Red bull strategies

EXECUTIVE SUMMARY

“Red Bull isn’t a drink; it’s a way of life”, says Dietrich Mateschwitz, the co-founder of Red Bull GmbH (Kumar, 2004). In fact, for a product that didn’t have any extraordinary quality, was made of repeatedly questioned ingredients, Red Bull holds a pretty significant 70% market share (Ingram, 2010). In 2007, according to company figures, 4.5bn cans of the drink were sold in over 130 counties with 3,903 employees generating over 2.6 billion euros in turnover (AFP, 2007). Its dominant position in the fastest-growing segment of the soft drink market is mainly attributed to the company’s unconventional and innovative marketing strategies as well as its revolutionary operational and management approach.

This paper study discusses the various strategies adopted by Red Bull, including the company’s effective employment of buzz marketing, product branding, its sponsorship and unique distribution strategy. The paper also discusses the importance of individual skills and organizational toolbox that led to the company’s success.

The case concluded with a commentary on challenges the company faces as well as recommendations with regards to maintaining its current growth and market share.

BACKGROUND

Dietrich Mateschwitz experienced the stimulating qualities of a popular Thai energy drink, Krating Daeng (literally ‘red bull’), while on a trip to Thailand. Shortly after, he started to work with a pharmaceutical company to adapt the Thai beverage for European market. Mateschitz’s concept was to create a company selling its own energy drink worldwide at a premium price (Keller, 2004). In 1987, together with Chaleo Yoovidhya, the owner of Krating Daeng, he founded Red Bull GmbH. The partners agreed that Mateschitz would run the company, while the Chaleo and his son remained sleeping partners.

Five years later, the drink entered neighbouring countries – Hungary and Slovenia, followed by Germany and Switzerland. In 1997, Red Bull stormed the U.S. market. In less than three years, Red Bull solely expanded the sales of energy drinks from $12 million to $75 million in 1999 (Hein, 2001). Today, Red Bull is also Austria’s most successful brand, worth more than €10.9 billion. In 2008, Forbes magazine listed both Chaleo and Mateschitz as being the 260th richest persons in the world with an estimated net worth of $4.0 billion.

INNOVATIONS

Red Bull is a great example of an ordinary product of doubtful worth that was transformed into a powerful brand through innovative marketing.

In an interview, Mateschitz recalled: “When we first started, we said there is no existing market for Red Bull. But Red Bull will create it. And this is what finally became true” (Dolan, 2005).

Although the initial market research conducted by Mateschitz was quite devastating – unappetizing colour and disgusting taste (Johnson, 2002), he didn’t give up but thrived in the end. How? By revolutionary approach to the product branding, well controlled and limited distribution, and unique ways of reaching out to the right customers.

In general, the success of the company relied hugely on an original concept: a highly caffeinated and troublesome drink. But what makes Red Bull so unique is the company’s revolutionary approach to classic marketing rules. The company claims the unique techniques were developed out of a demand.

“In terms of attracting new customers and enhancing consumer loyalty, Red Bull has a more effective branding campaign than Coke or Pepsi”, says Nancy F. Koehn, professor of business administration at Harvard Business School (Rodgers, 2001).

“Red Bull is building a beverage brand without relying on the essential equipment of a mass-marketing campaign. Perhaps the indispensable tools of marketing aren’t so indispensable after all”, she adds (Rogers, 2001).

The main source of innovation in this case was pretty simple – as a self-funded start-up, the company could not afford a costly advertising. Additionally, Mateschitz has always believed in ‘functionality’. They carefully select the sports they sponsor, the people they target and places they distribute their products to.

The consumer promotions aren’t typical either. Red Bull invites consumers to creatively interact with the brand, by building their own ‘wings’ or sculptures. It makes Red Bull one of the very few brands that understands how precious a deep personal experience and “peers endorsement” is compared to a standard advertising campaign.

Another great example of Red Bull’s revolutionary approach to marketing is the fact that the company doesn’t use print media, banners or billboards. Every promotion of the product needs to have a functional benefit. Even its TV spots are believed to be more amusable than educational or persuasive towards consumers. By avoiding the usual methods of marketing, the company concentrates more on what is called word-of-mouth or ‘buzz marketing’.

“The beauty of Red Bull is that it’s the antibrand brand”, says Gobé. “Red Bull doesn’t have any of the commercial trappings of a traditional, off-the-shelf product. It’s underground, even when it’s above ground, and that appeals to the young people who drink it “, he adds (Rogers, 2001).

Another remarkable thing about Red Bull’s is its 8.3-ounce can and the fact that it’s the only size the company has ever offered. One size. One colour. One taste. That’s all. In such a competitive environment, it’s simply shocking to hear of a thriving company not keen on a constant brand extension.

“We are one of few companies around the world that can stay focused on one product”, says Cortes in defence of Red Bull’s narrow strategy. “We do what we do best”, he adds (Rogers, 2001).

To sum up, Red Bull’s revolutionary approach in contrast with ‘standard’ tactics has been details in the below table.

Red Bull approach:

Conventional approach:

Positioning:

Create a functional foundation; show how the drink fits into people’s way of life

Create a socially aspiring image

Advertising:

Advertising airs only after the launch phase and plays a limited and specific role within the marketing mix

Advertising launches the brand and stays the lead marketing tool

Distribution:

Create strong demand and limit the product availability

Wild availability is used to create demand

Sampling:

Focus on quality and product experience

Sampling is all about quantity

Celebrity Sponsorship:

Pursue those celebrities that are fans of Red Bull, but don’t pay them

Celebrity endorsement has a steep price, but gets publicity

Merchandising:

Controlled and limited

Tchotchkes rule!

Network Relationships:

Treat all stakeholders as partners

Vendors are lucky to work for us!

Corporate Leadership:

Patience and investment

Clear annual volume and profit objectives and fast returns

Table 1: Based on: “Speed in a can” by Alex Wippenfurth, 2003,

PEOPLE BEHIND THE SUCCESS

Mateschitz, Red Bull’s co-founder and its managing director, is undoubtedly the man behind the steering wheel in the company. In addition to his natural talent for selling, he is also known for his creativity as well as determination. Having worked in a highly competitive environment before, and conducted the initial market research, he was the one to come up with the extraordinary ideas, which implemented by a joint effort of his dedicated team, brought the company straight to the top. There is no doubt that his natural skills, innovative approach, determination and optimism paid a significant role in the company’s success.

Moreover, Mateschitz thrives on resistance. He is always ready to push the limits and devise spectacular new strategies that get the customers herd to events where extreme sports athletes and daredevils perform street acts.

In fact, Red Bull’s unconventional tactics and persistence has been evident from the beginning. To begin with, having great difficulties to launch its product in Germany, the company smartly used the rumours regarding the product’s potential health hazards and mystic content, by building a myth strategy. In his article “Liquid Cocaine”, journalist Jeff Edwards concludes: “the more rumours of Red Bull’s potentially dangerous, over stimulating effects spread, the more the drink sells” (Edwards, 2001).

In addition to that, Mateschitz strongly believed in the importance of physical consumption of his product. Therefore, the marketing strategies have been always focused on sampling and event sponsorship that match and enhance the spirit of Red Bull.

“We don’t bring the product to the people; we bring people to the product. We make it available and those who love our style come to us”, claims Mateschitz (Gschwandtner, 2004).

Red Bull’s success is also partially attributed to its internal culture. Red Bull’s team embodies energy and stimulation in everything their do. It seems to be the main ‘theme’ which to direct and lead the company’s actions. Every employee is totally on board with the current goals and challenges of the company.

Red Bull thrives on its unique business structure as well. Little hierarchy – ‘management by organized chaos’ – as Mateschitz describes it. A fully committed team hired primarily for their passion and non conformism is ready to overcome any challenge they face. Mateschitz himself ensures to only work 3 days a week, to live the life of extreme sports his brand endorses.

The unusual, personality driven leadership is also evident between the company and agencies it employs. Johannes Kastner, for instance, the head of Red Bull’s ad agency, represents the strongest business relationship in its field, with the ad agency being a reliable, long-standing partner rather than dispensable merchant.

ELEMENTS OD RED BULL’S STRATEGIES

The emphasis Red Bull places on marketing has been always extreme high – the company spends around 30 percent of its annual turnover on marketing, compared with the average of 10% being spent by most of the competitors (Dolan, 2005).

But what is really interesting about Red Bull’s strategies is the lack of aggressive in-your-face push campaigns, price-offs, and instant ubiquity. Instead, its marketing is designed for the subconscious. One of the attractive seduction tactics the company employs is exclusivity – Red Bull makes it initially hard for the market to experience the drink. When Red Bull enters a new market, they initially select a limited number of outlets that can sell the drink. The company’s sales units are totally decentralised. Each unit is responsible for sales, marketing and distribution in its own area. Sales reps insist that Red Bull be distributed exclusively by a dedicated sales force. They have a selective sales strategy as well. They target “hot spots” in their area such as clubs and bars, shops near universities and gyms. Such a selective and individual approach has a great advantage of being fast and effective.

Sampling also focuses on exclusive sub-communities and carefully selected groups.

Moreover, instead of traditional advertising, Red Bull relies on a strategy of word-of-mouth or “buzz” marketing.

Another extremely effective tactic with regards to product positioning and promotion happens on the streets.

Red Bull makes sure its silver can is widely noticeable:

* Consumer education teams drive eye-catching trucks as mobile displays, painted blue and silver with a giant can on top of the vehicle; to promote the brand as youthful and slightly ‘on the edge’;

* Free cans of Red Bull are also given out to people on the street who had been identified as being in need of energy.

* Red Bull is also provided to DJs, empty cans would also be left on tables in hot spots such as popular clubs and pubs.

But what’s really intriguing and admirable about the marketing strategy is the fact that it takes place on the street, with people. Red Bull ensures that customers don’t feel under pressure to experience its product in a certain way. During the sampling, for example, they always provide a full and closed can, so that the consumers can decide when and how much to try.

Additionally, all Red Bull’s promotions are participatory. Rather than sponsor concerts like everybody else, the company has gone much further – they created Red Bull Music Academy for aspiring DJs to participate in workshops with some top DJs in the world. The company is also strongly associated with extreme sports, more recently with prestigious F1, motorcycle racing and their own adventurous events. In that way consumers can get deeper experience of the product which keeps the brand relevant in terms of its stimulating mind, not just the body.

Against the odds, Red Bull brand was directly marketed to Generation Y, the so-called ‘millennial’ who were believed to be sceptical of traditional marketing strategies. Part of the strategy involved recruiting ‘student brand managers’ who would be used to promote Red Bull on university campuses and then report back to the company, providing some useful market research data.

What is also extremely fascinating about the company is the fact that the Red Bull’s contents are not patented, and all ingredients are clearly listed on the can. Yet, Red Bull has had achieved a leading market position in over 100 countries worldwide. Many competitors have tried to employ similar marketing strategies and tactics in order to grab sales from the market leader. Not all have been successful, of course.

THREATS TO FUTURE SUCCESS

The main problem Red Bull needs to deal with is the ability to maintain its incredible sales growth. In the light of the brand becoming more and more mature and the market even more saturated, the company faces some of the most serous challenges ever:

* The loss of its original consumer base, as the Generation Y becomes working adults;

* Health concerns, associated with high intake of caffeine, that have emerged in several countries (ban imposed in Denmark and France; classified as a medication in Norway; until recently available only in pharmacies in Japan);

* The energy drinks market has attracted some of the global biggest beverage companies, such as Coca Cola and Pepsi, seeking to win a competitive advantage over the current market leader;

* Red Bull is well known for its revolutionary advertising however the product could be in danger of becoming stale;

* Unlike their major competitors, Red Bull is limited to one product, leaving the company with no back up product to cover any potential loss;

* The beverage market shows strong trends toward healthy options of soft drinks;

FUTURE RECOMMENDATIONS

Red Bull has gone through a lot in the past two decades. Starting on a practically non-existent marketplace, today it faces extreme diversity of similar products and a significant number of competitors. Taking into account the fact that Red Bull’s brand is still very strong and his market leading position not yet threatened, the company should focus its market strategies on the following objectives:

• Maintain the leading position

According to company’s figures, the product is still widely recognized (over 60% of the under 30 year old Germans can easily distinguish the brand).

In general, people are happy with the product. It is the image that needs to be enhanced. As far as the price is concerned, it is recommended that it should stay the same – a high price will help keep the image of a high quality product. In addition to that, some new promotion campaigns can add further value to the image.

As Red Bull is a utility drink, which means it is only bought occasionally. Therefore it may be worth considering to redirect the future marketing campaign to petrol stations, off-licences, convenience stores.

• Expand the product

Red Bull should try to extend its product range by creating further consumer needs for some other Red Bull products such as:

– “White Bull” which could represent soft high quality mix drink of Vodka and Red Bull.

– Energy bars and “mini power-size” bottles of Red Bull that will be small enough to fit into pocket; aimed at those in constant hurry.

– A small selection of Red Bull extraordinary sports clothes. Since the company is widely acknowledged for its extreme sports sponsorship, they should provide its fans with unique outfits. It is a great opportunity to gain some extra returns as well as attract attention through people wearing the clothes.

Taking into account the “healthy” trend in the soft drink category, as well as the actions taken by the closest competitors, Red Bull should also diversify its products into “organic energy drinks” and try to create a matching “lifestyle” in order to enter a new market for the “health-conscious consumer”.

Another option for Red Bull is an expansion into new and developing countries, which may not only help to spread the name but also boost the sales. In that way, Red Bull’s may again show the market hot to spread its wings…

REFERENCES:

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