Red Bull has created a strong brand image, using colorful icon with two bulls in opposition and a memorable tag line; ‘Red Bull gives you wings’. Through creative marketing and sponsorship it has linked itself with extreme sports, innovative music and art, all aimed squarely at the youth market.
Red Bull is a European success story. The product was launched in 1987 in Austria. It faced opposition from the Food and Drink Administration (FDA), who refused to clear it for distribution but despite this it became an underground success through clubbers and snowboarders. This anti-establishment stance found synergy with consumers, even after it was cleared for sale. It quickly spread into neighboring countries and into the US market. By 2004, it had gained 40% share of its market sector and 70% in Europe. However, the brand still faced problems; it was banned in Denmark and France following unsubstantiated rumors that people had died from drinking the product in Sweden and Ireland. The European market was stagnating, and it faced distribution problems from companies supporting their own-brand products. The ever-present competition from Pepsi and Coca-Cola limited the scope for expansion.
With these pressures, the company developed a marketing strategy that avoided mainstream advertising, instead focusing on grass-roots promotion. The product was sold in trendy nightclubs and bars, and the credibility of those held in high regard by the young target audience, such as DJs. Brand education was provided by high-profile visits to places where the company felt people ‘might need a lift’. Examples include offices, building sites and garages. Self-styled Red Bull distributors exploited their local knowledge to help sell the brand and its products. It terms of higher profile marketing, Red Bull has primarily focused on maintaining its links with extreme sports. It sponsors two Formula One teams (Red Bull and Toro Rosso), as well as snowboarding, kite-boarding, surfing and aircraft racing. All of these underline its commitment to its youthful, energetic target audience. The next part of the brief examines how its marketing strategy fits into contemporary marketing theory.
By 2014, over 4 billion cans of the energy drink had been sold in more than 166 countries worldwide. To date, the company has been highly successful, reporting large year-on-year growth figures in terms of both sales volumes and company value. However, in recent years, it has encountered a number of challenges. Competitive rivalry in the industry is growing, and there are concerns that the key product is deleterious in terms of health, adolescent behavior and use of materials.
SWOT Analysis of Red Bull
Strengths
Red Bull has several strengths:
- A major strength of the company is its status and standing within the energy drink industry. Red Bull was the first energy drink to be developed, sold and popularized in the West. This means that today, the Red Bull name is synonymous with energy drinks in the cognition of consumers, in much the same way as Sellotape is to sticky tape, and Hoover to vacuum cleaners. Analysts have described this as a “marketing triumph” for the brand.
- Red Bull’s marketing triumph translates to strong and rising net sales. Since the company is privately held, it is not required to report its financial information, however, data is available for the period 2011-2013. According to market research analysts Euromonitor (2014) during the period 2011-2012, net sales grew by 16 per cent and the number of cans of the energy drink rose by 13 per cent. In the period 2012-2013, these figures were lower, at 2 per cent and 3 per cent respectively, but still reflect significant levels of growth. In 2013 alone, Red Bull reported net sales of 5 billion euros.
- Although the company is best known for its energy drink, it is a highly diversified conglomerate that operates in many other sectors. Red Bull owns and operates a number of lifestyle magazines, covering issues such as motor racing, football and celebrity gossip. In addition, the company has established mobile phone service operations in a number of nations, including South Africa, Poland, Hungary, Belgium, and its home nation, Austria. In fact, the company can be found in a number of sectors, from TV broadcasting, to youth academies and football clubs.
- Another strength of the company is its presence across the world. Red Bull is sold in 166 markets worldwide. In volume terms, sales are dominated by the US and North American markets. Furthermore, growth in many overseas and emerging markets has outstripped overall growth. For instance, in 2013, Red Bull reported that it had boosted net sales in the Indian market by a massive 55 per cent. Growth was also robust in Scandinavia (16 per cent), Turkey (18 per cent), Japan, (32 per cent), Russia (13 per cent) and Brazil (12 per cent).
- Another strength of the company lies in its marketing efforts. Red Bull has pursued an entrepreneurial marketing approach, focusing particularly on sports events sponsorship, like motorcycle racing. As well as enabling such events to survive and thrive, sponsorship offers considerable benefits to sponsors like Red Bull. Event sponsorship is a key brand positioning and image management activity; importantly, it enables companies to reach extraordinarily large audiences that could not be reached through more conventional methods. The huge awareness and press publicity created by event sponsorship means that this promotional method is able to target both broad swathes of the population as well as specific target niches. The use of sport and innovative marketing and branding strategies [have been] integral steps in building the company into one of the largest, most diverse sports empires worldwide.
Weaknesses
Despite the strengths outlined above, the company has suffered a number of setbacks in recent years:
- Although Red Bull is the dominant player in the energy drinks market, in the broader soft drinks industry, it is faring less well. Market share in the soft drinks market is dominated by Pepsi Co, which claims 10.7 per cent of market share, and the Coca Cola Company, which holds over 25 per cent. The dominance of these two companies in that industry has traditionally posed a significant barrier to new entrants. In terms of market share, Red Bull GmbH ranks seventh — a position it has held since 2008 — with just 1.6 per cent of the overall global soft drinks market. A number of reasons have been advanced to account for the failure of Red Bull to grow its market share in this market. Importantly, both the Coca Cola Company and Pepsi Co have very strong brands and widespread and robust distribution networks.
- In spite of consistent growth in terms of volume sales and corporate value, Red Bull has experienced a decline in market share since 2009. This decline attributes to the entry of new competitors to the market, as well as the international expansion of established brands.
- The ability of the brand’s competitors to rapidly acquire market share within the energy drinks market has also been attributed to their diversified product portfolio. Monster, a key competitor, always offered a variety of flavors of energy drinks to consumers. Under the Monster umbrella, there are more than 30 different brands, such as Rehab and Java Monster, and each of these brands are available in a variety of flavors. Red Bull was slow to respond to this competitive threat, taking almost 25 years to introduce three new Red Bull flavors.
- A further weakness of the company can be found in its production methods. Analysts suggest that the company’s reluctance to extend its production facilities beyond the Austrian borders act as a constraint on its ability to boost its production volumes. Although Red Bull products are sold in 166 countries worldwide, all production occurs in Austria, which means that the company must expend considerable shipping costs in exporting and distributing its offerings. While it was reported in 2012 that the company was to invest in a new production facility in Manaus (Brazil), there is little indication of this intention becoming reality in the near future.
Opportunities
In spite of the weaknesses outlined above, there are a number of opportunities for growth and development for the company:
- The Asian Pacific market has recently surpassed North America in terms of growth in sales volume of energy drinks. One of the reasons for this increased demand is the general trend of that region towards increased prosperity: between 2008 and 2013, the region recorded compound annual growth of 16.3 per cent, with China alone growing by a record 277 per cent. Despite this, in terms of market share, the Asian Pacific market is still the weakest for Red Bull. An opportunity for global growth is therefore available for the energy drinks giant in this market. This may take some time, however, has there are some markets to which Red Bull energy has only just entered, and it may take time for the brand to build its identity in that region.
- There are opportunities also in the developing markets. For example, market research agencies predicts that by 2018, the Chinese market will lead in terms of value and volume growth. Red Bull has already taken steps to capitalizing on this growing market. In 2013, Red Bull entered into a subsidiary agreement with a Chinese manufacturer, launching an international version of Red Bull energy into select urban areas. The company also established a small office in Shanghai in 2014. This will support its expansionary efforts and enable it to become acclimatized to the Chinese market.
- A key weakness of Red Bull relative to its competitors is its failure to introduce alternative variants of its major product. There are some indications that the company is using the new markets to test a diversification of its basic product portfolio. For example in China, two versions of Red bull energy are sold — the standard blue can, which is sold internationally, but also a gold can: a non-carbonated variant which was targeted at lower income consumers. If this step at diversifying is successful, it could offer greater opportunities for growth in the future.
Threats
The success of the company has brought with it a number of threats:
- The biggest threat to Red Bull is Red Bull itself. The ingredient mix that their products contain is not FDA approved. On top that, government and scientists are finding that high amounts of caffeine, sugar, and taurine are extremely unhealthy and potential fatal. France and Denmark have gone to such measures as to ban Red Bull as a “cocktail of death.” High amounts of sugar have been found to cause serious health problems. A small amount of taurine, which is still a vastly unknown ingredient, is thought to be beneficial, but scientists are beginning to find health risks it causes. Red Bull energy drinks also contain a highly dangerous chemical called Glucuronolactone. The US Department of Defense developed this product during the Vietnam War as a hallucinogenic drug to stimulate troops’ morale.
- When the Red Bull energy drink was first developed in the mid 1980s, it was a unique product. Indeed, Red Bull has been described as the instigator of the entire energy drink sector. However, more recently, its success has attracted interest from a number of key competitors, especially Pepsi Co. and The Coca-Cola Company. The latter acquired a 16.7 per cent equity stake in Monster Beverage Company in August 2014. This is an important strategic move, because through this deal, TCCC expects to “transfer ownership of its worldwide energy business, including NOS, Full Throttle, Burn, Mother, Play and Power Play, and Relentless, to Monster.” Coca-Cola and Monster have already capitalized on their extensive distribution network to launch push ‘Burn’, a direct competitor to Red Bull in emerging markets in Latin America, while in the US, another energy drink produced by Monster Beverage Company, ‘Monster’ has now overtaken Red Bell in terms of volume sales. The latter product is also enjoying huge gains in Eastern Europe, the United Kingdom and Australia. Given the large number of markets in which the energy drink sector now has a presence, the development of the Monster/Coca-Cola collaborative project should be considered a significant threat to the dominance of Red Bull.
- Another threat to the company is posed by the decline of the North American economy, which has traditionally been the company’s stronghold. That region’s Compound Annual Growth Rate (CAGR) – a measure of economic growth- which was 9.9 per cent in the period 2008-2013, is expected to half in the period 2013-2018. The likely outcome of a lower rate of growth is a reduction in consumer demand, especially for premium priced products like Red Bull.
- There is also a threat posed to the company by the growing concern for health. Red Bull is packed with sugar, an ingredient that is increasingly coming under fire given the growth in obesity in the West. If this development continues, Red Bull’s sales could be harmed.
- The company also faces the law of diminishing returns in marketing in its mature market, in that the cost to reach the relatively small number of potential customers remaining in these markets becomes prohibitively high. The company invests considerable resources in its relationship marketing, and this ongoing cost may also become more onerous, should sales in its target market fall for any reason. Therefore the company faces the potential of having high marketing costs leading to smaller sales despite its dominant position in many markets.