Suggest the possible impact the success of the brand marketing might
have on:
a. Pricing strategy
Red Bull were the first company in the energy drinks market; they created the
market. This meant that they were able to charge a premium price because there
was no competition and so could exploit consumers. However, with high profit
margins and a high growth market, the market was very attractive and so
competitors entered the market. Normally, this increased level of competition would
result in a price reduction and therefore squeezed profit margins. This was not the
case for Red Bull.
The products in the energy drink market are rather homogeneous, all conferring the
same function: providing energy. Normally, in a homogenous market, we would
expect the driving force to be price. However, because Red Bull were able to
successfully augment their brand to create an emotional connection, they are still
able to charge a premium price without the risk of losing market share. They
augmented the brand using intangibles such as a sense of danger and edginess.
The current pricing strategy implemented by Red Bull is ‘rapid skimming’ as they are
charging a high price coupled with high levels of advertising. Red Bull do not use
conventional advertising mediums (tv, radio, billboards) but still spend a large
amount of revenue on advertising (35%).
The price for Red Bull differs on the market segment. When bought from a
supermarket, the cost is approximately £1.50 per can. However, when bought in a
club, the price is approximately £3.00 per can. This is because it is a captive audience
and the perceived benefits of consuming the product in a club are higher due to
attributes that the drink provides (a feeling of euphoria / a legal drug).
The high price is also used to convey a quality product. The high price increases the
involvement of the consumer.
b. Distribution channel management
Red Bull were initially very selective with their distribution techniques, selecting the
areas where the ‘in-crowd’ gathered as the distribution area. By only distributing the
product in certain areas, it created a level of mystique and scarcity around the
product. This level of scarcity increased demand and made users seek out the
product. This created a pull distribution policy; consumers demanded the product
and so supermarkets, bars and shops needed to stock the product.
Red Bull targeted key distributors in an area of interest. If a distributor would not
distribute the product, Red Bull would create their own distribution network by
buying a warehouse and using their own vans. Although this increased the amount
of work required for Red Bull, it gave them increased control.
Red Bull have considered using vending machines as a distribution method. If
vending machines were installed at key locations (gyms, universities, clubs) then
there would be increased awareness and thus sales. However, because Red Bull have
such a limited product range, vending machines would be somewhat under utilised;
there would only be 2 products available. This perhaps makes this a rather
unfeasible distribution method.
c. Product line management
Red Bull currently has a limited product range; they offer the standard Red Bull
product and a sugar free version. Red Bull had a limited run of caffeinated water but
this was restricted to Thailand. Mateschitz is clearly aware of this weakness, stating
‘It makes no sense to build a company on one product.’
With such a high level of brand awareness, Red Bull could create and market a new
product with a relatively modest advertising budget. Extending the product line by
introducing new flavours would help Red Bull to recapture some of its lost market
share due to the limited product range. Initial taste tests revealed that 50% of
consumers did not like the taste of Red Bull - by introducing flavours that are more
appealing, Red Bull could increase the amount of users.
Due to the way Red Bull has been positioned (as an edgy, dangerous product) Red
Bull need to be careful with future product developments. For example, the sugar
free version of Red Bull is considered ‘wimpy’ and may tarnish the brand if the wrong
market group starts to be seen using the product.
Also, because of the perceived ‘anti-brand’ image of Red Bull, when introducing new
products, care would have to be taken to which advertising techniques are used.
Currently, Red Bull only use TV advertising in established markets to reinforce the
brand rather than to attract new users. Clearly, with a new product, the
conventional methods would have to be used which may contradict their current
positioning of not using TV as a way to sell.