Jan 12, 2018 in Business

Red Bull Market Audit

Abstract

The Red Bull’s market audit report starts with a brief introduction of Red Bull and how the company expanded to attain its global success in the energy drink market. The paper further analyses Red Bull’s global presence and its market share compared to other energy drinks. The report presents SWOT and PESTEL analyses, which were conducted to establish the challenges and opportunities for future expansions and success of Red Bull. The manual also discusses the Red Bull’s Porters five forces model and entails the strength of the forces that may change overtime as the energy drink industry conditions change. The section on supply chain factors of Red Bull explains how the company has attained success in distribution of its products.  

1.0 Introduction

1.1 Brief History of Red Bull

Although Red Bull has its origins with a Thai product called Krating Daeng, the story of the energy drink begins in Austria in 1987, where the brand was created. Onkvisit & Shaw (2008) say that Chaleo Yoovidhya, the founder of T.C Pharmaceutical Co in Thailand, developed several decades ago a formula for Krating Daeng, an energy drink. Dietrich Mateschitz, who is an Austrian salesman of a cosmetics company that was represented by the Yoovidhya family, was intrigued by Krating Daeng and obtained a license to manufacture it in Austria (Onkvisit & Shaw 2008).  Red Bull has its headquarters in Fuschl near Salzburg, Austria. Yoovidhya and Mateschitz formed Red Bull GmdH, each taking a 49% stake while Yoovidhya’s son got the other 2%. Onkvisit & Shaw (2008) establish that Red Bull was marketed in Austria only from 1987 before spreading distribution to Hungary, its first foreign market in 1992.

Red Bull commands a 60% market share against its competitors like Hype, Rockstar, Pimp Juice and Bong Water. Research shows that in 2005 Coke introduced a new energy drink in the market known as Full Throttle, but the company still trails Red Bull. Red Bull had 47% of United States market for energy drinks in 2007. Red Bull’s mission statement is “To spread our wings over the world”.

1.2 Red Bull’s Global Presence

In the course of the two years after its establishment, Mateschitz adjusted the taste of Red Bull onto the European market, and in 1987 the company had sold 1 million cans of Red Bull in Austria. Bodner (2011) says that after the successful establishment in Austria, Red Bull expanded in 1992 to the Austrian neighboring countries of Slovenia and Hungary. Since 1994 Red Bull is available in the United Kingdom. Bodner (2011) states that when Red Bull entered in United States in 1997, it firstly focused on the Western States such as California, Oregon, Texas and Colorado. Today Red Bull is available in more than 165 countries and is focusing more on emerging markets such as Brazil, Japan, India and South Korea, while also focusing on the worldwide roll-out of the Red Bull Editions (Red).

1.3 Operations

In the year 2012, the company recorded a total of 5.226 billion cans sold, which represented a growth of 12.8% as compared to 2011. As a result of higher prices as well as currency fluctuations, Red Bull’s turnover grew by 15.9% that is EUR 4.253 billion to increase to EUR 4.930 billion. This figures represented the best growth for Red Bull in terms of sales, productivity, operating profits and revenues since its establishment. The optimistic records can be credited to exceptional retailing in South Africa (+52%), Japan (+51%), Saudi Arabia (+38%), France (+21%), the USA (+17%) and Germany (+14%), efficient cost management and ongoing brand investment.                             

1.4 Worldwide Establishment

From1992 Red Bull spread to European countries such as Hungary, Solvenia, Germany and Switzerland, and then the company entered the US market in 1997. Dahlen, Lange & Smith (2010) articulate that by 2004, the brand was not only popular in over 100 countries, enjoying over 40% of the US market share, but it was also a market leader with 70% of the market share in a mature market, which was experiencing a dramatic reduction in European growth from nearly 44% in 2000 down to just 6%.  

1.5 Challenges Faced by Red Bull

Dahlen, Lange & Smith (2010) noted that initially Red Bull was faced with a restrictive Austrian FDA, which did not want to clear the product for distribution. The product therefore found its way to the Austrian clubbers and snowboarders and became the energy drink of choice in ski resorts and alcohol free raves. Dahlen, Lange & Smith (2010) say that following unsubstantiated but damaging public relations in Sweden and Ireland, where people had died after consuming the drink, Red Bull was banned in Denmark and France. Gelder (2005) says that the pressure of its ban continued to grow and the brands excitement was declining.

2.0 Micro and Macro factors of Red Bull

2.1 Micro – SWOT

Threats

One threat that Red Bull faces is customer switching costs. Hill & Jones (2012) noted that switching costs can arise when customers invest time, energy and money substituting Red Bull energy drink products with products offered by other established companies such as Pepsi and Coca-Cola. Roll (2005) indicated that the industry is characterized by high number and large size of distribution companies

Opportunities

Red Bull has the opportunity of benefiting from brand loyalty. Onkvisit & Shaw (2008) says that Red Bull has become a global brand and the product is highly popular with high-school and college students. This presents a major opportunity for Red Bull because at about $2 for a 8-ounce can, Red Bull is expensive, but the price does not deter students and athletes from drinking it (Roll, 2005).

Weaknesses

Red Bull as a brand has several weaknesses. Temporal (2012) says that Red Bull remains in a small part of the energy drinks category. Another weakness is that Red Bull’s brand portfolio is limited and needs protection. Temporal (2012) further suggests that “after being a leader, Red Bull is in danger of becoming a follower” (p. 16).

Strengths

Red Bull’s strength lies in the fact that it is a brilliant corporate and brand leader. Dahlen, Lange & Smith (2010) say that this strength is based on the fact that Red Bull consistently uses affinity sports sponsorships, extreme sports support and sponsorship of close to 500 world-class extreme sports athletes who take part in global championships (Temporal 2012).

2.2 Macro – PESTEL

PESTELanalysis is a useful tool when scanning the general environmentof Red Bull’s operations. Henry (2008) says that this refers to political, economic, social, legal and technological factors.

Political factors

Political factors are concerned with the government policy. Henry (2008) says that Red Bull was largely affected by the burn of its products in Sweden and France. Other government policies that have affected the expansion of Red Bull’s market include high taxation rates and rigid government regulation. Government instabilities in part of Middle East and Africa have hindered the entry of Red Bull in those countries.

Economic factors 

According toHenry (2008), the key economic indicators include interest rates, disposable income, retail price index and exchange rates. Volkmann (2010) says that a favorable economic setting and effective original marketing is an important factor in the establishment of Red Bull subsidiaries. Strengthening of currency and exchange rates will benefit Red Bull.

Social Factors

Social factors include cultural changes within the environment and are often referred to as socio-cultural influences (Henry, 2008).Henry further says that the consumer strength of Red Bull products determines whether or not the products will be fully accepted by that market. Social trends have allowed the company to target prime consumers such as young adults, extreme athletes and all night-rave attendants (Franzen & Moriarty 2008).

Technological Factors

With the advent of technology, Red Bull has been able to reach a wide market and access consumers with web page and Internet marketing. Franzen & Moriarty (2008) say that advertising through Facebook and Twitter has enabled Red Bull to generate a large followers’ base. These technological platforms permit users to share their experiences with Red Bull products.

Legal Factors

Legal aspects present a major challenge for Red Bull in particular. Presently FDA in the USA has no regulations in place concerning the components used in Red Bull. The same rules enforced bin countries such as Sweden and France affected the brand. Temporal (2012) feared that there might come a time when FDA and other market regulators will impose restrictive control on the ingredients. This may slow down the growth of the Red Bull market and test its power against resilient competitors such as Coca-Cola and PepsiCo.            

3.0 The Company’s Supply Chain Factors

In terms of supply chain, the company has a policy of perceived exclusivity of sales where small, independent retailers and cash-and-carry wholesalers are augmented by self-styled Red Bull distributors. Dahlen, Lange & Smith (2010) say that the Red Bull sales force, part business developers, part merchandising team had selective territories and created a local feel for the brand. Dahlen, Lange & Smith (2010) further say that Red Bull cements its supply chain in retailers by using tied distribution tactic of using dedicated branded refrigerated display units.   

4.0 Porter’s 5 Forces

Risk of Entry of Potential Competitors

For Red Bull, entry of potential competitors for energy drinks such as Shark poses a major challenge. Potential competitors are companies that are not currently competing in the energy drink industry, but have the capability to do so if they choose to. Established companies already operating in the energy drink industry such as Pepsi, Red Bull and Coca-Cola often attempt to discourage potential competitors from entering the industry. A high risk entry of potential competitors represents a threat to the profitability of established companies including Red Bull.

Bargaining Power of Buyers

The bargaining power of buyers refers to the ability of buyers to bargain down prices charged by Red Bull per can. Hill & Jones (2012) say that by lowering prices and raising costs, powerful buyers can squeeze profits of Red Bull. It is important to note that powerful buyers should be viewed as a threat. Buyers are most powerful when the purchases they make are in large quantities. In such situations, buyers can use their purchasing power as leverage to bargain for price reductions.

Bargaining Power of Suppliers

Hill & Jones (2012) noted that powerful suppliers squeeze profits out of an industry by raising the costs of the company. If the suppliers are powerful, they act as a threat and if they are weak, Red Bull has the opportunity to force down input prices and demand higher quality inputs (Hill & Jones, 2012).

Threat of Substitute Products

Substitute products of different companies can satisfy similar customer needs. The existence of close substitutes is a strong competitive threat for Red Bull because it limits the price that the company can charge. For example, if the price for a can of the energy drink rises too much relative to those of soft drink such as PepsiCola, Red Bull consumers may switch to these substitutes. Hill & Jones (2012) indicated that if an industry’s products have few substitutes, thus making substitutes a weak competitive force, then Red Bull will have the opportunity to raise prices and earn additional profits.

Rivalry from Established Companies

Intense rivalry from established companies such Coca-Cola, PepsiCo and other manufacturers of energy drinks is set to bring a competitive struggle between companies within the industry. Since intense rivalry lowers prices, it squeezes profits out of the industry; thus affecting Red Bull’s profitability. Hill & Jones (2012) say that this type of rivalry brings a threat to Red Bull’s profitability.

5.0 Conclusion

In conclusion, Roll (2005) articulated that despite its origins in Asia, Red Bull has grown into a brand that spans continents with presence in 165 countries. The growth in sales, revenue and productivity implies that the company’s marketing strategy is very effective. In this context, Red Bull serves as a classic example of how an effective marketing, vision and strong branding initiatives can turn an ordinary drink into a widely popular brand across the world.

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