An Austrian Company created Red Bull back in 1987. Red Bull is an energy drink and is also the worlds most popular energy drink, having sold 4.6 billion cans in 2011. The drink was first sold in Thailand and then modified to suit the tastes of people in the United States. A single can of Red Bull has the same amount of as a cup of coffee. Depending on the country, the level of caffeine in a can of Red Bill can vary, as some countries have restrictions on how much caffeine is allowed in drinks. The product is marketed through advertising events such as sport team ownerships, celebrity endorsements, and music. Unfortunately, Red Bull is not market approved in France, Denmark, and Norway. But Red Bull is legal in 164 countries around the world. Due to the potential health risks associated with the drink, Red Bull has been heavily criticized.
Porter’s Five Force Analysis of Red Bull
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, bargaining power of buyers, bargaining power of suppliers, threat of 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.
Rivalry
The number of rivals of Red Bull in the market of energy drink is very less. There are only three other brands that are majorly sold in the market. But the market share of Red bull is much than the total market share of these three competitors. The suppliers and buyers of energy drink market do not have many options so the affect of rivalry is not much in the scenario of energy drinks.
Bargaining Power of Buyers
The market of energy drinks is highly competitive as there are more than 100 brands of energy drinks available in the market. But the market of these kinds of drinks is majorly captured by four leading brands: Red Bull, Monster, Rockstart and Full Throttle. The market ratio of the other three brands in comparatively very low which shows that the buyers of the product are picking up Red Bull over any other energy drink. But still it is a threat for Red Bull as the other brands are also competitive in the market and the buyers have option to choose. The buyers have less power with them in this scenario because the Red Bull has captured 75% market of energy drinks and can govern the market by its monopoly. The buyers do not have power to bargain which strengthens the position of Red bull in the market and it can decide its prices and keep them higher if needed. The consumer segments of energy drink is also the one with higher income and want to rejuvenate their body and mind after the hard work of whole day.
Bargaining Power of Suppliers
The power of suppliers depends on the production process and its requirements of raw materials. Red bull does not require any specific raw material or subsidiary product for the production of final product. Thus the suppliers of Red Bull do not have enough power to drive the prices of the product. The production process of Red bull keeps on adding value to the product at each stage of the process and makes huge profit. Suppliers of Red bull are known because of Red bull only so they do not have bargaining power.
Threats of New Entrants
This force of market is affected by the power of the new company that is going to enter the competition. This force becomes stronger if the investment and the cost to establish the business is low, fewer scales and standards to follow, and the technology involved are easily available in the market. These factors are also called the barriers for new entrants and in case of Red Bull some of these barriers are not high and some are strong enough to be breached by some new entrant. The cost of setting up the plant of energy drink is not so high so any new entry in the market of energy drink can establish a manufacturing plant but the other barriers like complying with too many regulations and government laws is very high. Energy drinks majorly contains caffeine as a key ingredient and the quantity and quality of this caffeine is tested on various parameters of the government. Another high barrier for new entrants is the brand image of red bull in the market of energy drinks. The red bull has established a very strong and reliable brand name in the market which cannot be even imagined by some new entry in the market of energy drinks.
Threats of Substitute Products
Threat of substitute product is another major driving force for the success and failure of the product. Red Bull majorly contains caffeine and has been a substitute for coffee in the current world. Some alcoholic drinks may also take place of Red Bull because it is only used for high kick of energy and as a stress buster. A few alcoholic drinks can also solve the purpose. The market has many cheaper, useful and less harmful products that can easily meet the requirements of the customers and replace this costly energy drink from the market. So in this scenario the threat of substitute is higher for Red Bull.