributing its products because throughout the world, the product operates as a single brand – a can that looks the same in all markets. In other words, Red Bull has a no licensing differentials, no diversifications, no umbrella brand and no brand merchandising philosophy (Kastner & Partners n.d.). Additionally, the energy drink is priced at a premium price, making it the most expensive energy drink in most markets (Ainslie 2008). Another unique positioning strategy is seen in Red Bull’s target market, which is not defined by demographic factors; rather, Red Bull states that its consumers are identifiable by a state of mind, which includes dynamism, having drive and a desire to be active (Mourdoukoutas 2012). Additionally, its target market wants to be awake and mentally and physically fit. Such positioning clearly targets the youth. To further enhance its market position, Red Bull uses above-the-line advertising in order to build brand awareness and enhance the brand image and awareness among consumers. Additionally, it engages opinion leaders in its marketing in order to gain credibility for its product and brand. Red Bull also engages in event marketing, whereby instead of sponsoring existing events like other companies do, the firm creates and hosts new events as a way of differentiating itself and engaging young people who are interested in being early adopters of different fun-related activities. The final method of engaging consumers is through sampling. Here, the well-trained employees (not promotion teams) conduct sampling tours in which they engage tired and exhausted people by giving them the product, clothes, and a sampling car with the Red Bull can on it. The suitability of the above describe positioning strategy is seen in the loyal customer base that Red Bull has been able to attract. Additionally, the strategy has positioned Red Bull as a unique product in the energy drinks industry not only in how it is marketed and promoted, but also in how it chooses to engage the consumers through creating and supporting events. By so doing, the firm has successfully managed to attain differentiation for not only the Red Bull energy drink, but also for the Red Bull brand as a whole. Red Bull’s capabilities Red Bull’s capabilities are perhaps best summed up by The Economist (2002, para. 1), which indicates that the energy drink had by that time become a “global cult drink”. As a market leader in the energy drinks market, Red Bull is responsible for a significant percentage of the global expansion of the subject market if the 2002 statistics are anything to go by. Commenting about the success of the product he helped launch and whose brand name he owns, Austrian entrepreneur Dietrich Mateschitz (cited by Boome 2011; Cooney 2007; The Economist 2002) indicated that his company concentrates on availing a quality product and brand to the people, and those who love the company’s style eventually come to them with the intent of purchasing the product. In other words, Mateschitz was confirming that his company does not take Red Bull to the people; rather, they concentrate on bringing people to their product (Dolan 2005). Such is a pull strategy that has so far worked for Red Bull; the strategy also embodies capabilities that the company has. As long as there is a market that has not been fully taken up to drinking energy drinks, especially among the youth, Red Bull still has a chance to appeal to them through the distinctive marketing strategies. The distinctiveness of the firm’s capabilities is observed in its ability to draw people to the product, as opposed to the push-marketing which is often practiced by many marketers. The capabilities defined above have the ability to support Red Bull’s positioning strategy since they reinforce the uniqueness, quality, and premium product proposition that Red Bull has advanced in the market. The only plausible answer to the question about whether Red Bull is capable of leveraging its capabilities further is in the affirmative. In 2010 for example, Louvet (2011) and Redbull.com (2011) indicate that the company sold 7.6 percent more products than it had in 2009. Red Bull’s most dynamic markets include USA, Brazil, Japan and Turkey. Brazil is especially relevant to Red Bull because it represents the growth potential in developing countries. Louvet (2011) observes that the ‘Wings Team’, which is the team that implements Red Bull’s unique street marketing campaigns, is welcome in all markets regardless of the cultural differences that may exist. Notably however, Red Bull is sensitive and flexible enough to acknowledge and attune its marketing strategies to specific cultures in order to avoid offending residents (Bloomberg 2005). In 2009, Red Bull had plans to expand into further markets (Muller 2009). Additionally, the product has started tapping into the health-conscious consumer market by introducing the Sugar Free Red Bull, which was launched in 2003 (Talking Retail 2008). The firm has also diversified into the Carpe Diem range of products, which like Red Bull, creates a way of life among consumers (CarpeDiem.com 2009). Using the Ansoff Matrix would reveal the following: Red Bull has a high market penetration than all of its individual competitors (Laws 2011), with the 2009 statistics indicating that it has a 40 percent global market share. The remaining 61 percent market share is shared by more than 5 other energy drink brands (Salvatore 2013). Product development is stagnant since Red Bull has remained the same since it was first marketed. This is not a problem though because the signature composition and drink of the energy drink is part of its brand. Market development is ongoing especially since Red Bull keeps on targeting new markets both in its established markets, and elsewhere abroad (Financial Times Ltd 2009). It competitors are also pursuing the same markets, but Red Bull has a competitive edge over them due to its brand awareness throughout the world. Diversification, which is about selling a product to new markets, is also one of Red Bull’s strong areas. According to Gschwandter (2004), Red Bull targets 16-year-olds who want to experience the energy drink for the first time (legally because the drink is not recommended for drinking in children), and is also targeting new markets abroad. Other products also do the same, but if the success of Red Bull in its established markets is anything to go by it is highly likely that it will outdo its competitors in diversification too. References Ainslie, C 2008, ‘Logo is a red rag to Red Bull’, Business Source Complete, vol. 30, no. 42, p. 16. Barnat, R 2005, ‘Business and its environment- threat of new entrants’, chapter 1, viewed 22 May 2013, . Bloomberg 2005, ‘Energy drinks build their buzz’, Bloomberg Business Week, viewed 22 May 2013, . Boome, A 2011, ‘How food superbrands manage to become your family’, BBC News Business, viewed 22 May 2013, < http://www.bbc.co.uk/news/business-13598581>. Brad, S 2012, ‘Why Red Bull uses social media to get to new customers (instead of only advertising)’, Social Media Today, viewed 22 May 2013, . carpeDiem.com 2009, ‘Carpediem drinking with purpose’, viewed 22 May 2013, . Chaundy, B 2001, ‘Red bull: Raging successes, BBC News Online, viewed 22 May 2013, http://news.bbc.co.uk/2/hi/uk_news/1437154.htm. Cooney, M 2007, ‘Meet the man who gave Red Bull wings’, Idea Log Magazine, January-February issue, p. 21-22. Dahlen, M, Lange, F & Smith, T 2010, Marketing communications: A brand narrative approach, John Wiley & Sons, London. Dolan, K 2005, ‘The soda with buzz’, Forbes, viewed 22 May 2013, www.redbull.com/#page=companypage.astimegoesby. Financial Times Ltd 2009, ‘Red Bull mobile launches 2 all inclusive packages’, viewed 22 May 2013, . Griffiths, J 2001, ‘Extreme sports and clubbers fuel energetic rise: Interview Dietrich Mateschitz, Red Bull: Red Bull dominates the ‘energy drink’ market with a product that makes Coke and Pepsi look tame, Could the secr:: [London edition]’, Financial Times, 15. Gschwandter, G G 2004, ‘The powerful sales strategy behind Red Bull’, Selling Power Magazine, January issue, pp. 1-11. Hanraham, W 2010, ‘Market audit sports and energy drinks UK market focusing on the microenvironment of Red Bull’, viewed 22 May 2013, < http://www2.warwick.ac.uk/alumni/services/eportfolios/bsqjfb/redbull.pdf>. Hillam, M 2003, ‘Functional drinks diversify in Europe’, Functional Ingredients Magazine, March Issue, pp. 18-19. Hoskisson, R., Hitt, M., Ireland, D & Harrison, J 2008, Competing for advantage, Thompson Learning, Mason, OH. Irish Independent 2007, ‘Red Bull to sue boost’, Mintel.com, viewed 22 May 2013, www.mintel.com. Jones, A 2001, ‘Extreme sports and clubbers fuel energetic rise’, Financial Times, viewed 22 May 2013, www.ft.com. Kastner & Partners n.d., ‘Red Bull. A success story’, viewed 22 May 2013, < http://www.mintinnovation.com/links/docs/Marketing/Red%20Bull%20Success%20story.pdf>. Kumar, N., Linguri, S & Tavassoli, N 2004, ‘Red Bull: the anti-brand brand’, London Business School, pp. 1-12. Laws, G 2011, ‘Red Bull marketing Models 1’, pp. 1-2, viewed 22 May 2013, < http://graelaws.files.wordpress.com/2010/07/red-bull-marketing-models-1.pdf> Lidsz, F 2003, ‘The new extreme: Austrian marketing maverick Dietrrich Mateschitz found’, Sports Illustrated Adventure Outdoor Sports Website, viewed 22 May 2013, http://sportsillustrated.cnn.com/features/siadventure/30/new_extreme. Louvet, C 2011, ‘Red Bull- A brand built on marketing’, Business Development Strategies, viewed 22 May 2013, < http://wearedevelopment.net/2011/12/28/red-bull-a-brand-built-on-marketing/>. Michelle, H., Bichler, A., Annika, S 2012, ‘Red bull may not give you wings’, University of Wisconsin, viewed 22 May 2013, < http://www.biotech.wisc.edu/outreach/pdfs/redbullposterltr2p.pdf. Mourdoukoutas, P 2012, ‘Red Bull takes marketing Buzz into space’, Forbes, viewed 22 May 2013, < http://www.forbes.com/sites/panosmourdoukoutas/2012/10/09/red-bull-takes-marketing-buzz-into-space/>. Redbull.com 2011, ‘Company figures’, viewed 22 May 2013, . Salvatore, M 2013, ‘Red Bull launching flavoured variants, should monster shareholders cut and run? The Motley Fool, viewed 22 May 2013, Sursuk, G 2008, ‘The internationalisation of Red Bull’, No. 20, pp. 1-13, viewed 22 May 2013, . The Economist 2002, ‘Selling energy-How Dietrich Mateschitz turned Red Bull into a cult tipple’, viewed 22 May 2013, < http://www.economist.com/node/1120373?story_id=1120373>. Wipperfurth, A 2003. ‘Speed-in-a-can: the Red Bull story’, San Francisco Plan B. Pp. 1-10. Read More