Purpose of the Case Study
The purpose of this case study “Red Bull: The global market leader in energy drinks is considering further market expansion”, is to answer 3 questions. The questions are as follows:
- How will you characterize the overall Red Bull’s global marketing strategy (global, glocal or local)?
- Argue for the most relevant segmentation (screening) criteria to be used in the international market selection (IMS) process.
- What changes would you suggest for Red Bull’s future global marketing mix, in order to meet its future challenges?
Additionally, as the top management team is considering placing the focus of its further expansion on new markets like Turkey, Russia, Mexico, Japan, or the Middle East, they would like to get an external evaluation of the market opportunities.
Red Bull was founded in 1984 by Dietrich Mateschiz and Chaleo Yoovidhya, and the headquarter is to found in Austria. Today Mateschiz and Yoovidhya own 49 percent of the company each, the remaining 2 percent belongs to Yoovidhya’s son. It took a few years to get permission and license to sell Red Bull.
In the meantime, Mateschnitz concentrated to find an exceptional logotype and slogan. A German advertising agency finally created the logotype with two red bulls charging each other. The also created the slogan “Red Bull – gives you wings”. The slogan turned into a prophecy for the Red Bull brand, which continues to soar around the globe. The rest is history and today Red Bull is extremely popular. In 2006, Red Bull generated over € 2. 6 billion in turnover throughout the world with 3 900 employees.
Red Bull’s Marketing Strategy
Red Bull targets mainly young adults and consumers seeking an energy boost. It targets young urban professionals, and post-secondary school students. Red Bull tries to portray its products as drinks for energetic, physically active and health-conscious consumers, characterized by the sugar-free version. People in need of energy boosts include, but are not limited to club-hopers, truck drivers and students.
Definition of Red Bull’s Early Adopters
The early adopters of Red Bull in Austria and surrounding markets were dancers, clubbers, and ravers who used the drink to stay fresh at late night parties.
This party association was crucial to Red Bull as it expanded into other markets because hip nightspots generated significant buzz. Other early adopters of Red Bull included truck drivers who used the drink to stay awake on long drives and students who drank it to help them concentrate during their studies. Though most of the original Red Bull customers were young, the company intended the brand to appeal to consumers of all ages.
Mateschiz also devised the brand positioning: “Revitalises body and mind”. This phrase conveys the tangible benefit of the product in an easy-to-gasp manner. It also covers a broad set of appropriate consumption occasions. Mateschiz intended Red Bull to be drunk whenever consumers needed a lift, whether it was morning noon or night. This way, Red Bull consumption would not be limited to a certain occasion or activities, the way other energy-related beverages had been positioned, (Selling Power, September 2004). This broad positioning was designed to enable growth into a variety of market segments.
Red Bull’s advertising did not specify any consumption occasions, which further facilitated an elastic positioning.
Marketing Concept Applied to the First Launches
For the launch in California, the US, Mateschnitz hired students to drive around in liveried Minis with a Red Bull can on the roof to promote the drink1. Red Bull created strategic programs to attract post-secondary students by providing those free cases of drink and convincing them to give parties and targeting club-goers by stocking Red Bull at night clubs. The company promoted the Red Bull brand directly to
Generation Y, people born after 1981 who were believed to be cynical to traditional marketing strategies. Recruiting of “student brand managers” who would be used to promote Red Bull on university campuses. The first marketing trials failed. The respondents did not like the taste, color or the “stimulates mind and body” concept. Mateschnitz used these “failed” trials to be the basis for their marketing strategy. In this, he meant that Red Bull was not selling a beverage but selling a “? way of life”. “Red Bull will give you wiiiiings….. ” Red Bull needed to be enjoyed in the right context, where an energy boost was needed.
One effective brand builder was a rumor circulated that the taurine used in the drink came from a bull’s testicles and that Red Bull was “liquid Viagra”, which made the drink even more mystic. Another effective brand builder was that the drink was banned in some countries like France, Denmark, and Sweden. This made the drink even more desirable and mystic. Today the many of the first promotion strategies are still used by Red Bull. It is actually a part of their strategies.
When Red Bull entered a new market, Red Bull strove to build buzz about the product through its “seeding program,” where the company micro-targeted “in” shops, clubs, bars, and stores. This enabled the cultural elite to access the product first and hopefully influence consumers further down the pyramid of influence through word-of-mouth. By targeting opinion formers with grassroots marketing initiatives, Red Bull created an image around the brand that made drinking it symbolizes freedom and living life to the max.
It has done this by getting in contact with students and extreme sports athletes through its many quirky events and sponsorships. These properties are highly PR-friendly, attracting significant media exposure. As Soft Drinks International magazine’s features editor Anette Sessions Says: „Red Bull has become almost synonymous with speed sports like motor racing, bobsled, and aerobic flying. Whenever people are in need of stimulation for the body and mind, Red Bull is there. The strategy continues today with a growing number of opinion formers drinking Red Bull, such as cricketers and golfers, and telling the rest of them about it.
Red Bull’s webpage serves as an array of activities endorsed by the brand. Red Bull’s limited availability in the early stage of development contributed to the brand’s cachet, as evidenced by the presence of gray markets in countries bordering Austria. After six months of selectively seeding a new market, the company gradually expanded it, presence to locations surrounding these “in” spots. Finally, Red Bull reached the mass-market via the supermarket. As Norbert Kraihamer explained,” We are very focused on consumer base-building a not just heading for maximum weighted distribution”. Selling Power, September 2004) Additionally, Red Bull engaged in “pre-marketing” to establish awareness in markets where its products were not yet sold. Pre-marketing involved sponsoring events that took place in a country where Red Bull was not available. Red Bull also exported its television productions to countries it had yet to enter. The television programs, which featured Red Bull sponsored events and athlete endorsers, acted as ambassadors for the brand in the absence of any market presence. Of the premarketing strategy, Kraihamer said: “We want to be recognized as the pre-eminent brand, even if we are not there”.
Looking back at these marketing strategies, entering new markets, Red Bull has been are still are extremely successful in global entry marketing strategies.
Marketing Mix and 4 P’s
Red Bull is sold as an energy drink to combat mental and physical fatigue. Active ingredients include sugar, B-vitamins, and caffeine. Additionally, it includes an ingredient named taurine, an amino acid that, according to Japanese studies, benefits the cardiovascular system. A sugar-free version was launched in 2003. Red Bull is commonly used as a mixer in alcoholic drinks. Red Bull is the company’s main brand, with only two flavor varieties, original and sugar-free, and one packaging size. Red Bull was the first energy drinks brand and as a result, is a leading brand in almost all regions in the world. 2 Red Bull differ itself from a lot of the other competitor on the market, offering the product in one size, 250 ml cans, that is smaller than a typical soft drink. The cans are small, sleek vessels with distinctive printing, and have been described as more European styling.
With the exception of mandated warning labels, the can design does not vary by country. This small and tiny packaging size is very easy to recognize and therefore gives Red Bull advantages in recognition. Another advantage of this size creates production efficiency. The package is an important part of the branding. The Red Bull can have selected a distinctive slim can. They have a prominent and eye-catching logo of two bulls and a yellow sun. Package wording effectively communicates the product benefits.
The Extended Product Line – Red Bull Simply Cola
Red Bull has recently launched a new cola drink into the market.
The drink is 100% natural and consists of kola nut and coca leaf. The drink is named ‘Red Bull Simply Cola’ with the slogan ’strong and natural’ the focus of their promotional campaigns. The drink has now been made available in six European countries and Las Vegas in the US. Red Bull is likely to slowly expand its’ distribution of the drink provided sales are in-line with expectations. It is to be sold in 200 ml Red Bull slim can, as well as 355 ml, can at bars, clubs and restaurants, grocery and convenience stores, and have a price premium to its’ competition.
The brand extension of Red Bull is a first for the company and comes in the wake of Pepsi and Coca-Cola offering their own energy drinks varieties to challenge Red Bull in the ever-expanding energy drink market. The choice to enter the cola market has surprised many because of the lack of growth in this sector and difficulty to compete. 2. 5. 2 Price Red Bull is a premium-priced product. A single can generally retail for about € 2, which is up to five times the cost of name-branded soft drinks. Premium pricing is a feature of the energy drinks market.
Since its inception, the category has been positioned as providing products that not only refresh you but also give you the energy and related brainpower to make the most of your time and life. This is the basis of the premium-priced product. Mateschiz actually reasoned that consumers would be less likely to believe in Red Bull’s energy-enhancing properties if it was priced the same as a traditional cola beverage. In every market, Red Bull set a price of at least 10 percent greater than the most-expensive competitor in order to maintain a “best of class” positioning.
One of the key growth strategies at Red Bull has been increased international distribution. It has consistently worked on growing international sales, first making moves outside its domestic market, only a few years after the first can appeared in Austria3. Now available in over 100 countries worldwide, Red Bull has a very well developed network of local subsidiaries set up in key markets to oversee distribution in any given region.
These subsidiaries are responsible for importing Red Bull from Head Quarter in Austria or setting up an independent distribution network or working with partners. The typical Red Bull national distribution strategy for new markets is, like all else, very unique and atypical. Instead of targeting the largest distributors with the greatest reach, Red Bull targets small distributors who often became exclusively Red Bull distributors. In the beginning, they were hiring teenagers and college students and giving them vans to distribute the product.
Although Red Bull was originally targeted at the on-trade market like bars, disco, etc, off-trade retail has now become the principal channel for the energy drinks with approximately two-thirds of the worldwide volume being sold through these channels.
Promotion – Advertising
Red Bull is not using traditional advertising and marketing to enter a market. They have their complete own and unique marketing and promotion strategy. Only after the product is on the market does advertising serve as a reminder. They never use print media since it is too dull to express their product.
Television ads are often cartoon drawings using the slogan: “Red Bull gives you wiiiiiiiiiings”. The slogans are very carefully placed. Television stations and programming are carefully selected to maximize exposure to the target audience such as late-night TV shows. They do enable celebrity endorsers. Red Bull use to deliver the cans to Hollywood movie sets for consumption during long days of filming. The celebrities instantly became endorsers for the brand to the masses. Red Bull made the cans available to bartenders in New York’s trendiest spots for their own consumption.
This led to an unpaid endorsement to the club patrons by the bartenders. Every year the company sponsors dozens of extreme sporting events like street luge, air acrobatics, surfing a 25-foot tidal bore, rail-sliding, mountain bike free-ride competitions, motocross freestyle rallies, climbing of iced-down silos etc. The company sponsors cultural events like break-dance contest and rock music jam sessions. Red Bull sponsors a DJ camp. The company sponsors around 500 extreme athletes around the world. The local subsidiaries are responsible for local marketing content like buzz marketing, local sponsoring, and arranging media including TV and Radio. This is the most appropriate solution as the locals have more know-how in what event or marketing they want to invest in. As a complement, the subsidiaries will acquire marketing material from Red Bull GmbH and its exclusive Advertising agency. Red Bull is strongly supporting the giveaway samples at local events. Since its introduction, Red Bull has invested heavily in building the brand. It sends about 30 percent of revenue on marketing compared to Coca Cola as spends about 9 percent. Mateschiz created the annual award, Taurus World Stunt Award, to the world’s best stuntmen and stuntwomen. (The Selling Power, September 2004).
Competition and Market Shares
Red Bull competes in the energy drink market and that is a part of the functional drinks market. The majority of the consumers are using Red Bull as a vitamin supplement or energy stimulant in place of stimulants such as ginseng.
Red Bull with its liquid B vitamin supplements competes in the niche market for vitamins and is competing with the larger pharmaceutical companies. It is also competing indirectly with various drink mixers such as juice, sour mix, and tonic. Key competitors in the market place include Pepsi, Coca-Cola, Gatorade, Danone, Hansen Beverage Co, Monarch Beverage Co, Dark Dog, GlaxoSmithKline, Extreme Beverage, Taisho Pharmaceuticals, and Otsuka Pharmaceuticals. In the year 2006 Red Bull reached a 45 % market share of the world market in energy drinks. This has made Red Bull a clear market leader in this segment.
The consumption volumes of energy drinks are dominated by Asia, about 40 percent. At a per capita level, it is North America and Australia/New Zealand that lead the way. In almost all regions, the concept of energy drinks has been established and accepted by consumers. The only two regions that remain exceptions in part are Eastern Europe and Central and South America, where lower levels of disposable income remain a barrier. Because of the possibility of earning higher revenue per liter, many competitors find this segment very attractive, like Coca Cola’s Burn and Pepsi’s Adrenaline. There are continuous threats from new and existing competitors as would like to establish new or bigger market shares.
International Market Selection Process- IMS
Identifying the right market to enter is very important for a global company. It has an influence on success or failure, especially in the early stages. As Red Bull is considering entering further expansion on a new market, I would like to give a proposal of an International selection process entering China. The strategy will be based on Hollensen’s IMS Model.
A Market Screening Model
Hollensen is presenting in the “Essentials of global marketing” theory for the international selection process. The elements are shown below in figure
Steps 1 and 2: Defining Criteria
The firm Environment Step1 Selection of the relevant segmentation criteria Development of appropriate segments Screening of segments to narrow down the list of markets/countries. Choice of targets/countries Step 2 Step 3 Step 4.
- Microsegmentation: develop segments in each qualified country or across countries Figure 1: International Market Segmentation Market entry How many markets? When? Sequence?
- Measurability: Degree to which size and purchasing power can be reached and measured.
- Accessibility: Degree to which segments can be reached and served.
- Profitability: Sufficiently large and/or profitable.
- Actionable: The degree to which the organization has sufficient resources to formulate effective marketing programs.
Geographic location – People’s Republic of China Language – Mandarin plus many local dialects.
Company language and promotion must be translated Political factors – Communist party-led state. Since the reform, they have opened its economy. Demography – Population 1. 3 billion, population growth 0, 6 %, work forth 798 million, health life expectancy 72, 8 years. Economy – GDP (2007): $3. 249 trillion, Per capita GDP (2007): $2,458, GDP real growth rate (2007): 11. 4%. Industrial structure – Trade (2007): Exports–$1. 221 trillion: Technology – Science and technology have always preoccupied China’s leaders Social organization Religion – Taoism, Buddhism, Christianity, Islam.
Education – 9 years compulsory. The rate of university students are growing.
Cultural characteristics may play an important role in segmenting world markets. To take advantage requires a deeper understanding of what drives consumer behavior in China.
- Cultural characteristics – Chinese cultural characteristics are extremely different compared to European culture.
- Lifestyles – Lifestyle is global and inspired by US Television (Handelsblatt, May 2008). The rapidly growing middle class are consumers of luxury products, 12 % of world production luxury goods are consumed in China
- Personality – Likes statues symbols
Step 3: Screening of Markets/Countries
The screening process can be divided into two different screenings:
Preliminary screening – The markets are screened preliminarily according to external screening criteria e. g. , state of the market or financial resources.
Fine-grained screening – Where the firm’s competitive power and competence in the different markets can be taken into account.
The numbers of markets are reduced by coarse-grained, macro-oriented screening methods based on criteria as the following:
- Restriction in the export of goods from one country to another
- GNP per capita
- Cars owned per 1 000 of the population
- Government spending as a percentage of GNP
- Population per hospital bed
When screening countries it is particularly important to assess the political risk of entering a country. Lately, marketers have developed various indices to help assess the risk factors in the analysis of potential market opportunities.
On of these indices is the Business Environment Risk Index, BERI, as measure the general quality of a country’s business climate. BERI Index assesses countries on different economic, political and financial factors typical on a scale from 0 to 4. It is recommended that that report should be supplemented. Below BERI adjusted for China. China – BERI Index Criteria Political stability Economic growth Currency convertibility Labour cost/productivity Short term credit Venture Capital Attitude towards foreign investors Nationalization Monetary inflation Balance of payments Enforceability of contracts Bureaucratic delays Communication, internet Local management/Partner Professional services and contractors Weights 1 3 2 3 2 3 1,5 2 2 1,5 1,5 1 2 1,5 1,5 Figure 3: China – BERI Index. Source: Hollensen, Essentials of Global marketing Criteria included in the overall BERI Index.
As the BERI index only focuses on the political risk of entering new markets, a broader approach that includes the competence of the firm is often needed.
To identify the best opportunity target countries is the application of the market attractiveness/competitive strength matrix. Measures on these two dimensions are built up from a large number of possible variables, as listed in the table below. The table below is adjusted for the Chinese Market Market/country attractiveness Weights Competitive strength Weights Market size Market growth Buying power of customers Market seasons/fluctuations Average industry margin Competitive conditions Market prohibitive conditions Government regulations Infrastructure Economic and political stability Physic distance 4 2,5 3 3 3 3 1 1 1 1 Market share Marketing ability/capacity Products fit in Price Contribution margin Image Technology position Product quality Market support Quality of distribution and service Financial resources Access to distributions channel 4 3 4 2 3 3 2 2 3 2 4 3 Figure 4: Market country attractiveness and competitive strengths applied on China Source: Hollensen, Essentials of Global marketing. Criteria included in the overall BERI Index. Countries – These are the primary markets or key markets which offer the best opportunities for long-term strategic development. B countries – These are the secondary markets, where opportunities are identified but the political or economic risk is perceived as being too high to make long term commitments. This market should be handled more pragmatic due to identified risks. C countries – These are the tertiary or “catch what you can” markets. They will be perceived as a high risk, as so the allocation of resources will be minimal. Based on the above analysis, China is definitely an A country. China is a booming market with a growing middle-class population as would like to drink Red Bull as a status symbol. It is highly recommended to bring in investment and effort into a long term strategic development of the Chinese market. There is a political risk in China as makes it a bit complicated, but with a joint venture relationship with a local company, this political risk and local bureaucracy would be less.
Step 4 Develop Subsegments in Each Qualified Country and Across Countries
Once the prime market has been identified, it is possible to use standard techniques to segment markets within countries, using variables as following:
- Demographic – Economics factors – Population 1. 3 billion and a fast-growing middle class
- Lifestyle – Chinese are more into collectivism, they pay more attention on the relationship with others and how others think about them. Very important are the family’s values and friends, compared with western countries.
- Geography – The middle class is living more near big cities.
- Buyer Behaviour – During the Chinese purchasing behavior process, they are more individualistic and want to be special. Little price-sensitive.
- Psychographics Cluster analysis can be used to identify meaningful cross-national segments, each of which is expected to evoke a similar response to any marketing mix strategy. Arabic Countries or the Middle East would be appropriate to use a cluster analysis as many countries are similar.
Market Expansion Strategies
The choice of market expansion strategy is a key decision in export marketing. 9 Different patterns are likely to cause the development of different competitive conditions in different markets over time.
Hollensen describes 2 different strategies of expansion:
- Waterfall approach – The incremental strategy This approach is recognized that the firm is first entering a single key market in order to build up experience in international operations, and then subsequently entering other markets one after the other. Red Bull always used this strategy. Collecting experience in Austria and nearby countries and then they expanded. This strategy is especially useful when entering more challenging countries like china.
- Shower approach – Simultaneous strategy A firm may decide to enter a number of markets simultaneously in order to leverage its core competence and resources rapidly across a broader market base. Red Bull is using the incremental strategy.
They started to launch in the home market, Austria. By starting with entering the home market, Austria, they were able to build up experience and then subsequently entering other markets one after the other. Entry on an incremental basis, especially into small markets may be preferred where a firm lacks experience in foreign markets and wishes to edge gradually into international operations.
Case Summary and Conclusions
First question – Characteristic of the Overall Red Bull’s Global Marketing strategy
Global, glocal or local? Red Bull’s launch was clear evidence that viral and world-of mouth marketing is now the most important advertising medium for new product launches, utterly eclipsing the traditional 30-second TV spot. Consumers are so jaded and immune to conventional ad claims that if you want them to trust a new brand, you need to go for their friends and their idols. Above-the-line media still have a role, but this role is to maintain interest in existing brands and to support below-the-line campaigns. In all national markets in which Red Bull is present, they are market leader.
No other rival has got close, despite the constant onslaught of launches in the energy drink sector. It has managed to do this without the need to discount its product or revamp its image. The market strategy of Red Bull is extremely successful but also individual and personal. The local subsidiaries are responsible for local marketing content like buzz marketing, local sponsoring and arranging media including TV and Radio. This is the most appropriate solution as the locals have more know-how in what event or marketing they want to invest in.
As a complement the subsidiaries will acquire marketing material from Red Bull GmbH and its exclusive Advertising agency. This means that the global marketing strategy is actually combined with local marketing strategy to get the optimized output. The marketing strategy is a combination of global and local, actually it is glocal.
Second Question – The Most Relevant Segmentation Criteria to Be Used in the International Marketing Selections Process
In order to define the right international market to enter, it is important to use the right tools to be able to analyze the potential market.
Hollensen is describing his IMS model and the four steps, this theory is the basis of the analysis. As China is one of the potential and booming markets with great potential, China was therefore selected as the next country to enter. After looking into the general characteristics, it was stated some political and cultural differences, therefore, it is an advantage to join a joint venture relationship with a local company.
With this kind of relationship, it would be easier to overcome certain resistance against “foreign” companies, as well as cultural differences and Chinese bureaucracy. After screening the market, China seems to be an A-country with great potential for success but also demand of professional negotiations. The liberalization of the Chinese economy is set to raise living standards and improve levels of disposable incomes, which will benefit sales of highly valued consumer products. Along with total increases in the consumption of soft drinks in China, Red Bull will see great opportunities to take market shares.
It is also expected to see high sales growth of energy drinks in years to come, implying optimistic business prospects for Red Bull. It is highly recommended that Red Bull will enter with the waterfall approach like they use to do in other countries. As China is very special, it is useful with experience from entries in other countries.
Third Question – Proposed Changes in Red Bull’s Future Global Marketing Mix, in Order to Meet Its Future Challenges
As the functional energy category becomes increasingly competitive, Red Bull’s dual challenge is to maintain growth in established markets and succeed in growing into new markets.
Including the United States, Red Bull is sold in more than 100 markets, most of which had room to grow in terms of increasing per capita consumption. In existing markets, Red Bull needs to remain relevant to consumers. The highly competitive beverage industry means Red Bull has to work even harder to keep its success in Europe, Asia, and North America as it expands even further.