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Red Bull Marketing Essay

Section 1: Introduction

1.1 Company Introduction

In 1982, Dietrich Mateschitz became aware of products called “tonic drinks”, which enjoyed wide popularity in Asia. In 1984 he founded the company Red Bull GmbH.

More than a billion cans of Red Bull are consumed each year. Red Bull was made for moments of increased physical and mental stress and improves endurance, alertness, concentration and reaction speed. It is very high in sugar (27 grams), and also contains glucuronolactone, B-complex vitamins and caffeine (one can of Red Bull contains 80mg of caffeine, as much as a cup of coffee).

However, its primary ingredient is taurine, an amino acid that is found naturally in the body, particularly in muscle tissue. According the company, this ingredient is essential to the beverage as it is a key substance that the body uses at times of stress or physical exertion, and this must be replenished.

A sugar-free version has been available since the beginning of 2003. It is popular as a mixer, notably with vodka.

Dietrich Mateschitz fine-tuned the product, developed a unique marketing concept and started selling Red Bull Energy Drink on the Austrian market in 1987. Red Bull got off the ground in no time. In 1992, it was sold in its first foreign market, Hungary. Red Bull is exclusively produced in Austria and exported worldwide. The drink is available in over 100 countries and almost 1,000 million of the slim 250ml cans were sold in 2000, 260 million of them in the UK.

Supported by sleek advertising and, with its high priced small blue and silver can, Red Bull was targeted at young urban professionals. The advertising slogan of Red Bull in the United States and the United Kingdom is ‘Red Bull gives you wings’ and focuses on the stimulant properties of the drink.

1.2 Report Summary

The objectives of this report for Red Bull are:

1. To show how Red Bull develops its marketing strategy and identify the principles and processes involved.

2. To describe the tools and techniques used to produce a strategic marketing plan and show clearly how these have been applied.

3. To investigate whether Red Bull used option generation and evaluation in developing the strategic marketing plan.

4. To develop and produce a written strategic marketing plan for Red Bull.

Section 2: Red Bull’s Marketing Strategy

The UK total cold drinks market is large and competitive, with many powerful and famous brands with large marketing budgets competing for share. As a result, the market can be an ever-evolving test for brands that wish to continue to grow in a category that is currently worth £3.55 billion.

Within the cold drinks market, increases in the soft drinks category have been slowing. However, growth has been driven considerably by the Energy drink sector, which was worth an estimated £940 million in 2006 and has grown +26% since 2003. (Source: Mintel Energy & Stimulant drinks Market Report August 2006). The Energy drink category continues to grow at pace with brand extensions and new entrants to the market emerging every year. This represents both a challenge and an opportunity for the category’s leading brands.

(Source: Nielsen value share data, MAT to December 27th 2006).

Since its launch, Lucozade has been the market leader in the Energy drink category with just under 60% value share of the category. Key competitors include Red Bull and PowerAde with 27% and 4.5% value share respectively. 2003 also witnessed the introduction of several Private Label sport and energy drink launches from the major grocers. The rest of the market is made up with a plethora of smaller brands, predominantly operating in the stimulant drinks sector, and distributed via the Impulse channel and the on-trade environment.

Red Bull

Solstis

Lucozade Original Energy

Purdey's

Red Devil

Feelfine

Tesco Kick

Average price

£0.96

£0.90

£0.75

£0.70

£0.90

£1.09

£0.48p

Pack size

250ml

250ml

380ml

330ml

250ml

250ml

250ml

Section 3: Strategic Marketing Plan

3.1 PEST Analysis of Red Bull

POLITICAL

  • If Government imposes health and safety restrictions on the amount of energy drinks that should be consumed, it would affect the amount of energy drinks that are bought.
  • If Government introduce import/export charges on the energy drinks market, it may increase/ decrease the amount of energy drinks that are imported and exported.

ECONOMIC

  • Inflation would increase the price of drinks and at the same time, consumers’ real disposable income will reduce. Therefore, consumers are likely to buy less energy drinks, as they are not necessities.

SOCIETAL

  • If company decides to launch its product in a new country, its costs may rise, as it will have to produce different language labels.
  • As the population of youths increase, energy drinks companies may see an increase in the amount of drinks sold.

TECHNOLOGICAL

  • More hi-tech technology may enable companies to produce more drinks at a cheaper cost and at the same time improving the quality of the packaging.
  • Companies can use the Internet to help advertise and promote its products. It can also sell large quantities of its product direct to its consumers. It is a new way to communicate with consumers i.e. cheap and efficient market research method.

3.2 SWOT Analysis of Red Bull

Strengths

1. Red Bull is a leader in the ever-growing niche market of energy drinks.

2. The brand has a strong footbold in major markets such as Germany and UK and more recently, (since 2002), the vast US market.

3. Red Bull has a distribution agreement with Cadbury Schweppes; this is positive for further international expansion of the brand.

4. Its network of international subsidiaries are well-developed and will aid the company to effectively move products throughout the globe.

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Weaknesses

1. Since Red Bull is a private company, it has very few sources to generate capital for international growth and internal expansion in comparison with its public competition.

2. Red Bull has a lack of diversification in its drinks, although it did release its sugar-free version in 2003. Hence, the company is ‘missing out’ on potential profits that exist in other soft-drink sub sectors.

3. Red Bull firm focus on energy drinks, and hence, if there were to be a drop in demand in the future, it would be left highly vulnerable.

Opportunities

1. Red Bull is still quite a new product in the growing functional drinks market, which leaves a lot of room for development in major markets (eg: UK and US)

2. Expansion of Red Bull’s original line may help to strengthen its customer base (eg: as was seen with the release of Red Bull Sugarfree in 2003)

3. The development of a functional drink is a possibility. Since Red Bull is normally consumed before participation in a sporting event, the company could create an apre-sport, hydrating drink that also replenished vitamis and minerals lost from physical exertion.

4. Continuation of its tradition of entering new markets through the process of on-trade, has potential on an international level.

Threats

1. Many ‘copycat’ energy drinks such as Mad Bull and Red Devil threaten to take brand share from Red Bull. Although the company has won most lawsuits, litigation is expensive and the damages remain undisclosed.

2. Red Bull’s sales are threatened by the continued into the drinks market by key drink players such as Coca-Cola with its Powerade brand.

3. Since Red Bull is high In caffeine content and stimulant taurine, it is subject to regulation such as warning labels on cans which the EU imposed in 2002. Furthermore, the drink has been subject to negative press. For example, in Ireland, It was linked to the death of a student (1999) and a murder case (2001).

4. Many small operators also act as a threat because they have a high ‘cool’ value amongst younger consumers with whom energy drinks are popular.

3.3 Market Segmentation, Targeting and Positioning

Here, the notions of market segmentation, targeting and positioning are key to the success of firms’ marketing efforts. Kotler and Armstrong (2004) provide a useful definition: “Dividing a market into distinct groups with distinct needs, characteristics, or behaviour who might require separate products or marketing mixes (239). Segmentation is important because firms cannot appeal to all customers at once, especially not with the same offering. Rather, firms need to design products and services that fit with particular groups of individuals. Firms can segment their market in a number of ways, including geographical, demographic, psychographic and behavioural segmentation. Kotler and Armstrong (2004: 239-244) provide useful definitions: Geographic segmentation: “Dividing a market into different geographical units such as nations, states, regions, countries, cities, or neighbourhoods”; Demographic segmentation: “Dividing the market into groups based on demographic variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, and nationality”; Psychographic segmentation: “Dividing a market into different groups based on social class, lifestyle, or personality characteristics”; and Behavioural segmentation: “Dividing a market into groups based on consumer knowledge, attitude, use, or response to a product.” Firms may also choose to segment a market using more than one mode of segmentation, such as geo-demographic segmentation. In order to segment a market effectively, the segment must be measurable, accessible, substantial, differentiable and actionable. Once segmented, a firm should target specific segments. Kotler and Armstrong (2004) provide a useful definition: “The process of evaluating each market segment’s attractiveness and selecting one or more segments to enter” (239). When firms evaluate the attractiveness of different market segments, they should examine its size and growth, structural attractiveness and the firm’s own objectives and resources. A large or fast growing market may not be the most attractive in the long-term or necessarily fit with the firm’s ability to take advantage of in the near-term. Structural factors, such as those discussed by Porter (1980) including barriers to entry and the intensity of rivalry amongst incumbents will also highlight the likelihood of a new entrant to appropriate existing rents. Ultimately, a firm must select those market segments that it wishes to target, which consist of groups of buyers with relatively homogenous needs or characteristics.

The type of marketing strategy that should be employed will vary on the target market, but will broadly fit along four types described by Kotler and Armstrong (2004: 252-254): Undifferentiated (mass) marketing: “A market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer”; Differentiated (segmented) marketing: “A market-coverage strategy in which a firm decides to target several market segments and designs separate offers for each”; Concentrated (niche) marketing: “A market-coverage strategy in which a firm goes after a large share of one or a few segments or niches”; and Micromarketing: “The practice of tailoring products and marketing programs to the needs and wants of specific individuals and local customer groups – includes local marketing and individual marketing.” Choosing an appropriate target-marketing strategy will depend on a number of factors. A firm’s resources will determine its ability to serve a wide (or otherwise) market effectively, whilst product and market variability will dictate the need to differentiate the offering and the specific types of customers that may be attracted to its attributes. The placement of the product within the product life cycle will also have an impact, as will the marketing strategies of competitors.

Once a firm has selected the segment(s) within which it wishes to compete, it must then choose a specific position within said segment(s) where it will distinguish itself (Kotler and Keller, 2006). This is known as market position (Kotler and Armstrong, 2004): “Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target customers” (239). The requirement of market positioning refers more broadly to the notion of competitive advantage. Porter (1985) argued that the purpose of strategic management was: “to establish a profitable and sustainable position against the forces that determine industry competition”. As such, firms should first identify the unique structure of their industry, in terms of the five forces – the threat of new entrants, the bargaining power of suppliers and buyers, the threat of substitute products and the intensity of rivalry amongst competing firms – that influence levels of competition. On this understanding, firms should then choose to compete on the basis of one of three generic strategic, whether that is overall cost leadership, differentiation or focus (Porter, 1980). Failure to do so will leave firms “stuck in the middle” (Porter, 1985: 16). The analysis of the firm’s value chain, which exposes its primary and support activities and their contribution to value added, helped the firm to identify the most appropriate generic strategy, as well as adapt its value chain accordingly to better suit the selected strategy and build competitive advantage (Porter, 1985). In this respect, marketers should seek to establish a unique selling point (USP) and strong value proposition that stresses the rationale for buying one firm’s products over another.

3.4 Red Bull’s Segmentation, Targeting and Positioning Strategy

‘Red Bull gives you wings.’ This is Red Bull’s international slogan for its energy drink, a product which states not only to increase reaction speed and physical strength, but also to improve the concentration and alertness of consumers.

Red Bull is a popular drink amonst men in particular, with its largest consumers consiting of athletes, students, and night-clubbers in need of a late night lift. However, the brand is marketed to ‘opinion leaders and hard-working people with active lifestyles’, as the company’s website claims.

RED BULL with sugar:

Demographics

Men and women aged 16-29

Geographics

Mainly people who are situated in the city, as they are likely to be really busy and tired. Red Bull seems to have a cooler in most bars and clubs in the city as well as in convenient stores.

Psychographics

People who are tired / stressed and want to relax and have fun.

Behavioural

Students and young professionals to boost energy during work long day at work.

RED BULL sugar-free:

Demographics

Women aged 16-29

Geographics

Mainly in the city where there are many young professional women.

Psychographics

Drivers who are tired and need and increase in concentration. Women who want an energy boost but are on a diet.

Behavioural

Women who own a car and use it often for long journeys or are always stuck in traffic after work. As well as tired health

Red Bull is one of the dominant forces in the ₤940 million energy drink market. As of 2006, the market had grown 26% since 2004. *Lucozade holds a 60% market share. Its next biggest competitor is Red Bull, with 27% market share (Nielsen value share data, 2006).

Lucozade was initially developed as a health recovery product. In the 1980’s it enjoyed a successful repositioning that made it one of the first products targeted at healthy adults who needed energy boost. Since that repositioning it has concentrated on building relationship based partnerships with sporting events, iconic athletes and cutting edge community happenings where it can emphasize its long company history, top notch science and consumer brand familiarity and fondness. Lucozade follows a strategy of brand product expansion. Its makers respond to, and in some ways, drive trends in sports, fitness and energy recovery. There always seems to be a new flavor or new product. These new product’s attributes mirror the changing values and needs of each target consumer. Advertising links the product with known characters that consumers can aspire to, or rely heavily on logical and educational information that emphasize the “smartness” of users.

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In contrast, Red Bull succeeds by remaining exactly the same. Consumers can choose with sugar or without. There is no other choice. Instead, Red Bull remains responsive to consumers by expanding the situations where using the product is appropriate. As founder Dietrich Mateschitz says “We don’t bring the product to the people, we bring people to the product.” Marketing messages are fast paced and quirky. They create lightly specific situations that consumers can relate to, such as driving fatigue, and link Red Bull to the situation as a solution.

*Lucozade: Other energy drink brand

Red Bull marketing maintains a sense of product mystique that makes consumers feel special, as if they’ve discovered something no one else knows about. Customers can relate to the experience

they were having when they encountered the drink and they adjust their values to the attributes of the product.

Section 4: Developing and Producing a Strategic Marketing Plan

4.1 Effectiveness of the Current Plan

Product

Red Bull was launched 17 years ago in 1987. Since then, it has stayed focused on one product. One size. One colour. One sticky, sweet taste.

However, in 2003 Red Bull launched a sugar-free version of its original drink. The ingredients are the same apart from the elimination of glucose and sucrose.

Red Bull is produced from a number of key ingredients: taurine, glucuronolactone and caffeine. A combination of these ingredients when consumed, should:

  • Increase physical endurance
  • Improve concentration and reaction speed
  • Improves vigilance
  • Stimulates metabolism.

Red Bull is packaged in a slim, sleek, silver can. It isn’t sold in a bottle and it doesn’t have script lettering like Coke or Pepsi. This makes it different to other energy drinks. However, many competitors are now launching products, which look incredibly similar to Red Bull.

Price

Prices range from £0.96 - £1.90.

Promotion

Red Bull’s promotion campaign is sleek and small and original. Even its most profitable strategies have a very low cost.

Red Bull has a very effective marketing force: student brand managers. They provide student representatives with free cases of its energy drink and then encourage them to throw a party. By doing so, the good word about Red Bull is spread quickly and cheaply.

There have been rumours that Red Bull is unsafe for minors and that the drink was linked to the deaths of various teenagers. France has banned the sale of Red Bull altogether. However, Red Bull remains a popular brand and they say that the rumours add to the brand’s mystique.

Another way that Red Bull markets its drinks is through people who drive around in Mini’s and Beetle’s with a giant Red Bull can on the back. They find people who need energy and give them a free can of Red Bull. This is a way to introduce Red Bull to the masses.

Red Bull relies heavily on bars and nightclubs to help promote its product. Alternative sports have also proven to be a successful product trial arena; the company underwrites a number of extreme sports competitions. Events include the Red Bull Huckfest, a ski and snowboard freestyle competition held in January in Utah; and the Red Bull ‘Flugtag’ (German for flying day), amateur pilots will create exotic flying machines and attempt to soar off the pier.

Red Bull uses TV advertising as well, these all feature whimsical sketches of a mysterious Austrian artist. These advertisements serve more to amuse rather than to educate or entice consumers.

Place

Cans of Red Bull and Red Bull Sugarfree are sold in over 100 countries and are mainly sold in retail outlets and bars/clubs in the city.

It has been established previously that the Energy Drinks Market is competitive and continues to grow; there are numerous competitors who emerge each year. Because this market is so competitive, Red Bull need to adopt good quality marketing strategies.

Red Bull is produced by a private firm, GlaxoSmithKline. Since Red Bull is a private company, it has very few resources to generate capital for new expansion projects in comparison with GlaxoSmithKline.

Red Bull was launched in 1987, since its launch, Red Bull has developed rapidly and as a consequence, it has attracted many imitators. Despite these imitators, Red Bull has still maintained its market share. Red Bull has always been promoted with the advertising slogan of ‘Red Bull gives you wings’ and focuses on the stimulant properties of the drink. It hasn’t created new products or re-positioned from its original product. However, a sugar-free version of Red Bull was launched in 2003. This lack of diversification hasn’t affected the sales volume of Red Bull, but they may have missed out on potential profits that exist in other drinks sub-sectors.

Red Bull is aimed at men and women who are aged between 16-29. It is targeted at those who are situated in the city as they are likely to be busy and tired after a long day at work. It is also aimed at students who go out to bars and clubs after a long day.

Red Bull’s promotion mix:

Red Bull is not sponsored by such organisations; however, it sponsors extreme sports events.

Most of Red bull’s promotional activities revolve around sports, and in particular, ‘extreme sports’ which was sourced from the founder, Dietrich Mateschitz, who had a deep interest in snowboarding and skateboarding. These implications are very obvious on the company’s website which includes lists of the many athletes that consume red bull. Such sports include paragliding and surfing.

The Red Bull ‘Flugtag’ proves to be a successful way of promoting its product. The ‘Flugtag’ is an opportunity for amateur pilots to create crazy flying machines and attempt to fly off the pier. This has proved to be very popular with many younger people and ties in with the fact that Red Bull has a very effective and low-cost marketing force: student brand managers. Red Bull doesn’t limit its activities to sporting events. It also focuses on promoting its products on school campuses where it pushes brand leaders to sell the product on site. An example of this is in Australia, where literature was handed out, claiming that Red Bull stimulates the brain cells, and therefore the capability to study. Although Red Bull is generally produced for consumption during or prior to times of physical or emotional strain, it also has a reputation of a mixer and hence, sponsors Red Bull Music Academy.

Through these strategies, Red Bull can develop a relationship with its consumers and the events which they host provide a good opportunity for youngsters to experience new events and have fun. Even their television advertisements seem to humour the consumers rather than to promote Red Bull. However, because of its high content of caffeine, Red Bull remains in a niche market as it is unsuitable for children under 16, the elderly and pregnant women.

4.2 Recommendations for Improvement

After extensively analysing Red Bull I have come up with various ways in which Red Bull can maintain its market share within this competitive market.

In the close future, Red Bull should maintain to develop its international scope, through entering new markets and increasing its strong grip in countries that it already exists in. The best markets at the moment would be markets where energy drinks are only beginning to takeoff (ie: Southern Europe), and not markets such as the UK, due to the ever-increasing pressure from rival drinks.

In the US, the market where Red Bull has been gaining strength rapidly since its 1997 launch, space still remains for growth due to the fact that the brand was only available in half of all US convenience stores in 2002. Due to the ever-increasing popularity of energy drinks, the company’s client base also has room to expand and should continue to do so. However, the various lawsuits pursued by the company are indicative of trading difficulties, in particular, the protection of the Red Bull brand, and such difficulties are likely to continue.

Red Bull’s 2003 release of sugar-free sub-brand does not appear to have boosted sales. However, despite the first ever variant in the Red Bull portfolio receiving a lukewarm reception, the company may try boosting sales with either another line extension, or even through the development of another brand entirely. Within functional drinks alone, the company has many unexplored avenues available to it, such as hydrating beverage for those fortified with vitamins and minerals. This could also be an advantage to Red Bull just in case the market for energy drinks decrease.

In conclusion, strategies that manipulate the market share division are more appropriate to a mature product segment. As long as the energy drink total market grows, both companies should focus on solidifying their consumer base. After the growth of the product market itself stabilizes, than focus in marketing will change to emphasize product switching. Red Bull could develop a brand new product which it could market to its existing client base, but they would firstly have to undertake a lot of research to see whether the new product would be suitable.

References

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