Red Bull Goes to China
The energy drink Red Bull is produced by the Austrian Company Red Bull GMBH. Founded
in 1987, the privately held energy drink producer achieved sales of more than € 5 billion in
more than 160 countries in 2013. For 2014 projected sales are € 5.4 billion. According to the
owner and CEO of the company, Dietrich Mateschitz, about 10% of sales were profits. The
major part of Red Bull´s expenditures are marketing related. The energy drink producer has
traditionally pursued a global communication strategy with high marketing activity for
advertisement, sponsorship and product placement. Their slogan is "Red Bull gives you
wings” and has been used consistently around the world. Red Bull sponsors two Formula-1
drivers, four football teams and hundreds of sport events. The management pursues the
strategy to invest the major part of profits into the trade mark Red Bull. As a result, the
company’s trade mark is the most precious one of Austria.
Red Bull's rapid international expansion has earned it the undisputed number one position in
the world's energy drinks market, according to Euromonitor International. In the face of
growing competition from rival brands such as Hansen Natural Corp's Monster in the US, Red
Bull is planning a more aggressive assault on Asia. Red Bull entered China in 2011. Red
Bull's prime consumers are in their 20s and the large youth population in the region can
potentially become energy drinks consumers in the long term. Last year Chinese energy drink
sales reached 25 billion yuan, registering an annual growth of 45%, according to the market
research group China Investment Research Consultant. Compared with the world's developed
countries where the average per capita consumption of functional drinks is about 7 liter per
year, the average Chinese consumer only drinks 1.5 liter of functional drinks.
1) Going global
a) Red Bull has been truly committed to becoming a global company. The company has
been entering new markets at breathtaking speeds. What are potential advantages and
disadvantages of going global?
b) What are important criteria to assess the attractiveness of the Chinese market for Red
Bull?
2) Competitive analysis
Red Bull has been very successful and made its owner one of the richest people in
Austria.
a) What is Red Bull’s main competitive advantage?
b) How does Red Bull achieve this competitive advantage? What core competencies are
required to pursue Red Bull’s global competitive strategy?
3) Red Bull’s global communication strategy
a) Briefly describe the nature of a global versus a regional communication strategy.
b) What are potential advantages and disadvantages of Red Bull’s global communication
strategy?
4) Pricing
a) A can of Red Bull is sold to wholesalers in the United States for $0.8. Assume the
company wants to charge Chinese distributors the same price adjusted for additional
shipping cost. Since the currency exchange rate is 1$ = 6 yuan, the price of a can
would be 5 yuan (4.8 yuan +0.2 yuan for additional shipping cost).
b) What are potential problems with this pricing strategy?
c) How would you go about setting the price?
5) Culture
China belongs to a high context culture. Using Hofstede’s dimensions, China rates high
on Collectivism, low on Uncertainty Avoidance, high on power distance, and high on
Masculine. What would you do differently in managing Red Bull’s sales force in China
versus Red Bull’s sales force in the U.S.?
6) Financial Analysis
a) Assume Red Bull is produced in Austria and shipped to Chinese wholesalers. The
Chinese wholesalers pay in yuan. Consider the following cost structure for Red Bull in
Austria’s Chinese business:
Fixed cost
Variable cost
Cost for advertising in China
Sales price to wholesalers
Suggested sales price to consumers
Sales forecast
Currency exchange rate
€ 10,000,000
€ 0.125 per can
240,000,000 yuan
5 yuan
14 yuan
100 Million cans
1€ = 8 yuan
b) How many cans have to be sold to break even?
c) What is the break even in Euro?
d) What is the profit for Red Bull Austria if the sales forecast (100 Million cans) is
correct?
e) What happens to Red Bull Austria’s profit from its Chinese business if the value of the
Euro is going up versus the U.S. Dollar?
f) Management is concerned about the currency exchange rate risk concerning its
Chinese business. What could management do to greatly reduce this exchange rate
risk? Could they use futures?