Competition Analysis Red Bull Business Essay

Abstract

Red Bull is an internationally recognized and leading brand in the market of energy drinks. A brief study on the product, its market, and its competitors is depicted in the paper. To study the competitive marketing strategy and business forces involved in this porter’s analysis of the five forces is done and the major factors which can affect the market share of Red Bull are being discussed in the paper. The secondary research of the paper includes responses of a questionnaire which was made for the consumers of the product. The responses have been collected from different demographic sections of the population. Consumption behavior of these drinks is also explained by the questionnaire. The Problems and opportunities for the product are also discussed in the paper.

The market of Energy drinks has been increasing continuously because of the growing awareness of the potential customers about the demand of safer and healthier life. The largest market of energy drinks is the USA where more than 40% of the energy drinks are consumed annually. The rest of the major market segment of the energy drinks includes Western European market and Japan which alone accounts for 40% annual consumption of energy drinks. These energy drinks are increasingly becoming popular among the adults and children as well. The revitalizing mix of these drinks is the main reason of their popularity. The high level of caffeine in these energy drinks is the main attraction point for the youngsters. This high quantity caffeine helps the consumers as a stress buster and maintains balance in personal and professional life. Everyday some new energy drinks are introduced in the market advertising about the higher energy level with less quantity of caffeine than any other existing brand. The existing potential consumer segment of energy drink is male dominated and the newer brands of the energy drinks are targeting more female customers. The marketing and branding of products are now being done keeping the potential female customers in mind. Some manufacturers are using certain attractive words like ‘sugar free’, ‘diet’, ‘low crab’ to gain attention of the female customers. The marketing of such a highly competitive product needs highly innovative formulas to show that their product is more conscious about the health and energy of its customers. These drinks generally targets the customers who are fond of some extreme activities like, some extreme mountaineering sports, water sports, video and computer gaming, hip-hop and night parties. (Heckman, 2010)

Company and Product Review

Red Bull is classified as a soft drink. It is a non alcoholic stimulus drink with an absolutely exclusive formulation consisting of two natural substances and important metabolic transmitters such as, amino acid, taurin and glucuronolacton in addition to stimulating caffeine, vitamins and carbohydrates. It gives stimulation and revitalizes the body after effort and activates the human performance both mentally and physically. The industry is capital-intensive: average annual profits per production worker are about $700,000. (Dawson)

History of Red Bull market expansion

In 1982, Dietrich Mateschitz, originator of Red Bull and Chalerm Yoovidhya, decided to enter the market of energy drink which was controlled by Japan and Thailand at that time.

In 1987, the product was first introduced to Austria which was a difficult market for Red Bull to carry on. Shortly Mateschitz developed a marketing strategy and as a result the product became well known in Austria and extended into Hungry and the rest of Germany. After that Red Bull has been successfully recognized world-wide and has reached a market leader position in 20 countries- in Europe, Asia and the USA. By 1997, Red Bull’s buzz marketing strategy proved successful in the U.S. The following timeline shows the expansion of Red Bull in the market.

Date

Market Expansion

1987

Austria 3.5. (not mature market)

1994

UK, Germany and Eastern Europe 3.6.

1997

US and South Africa 3.5. 3.6.

2006

Japan 3.7. (very mature market)

When Mateschitz realized that a great sporting event could be useful, Red Bull started sponsoring about 500 extreme sports athletes and hosting stylish parties. Events are now hosted by Red Bull throughout the world such as the Xgames and the Red Bull Air Races and thus their tagline, “gives you wings” is known worldwide. (Dawson)

Product Review

Red Bull’s mission is to stretch their wings over the world. It is a short phrase that communicates vivid information about the brand. This slogan which is used in all Red Bull campaigns worldwide is creating strong brand awareness of the product and is connecting between the brand and the product type. They are expanding rapidly into global market. They are keen on keeping Red Bull values, while maintaining the control position in the energy drinks category by delivering better-quality customer service in a highly experienced and commercial manner. (Dawson)

Direct Competitors

Although Red Bull still maintains a dominant position in many significant markets, it is no longer the only player. The major challenge to Red Bull’s leading position has come from US-based imitators: Monster, Rockstar and Full Throttle which have introduced price competition to the segment and this is possible to have become more and more important during the depression periods. (Strategy)

Monster: This energy drink is following each and every step that can make it similar to Red Bull and gain advantage by providing the product at relatively low price. The cost of both the products are $2 per can but the quantity of Monster is just double than that of Red Bull. Rockstar: This competitive energy drink whose motto is “party like a Rockstar”, targeted at the younger consumers who want to be “wild and crazy” and spend all night dancing. There are a number of flavors of Rockstar – cola, energy drink, and juiced. The energy drink is similar in taste to all the others, whereas the cola product has the best taste. The juiced version is said to be 70% real fruit juice and 100% energy. They were the first to use the 16oz larger size, and this has fixed and become the standard. Only Red Bull continues to market the smaller cans, which is part of their image.

Full Throttle: It is manufactured and owned by Coca Cola, just like their Coke Blak mixture of coffee/cola drink. Full Throttle energy drink is marketed as a rebellious drink, with erupting flames on the can. An 8 oz. serving has 110 calories (comes in a 16 oz can) and 29g of sugar. It also includes things like ginseng extract and plenty of caffeine. Full Throttle comes with a citrus taste and a red can. Full Throttle was first introduced to the market in 2005. It is targeted at 20-30 year old men, and contains Taurine like Red Bull.

From the above stated information we can find that:

1-Monster is similar to Red bull in taste, but only targets males. It has two advantages over RB in price and quantity which is double size of RB.

2- Rockstar is double the size and Price as it is 1.99$ so it is cheaper than RB.

3-Full Throttle has the same taste and ingredients as RB, but it has advantage of quantity and price

There are also other industries where Red Bull GmbH competes such as sports, leisure and recreation.

The Brand Positioning

In spite of the competition, Red Bull resembles a new type of drinks called the energy drinks. In this new market sector Red Bull has a branding as a top border quality product. The brand image and quality of Red Bull is used for its brand positioning. The punch line of Red Bull is ‘Red Bull vitalizes Body and Mind’. This positioning idea has created Red Bull a brand image in the beverage industry key features of which are following:

Sarcastic

Self confident

Intelligent

Innovative

Humorous, charming

Individualist

Impulsive

It can be assumed that the positioning idea of Red Bull has created the best energy drink status among the target market. It is also clear that customers appear to be attracted to the general appearance and brand of Red Bull. (Heckman, 2010)

The positioning strategy of Red Bull aims at best product, top price and top profitability. As for the price, Red Bull has a position in which it can command a best price because there is nothing to compare it with. It is an exclusive useful drink, promising and offering benefits that cannot be offered by any other drink. (Strategy)

Porter’s Five Force Analysis

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 our product 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. (Porter’s Five Forces.)

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 our product 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. (Porter’s Five Forces.)

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. (Porter’s Five Forces.)

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 our product. (Porter’s Five Forces.)

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. (Porter’s Five Forces.)

Factors affecting the attractiveness of “Red Bull”

Political and Legal Forces

When Red Bull was first launched in the market of non-alcoholic drinks labeled with a new idea as an energy drink, the Health Organization was doubtful that Red Bull could be an appetizer medicine. Rumors saying that to increase the energy level in the product Red Bull contain certain ingredients which are unlawful and inhuman, added to their doubts. But confidence in the product increased due to the fact Red Bull has been used in the Australian market for 9 years and in the Asian market for 30 years without any registered complaints. Moreover several studies have shown that although Red Bull has stimulating effects like caffeine, it does not lead to addiction.

On the other hand Red Bull still needs approval from each country to be sold. This procedure is time consuming and consequently costly. Some countries still have suspicions about Red Bull. According to msnbc.com in May, 2009, Six German states have asked retailers to stop selling Red Bull Cola energy drinks after a test found a trace amount of cocaine. However authorities say the drug level was too low to cause a health risk. Countries such as Denmark, Norway, and France have banned the sale of Red Bull. This means that legal factors have a high negative effect on RB. (Chong., 2010)

Economical Factors

Red Bull is hardly affected by economic periods of expansion and contraction because it is a particular drink, serving a niche market. The main consumers of the product are Athletes, night clubbers, shift workers, executives and long-distance drivers. Despite the availability of few substitutes, the sales of Red Bull are increasing through their well positioned advertisements. This factor has low influence on RB. (Chong., 2010)

Socio-Cultural Factors

When the product was first introduced people had doubts about the product and nobody wanted to try it. But now due to change of people’s lifestyle, people are interested in experiencing new things. Another reason for the confidence in the product was that it did not have any health issues. Longer working hours as well as increased road traffic led to more need for energy boost. Nowadays Red Bull has a very stylish image and is sold in a lot of supermarkets and clubs

Technological factors

Red Bull is totally manufactured in Austria and from there it is exported in 28 countries. Major reasons why it is not manufactured in any other country; first, to guarantee taste reliability and to make sure that taste of Red Bull should be same all over the world. Another reason is to keep the formula of Red bull secure in one place. Energy drink Red Bull, uses electronic points of sale (EPOS) data. This system allows customers’ research team to check the distribution of Red Bull. This system points out the gaps that can be returned to the retailers. (Chong., 2010)

The Marketing Mix Strategy

Red Bull has its own marketing which is different from the Marketing Mix Theory based on the 4 P´s. In 2008, Red Bull spent on marketing approximately more than 1 million$ which equals 30% of its revenue.

Media Advertising

In order to advertise the product all the media network and channels are occupied by Red Bull. Thus they successfully begin their advertising campaign in many TV shows and magazines. By doing so, they let the consumers understand the product and decide about the moments they can use it themselves. Red Bull realizes this by an amusing and humorous cartoon campaign, through which they easily send the message that Red Bull, can really give you wings to fly away. These advertisements using simple cartoon makes the people enjoy the campaigns and at the same time remember the brand’s name and the message it delivers. (Chong., 2010)

Sports-and Event-Sponsoring

The company also uses sponsoring in their marketing mix strategy. Red Bull does event sponsoring either by creating its own events (i.e. Red Bull Music Academy) or by promoting other events like Speed Ski World Championship. This strategy means that Red Bull brand appears in the form of logos and stickers and that the product ´s target market is accurately defined.

The image, the reliability and the visibility of the product are supported by sponsoring specific events where the people’s attention is drawn to the product.

Red Bull sponsors the athlete target market where Red Bull is always needed in extreme sports such as free climbing and motorsports and fun sports as well. (Dawson)

Sampling

Sampling is also very important part of their three component -marketing system. The main purpose of Red Bull is to boost the company samples at the right place and at the right time by finding its precise target market such as driving, studying, working night shifts and sports. Sampling is conducted in a charming way by extremely motivated and cultured employees of Red Bull. All their equipment is the product, a free range of clothes and a small, but very attractive sampling car. (Chong., 2010)

Surveying the local market

To have some information about Red Bull’s brand image and how the people see it, we made a questionnaire of 3 sections including 13questions. The survey targeted males and females whose age is between 18-34 living in or near Abu Dhabi. 22 % of the respondents are females, whereas 78 % are males. We used Emails to send and collect back the questionnaires. (Strategy T. M.)

Significant Findings

The top drinks proposed by the market are: Red Bull, on top then come power Horse, and Monster. The major part of the total consumption of energy drinks is occasional: 80 % drink occasionally drink and 20 % frequently.

With relation to Red Bull, which of the following is important to your purchase? 

 For 58 % of the people, find the physical boost is important. 36.4 % of the subjects are determined to buy Red Bull because it is sponsored by athletes and some related it to Formula-1. The taste of the drink is highly important standard. 45% and 42% consumers buy the drink because of its smell and energizing properties. Only 9.1% buy the drink because of the design.

Where do you buy Red Bull?

80% present of the respondents buy it from supermarkets whereas 20% buy it from fending machines at petrol stations.

What is the first word that springs to mind when you hear the words ‘Red Bull’?

60% said superman, 30% wrote formula1, and 10% said flying in the air

Which tag line, if any, do you most associate with Red Bull?

70% chose ” Brain and body energy”, whereas 30%chose” Gives you wings”

Which sports do you most associate with Red Bull?

55% Formula1 and 25 % said motorbikes, 10%responded Golf and 10% chose Athletic

90% described Red Bull as the best energy drink in the market and 10% finds it suitable for their lifestyle (Strategy R. B.)

Result

People don’t buy Energy drinks because they really need it but because this need is created by the manufacturer. The huge, interesting and innovative advertising and publicity campaigns have encouraged customers to buy the product. Being an energy drink the target consumers of Red Bull are the people who really need quick energy and concentration such as sportsmen and students. This is the only reason why the company sponsors numerous sports events. It is the famous slogan that makes consumers thinks that Red Bull gives more energy than usual. The result is that the Red Bull has quickly got success by young people. Red Bull keeps on marketing by this young generation.

Conclusion

When Red Bull was first introduced, it was easily imitated because the ingredients were printed on the can and the product was not patented. Although the taste of Red Bull did not do well in taste tests, it succeeded due to the marketing strategy.

It can be said that Red Bull was not only the first energy drink to be in competition with soft drinks but also created the new energy drink type in the majority of markets. After Red Bull hit the market in the late 90s till the present, many other companies entered the energy drink market but unable to compete with it.

Red Bulls has approximately 100 major competitors and the main competitors are Monster, Rock Star and Full Throttle.

Many substitute products have been introduced and categorized as energy drinks such as Ice‐T creating an energy drink called Liquid Ice, Nelly’s Pimp Juice and Lil’ John’s, Crunk Juice.

Although these competitors are present in the market no other energy drink could maintain Red Bull’s 70‐ 90% of the market share it has in over 100 countries all over the world.

Problems

Red Bull is not a patented drink product, therefore anyone is able to choose a can, read the ingredients on the label and start their own business. That is why the market is flooded by competition. In addition, Red Bull as well as all other energy drinks and supplements, have received negative reports from a medical point of view. Elevated amounts of caffeine and sugar can lead to adverse effects on heart and blood pressure. (Heckman, 2010)

Opportunities

Red Bull is one of the famous energy drinks in the global market. They earned this position by intelligent, consistent marketing strategy. Red Bull has the opportunity to maintain their position and develop a continuing pace to aim their niche target consumers by seriously using untraditional and traditional marketing strategies.

Red Bull has a competitive advantage over its competitors

Red Bull has a continual international marketing strategy by sponsoring a variety of great sports to promote a “cool” public image and enhance brand power.

The product has remained the top energy drink throughout its growth due its effective marketing strategy.

The product speaks for itself and its consumers do not report any complaints despite of negative publicity

Red Bull has developed a sugar free option.

Red bull has this competitive advantage not only because other drinks that follow it are not as appealing in packaging, marketing, but also because Red Bull is aware of their marketing challenges and they are continually changing and developing their marketing philosophy to overcome and avoid possible competitors. (Heckman, 2010)

Red Bull Consumer Questionnaire

This questionnaire is all about Red Bull’s consumers and targets males and females between 18 and 34 years old and based in the Abu Dhabi.