Patrick Davis
Red Bull
11/1/2012
Executive Summary
Red Bull makes a premium energy drink for students, drivers, clubbers, business people,
and athletes around the world to revitalize their bodies and minds.
Problem:
Red Bull, the leader in the energy drink sector of the soft drinks market, has seen its market share
drop from 75% in 1998 to 47% in 2005. For the first time in the young energy drink sector,
competitors have developed a legitimate share of the market: Hansen Natural’s Monster with
an18% share and Rock Star with a 16% share. What actions need to be taken in order for Red
Bull to solidify its market leader position?
Answer:
Red Bull should create a line extension offering either a diet drink to appeal to the recent trend of
health conscious consumers or a new flavor while also changing their price point to be more
sensitive to the consumer. By doing this, it will allow Red Bull to fight its competition in a very
similar fashion to how they began to lose their market share (competitive pricing and a variety of
options).
Rationale:
Red Bull has the strongest brand awareness in the energy drink segment which provides instant
credibility to any line extension they may come out with. Red Bull has the extensive distribution
network to make sure the product reaches the consumer no matter where they are. Market trends
are currently in Red Bull’s favor as they show the customer wants options; giving Red Bull the
perfect opportunity to develop a new product. Red Bull has the financial resources to take a risk
like this, especially considering the rapid growth and acceptance of the energy drink sector.
Simply put if Red Bull stands still Monster, Rockstar, Pepsi and Coke will continue to close the
gap on them.
Situation Analysis:
Red Bull entered the United States market in 1997, by launching the product in “cells” beginning
in Santa Cruz, California in popular night clubs. The thought was that these accounts would be
able to give more attention to Red Bull than a retailer would and party goers are more open to try
a new product. As word-of-mouth started to grow in one cell, the product began to sell itself; it
would then be introduced into a new cell, and so on. Red Bull was looking to give its product a
feeling of exclusivity through not only its market introduction strategy, but also in its pricing.
Red Bull sees itself as a nutritional item and thus prices their product that way. The company sets
their prices at least 10% above competitors despite offering a product much smaller in actual
size.
Red Bull currently spends approximately 30% of their worldwide sales on marketing and
advertising which equates to 600 million dollars. Most of Red Bull’s marketing efforts are put
towards buzz; sponsoring people and events that represent what the more typical Red Bull user
would enjoy. For example, Red Bull has sponsored many extreme sporting events including but
not limited to skydiving and paragliding. In addition, Red Bull has funded musical events around
the world, typically with an emphasis on hip-hop. While people believe these events are
inexpensive it is not the case. Only 18% of their marketing efforts are through a measurable
media, as they have said they would plan a media push only once the market has matured so they
could reinforce the brand.
Strengths:
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Red Bull essentially started the energy drink market and is the current market leader.
Everyone else in the category has been trying to play catch up both in terms of brand
awareness and adoption as it has an identifiable product and image.
Red Bull has an extensive distribution channel that goes far beyond your traditional
grocery and convenience stores. The drink can be found at bars, restaurants, bike shops,
extreme sports stores, and many other types of vendors.
Amount of caffeine per 8 ounce can is greater or equivalent to what most 12 and 16
ounce energy drinks offer, creating a more effective, higher quality product.
Less traditional marketing tactics of hosting and sponsoring events has increased their
brand credibility as they have become defined by adventure, risk, and originality all while
exuding a sense of naturalness about themselves . This has created a loyal, cultesque
following.
Product can be associated with the lifestyles of so many different types of people, making
it seem more versatile. Red Bull users range anywhere from cliff divers and race car
drivers to students and party goers.
Weaknesses:
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Red Bull is a one trick pony. Red Bull’s future lies within an 8.3 ounce silver can that has
had a single design and flavor since its inception.
Current pricing strategy is at least 10% above its competitors; despite offering a product
that is 2/3 or even 1/2 of the size of its competitors’ products.
Red Bull has not invested into much traditional marketing which has made it more
difficult to quantifiably measure the effectiveness of what they have done.
Product is somewhat controversial as far as its health benefits and effects as it was
banned in Denmark, Norway, Sweden and France. In addition, Canada had banned the
product but has since lifted the ban and put warning labels on the product concerning
overconsumption.
Oversaturation of the market has taken away the feeling of exclusivity surrounding the
product.
Opportunities:
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Energy drink sector is rapidly growing, somewhere between 58-73%.
Increasingly health conscious consumer is creating a new segment of energy drinks.
Consumers are looking for more variety in the product offerings.
Threats:
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Competitors like Monster and Rockstar have been steadily gaining market share while
soft drink giants, Pepsi and Coca-Cola have recently dove into the energy drink sector
with an abundance of resources and established distribution channels at their disposal.
Ingredients used in Red Bull are no longer unique to just their product. Most competitors
are now using them in their products too.
Competitors’ products provide a far better value in both price and volume.
Brand and line extensions by competitors have created options for consumers which were
previously unavailable in the energy drink market.
Overall SWOT Analysis:
The primary strength of Red Bull is the incredible brand awareness it has not only domestically
but internationally too. Complementing brand awareness perfectly; is the extensive channel
coverage, which no other energy drink currently has. Red Bull’s biggest weakness is the fact
they are a one trick pony, in an industry seeking more variety. Red Bull’s product has not
changed in the slightest since its introduction into the American market. The premium pricing
strategy Red Bull uses, has allowed competitors to offer their products for substantially cheaper
rates despite offering larger volumes. Red Bull has seen its market share shrink over time
because of this and the lack of variety in its offering. Red Bull needs to take advantage of the
favorable primary demand and extend its brand line while offering a more consumer sensitive
price.
Alternatives:
1. Do Nothing
By doing nothing, Red Bull will continue to be a one trick pony. While millions of people
recognize Red Bull as the clear market leader, many energy drinks have begun to copy
their marketing tactics. Red Bull is losing some of its luster and more importantly market
share because of this.
Pluses:
 Easy to execute obviously as nothing will be changing.
 Strongest distribution channel among any energy drink.
 Continues to have the most recognizable product in the energy drink sector.
 Currently the market leader by a pretty wide margin.
Minuses:
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Over the past several years, Red Bull has seen their market share begin to slowly
erode so this will most likely continue.
The competition has begun to copy their unique way of marketing an energy
drink, especially Hansen Natural’s Monster energy drink. Monster is now
sponsoring athletes, concert tours, and extreme sporting events which are
attracting the attention of many current Red Bull users.
Red Bull is not extending their brand offering like competitors are doing, thus
missing out on a more health conscious and variety seeking market.
Red Bull has oversaturated the market with its product damaging the idea that it is
a premium product. While still favorably viewed by consumers, as made evident
by market standing, Red Bull is losing potential buyers due to its price point and
the number of viable energy drink options now available.
The power of a one trick pony is fading as consumers want more than one option
from their favorite energy drink manufacturer.
Analysis: Doing nothing is not a feasible or recommended option for Red Bull if they
want to keep and further establish their position as market leader. Rapid growth among
competitors Monster and Rockstar, and Pepsi and Coke’s introduction into the energy
drink market will continue to steal Red Bull’s sales. While brand loyalty is still high, Red
Bull is going to undoubtedly lose more and more customer support the longer they go
without providing their fans more options and a better price point.
2. Invest in Line Extensions
The energy drink market has changed remarkably in a few years. The market has gone
from being dominated by Red Bull with a clutter of other unrecognizable energy drinks
available; towards a market led by Red Bull but with legitimate opponents quickly
gaining significant market share. Monster is offering their energy drink in more than one
flavor and Pepsi has formed a partnership with 7-11 to have SoBe energy be produced as
a slurpee in addition to a canned energy drink. It is important that Red Bull attempts to
keep its current customers under its brand umbrella for all of their energy needs.
Pluses:
 By creating a line extension of Red Bull, it will be easier to satisfy the customers’
growing needs and wants. Most notably, who customers are looking for different
flavor offerings or a diet option. The companies who have been gaining market
share have a much better variety for the market to choose from then Red Bull
currently does.
 The distribution network is one of Red Bull’s biggest competencies, by producing
a new flavor/s; it/they could be easily incorporated into the current distribution
strategy.
 The new product/s would be able to be easily promoted through Red Bull’s event
and endorsement marketing which has proven to be credible in the past.
 Being produced by the market leader, consumers will be less skeptical of new
flavors than a company that is not as prevalent in their minds.
Minuses:
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Cannibalization of the original product’s sales.
Increased research and development costs.
Risk that product will not be accepted by the market.
Analysis:
A line extension would definitely be recommended to Red Bull, with how fast the market
is continuing to grow, it is essential that Red Bull can satisfy the needs of the growing
diverse customer base. Obviously research and development will have to be performed in
order to find what flavors the public is receptive too and if a diet (sugar free) Red Bull
would be a legitimate offering. A percentage of the costs for research and development
could be derived from the marketing budget as brand awareness is the highest of any
energy drink. Red Bull must act in creating more options for customers before Monster,
Rockstar, Pepsi, and Coke are able to grab more market share.
3. Change in Price Point
Red Bull has oversaturated the market with its single product as it can be found anywhere
from grocery stores to extreme sports stores. Oversaturation has caused Red Bull to lose
the premium image it once held but not the image of a high quality energy drink. Red
Bull prices their product at least 10% above it competitors because of its high quality and
newness of the ingredients used when Red Bull was first launched. However, as time has
gone by, competitors have begun to emulate the ingredients Red Bull uses. This is no
longer an advantage especially since competitors’ prices are much lower despite offering
1.5x or 2x the amount of a Red Bull and the same ingredients.
Pluses:
 Consumers will be likely to respond to the price shift, especially since they are
well aware that Red Bull has one of, if not the highest quality energy drink on the
market.
 Changing the price point now rather than later will allow Red Bull to do it on their
own terms, giving them time to find a price that will provide a margin they are
comfortable with. Where as if they waited too long, and saw their market share
continue to slide they may be forced to engage in price wars.
 Red Bull currently holds a large lead in terms of market share despite prices that
are sometimes twice as much as the competitions’.
 Lower price point will increase the number of impulse purchases and first time
purchases increasing sales volume from where it was previously.
Weaknesses
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Red Bull will receive a lower margin on its sales.
Distribution channel could be upset with lower prices as Red Bull sales have been
on the upswing every year since it has entered the American market.
Possible to dilute brand image and reputation further from the premium image
Red Bull wishes to have.
Analysis: Dropping Red Bull’s price point seems to be a necessity as competition is
getting more intense. Red Bull can avoid price wars in the future by adjusting their plan
now. While they will lose margin per can, sales volume should increase and they could
possibly reach their billion cans sold in a year goal.
Recommendation:
Red Bull should engage in both creating a line extension or multiple extensions and changing its
current price point. The company’s biggest weakness is that it is a one trick pony in a market
becoming more and more diverse. A single product offering to the consumers at a premium price
has seemed to grow old. However, Red Bull’s major faults could be alleviated if they follow
current market trends: strong growth in the industry and consumers seeking more variety.
Red Bull has the necessary funds in order to finance the R&D for a line extension without too
drastically impacting their current marketing expenses. The most probable extensions would be
either a diet drink or additional flavors. Monster, in particular has seen rapid growth over the past
several years due to its variety of flavors. A worry with any line extension is whether or not the
customers will accept and adopt the new product. Another worry is that a new product’s sales
will cannibalize the original product’s sales which will undoubtedly happen. The new sales
generated should be greater than if the extension was not created though. The highly interactive
marketing campaigns Red Bull has performed in the past would be perfect for any new product it
would launch. Red Bull has the luxury of their name carrying so much clout, which at the very
least will provide a large number of trials of the product. Red Bull also has the most far-reaching
distribution network of any energy drink provider which would give them an unbelievable
amount of options as to how to beta test the product. Red Bull has the option of creating a buzz
campaign similar to what they did when the product was originally introduced to the American
market by releasing the project regionally. Red Bull is set up to perform a line extension they
must now just delegate their resources properly to make it a reality.
Rolling out a new product would be the perfect time for Red Bull to change their price point.
One of Red Bull’s strengths is that it is seen as a premium product, but the oversaturation of the
market has taken away the feeling of exclusivity that use to go along with drinking a Red Bull.
The competition is offering a far better value despite a somewhat lower quality product; however
their growth has been much more rapid than Red Bull’s recently. When the line extension is
revealed, Red Bull should change their pricing to be more reflective of the market. The strategy
of marking up at least 10% over the opposition should be repealed. Pricing should remain above
the competition; but set a max markup of 20%, so the days of having a product half the size but
twice the price are over. Buyers will be much more receptive to trying your new products, and
adopting Red Bull as a regular purchase. The obvious downside of a change in pricing is the
reduced margin, but the sales volume should make up for and go beyond what is lost in margin.
Another fear would be channels of distribution getting upset at you for the price reduction, but
just like previously stated, sales volume should make up for the loss in margin.
The time for change is now in Red Bull’s case; they still have a solid lead in terms of market
share and can expand it by soothing market concerns.